Importing and exporting of goods requires a customs clearance at a border post, a process regulated by customs. Importing or exporting services require no customs clearance but are still monitored by SARS and need to comply with SARS regulations. For tax and Value-Added Tax (VAT) purposes, a service is defined as any commercial activity other than the supply of goods. Examples of services that are commonly imported or exported include consulting, management services, writing, research, design, programming, and an array of professional services. In this article, we discuss the tax implications of these cross-border service transactions.
Cross-Border Service Transaction Criteria
For a transaction to be classified as a cross-border service, it needs to meet the following criteria:
- The transaction is between a local South African entity and a foreign or non-resident entity
- The service is utilised outside of the country of the seller
It is important to point out that services are not the same as electronic products and follow different tax rules. Examples of commonly imported or exported electronic products include webinars, games, ebooks, educational products not provided by a recognised educational authority, online advertising, music, films, access to membership portals, online booking services, web hosting, applications or apps, and photographic images. Educational services provided by recognised educational institutions follow their own tax rules.
Importing Services
- In all local sales, VAT is paid over to SARS by the supplier.
- With imported services, VAT is paid by the importer according to the VAT Act 89 of 1991 section 7(1)(c).
- Imported services must not be used in the production of taxable supplies to trigger VAT, because VAT added in production for taxable supplies is recoverable.
- Entities or individuals that are not VAT registered must pay VAT to ensure local service suppliers are not disadvantaged.
- VAT must be paid, and a VAT215 form completed within 30 days of the foreign supplier invoice or upon payment, whichever date is earlier.
- Services with a value of R100 or less are VAT-exempt.
- No import duty applies to services.
Exporting Services
- Exporting services is treated similarly to exporting goods.
- Services typically fall under direct exports, where the South African supplier can provide evidence that the service was provided for use outside South Africa.
- Direct exports can be zero-rated.
- Services supplied to a non-resident within South Africa must include standard VAT.
- No export duty applies to services sold abroad.
- All income received from international services must be declared to SARS like locally derived income.
- South African residents providing services abroad should note the Foreign Employment Income Exemption, which applies only if they are outside the country for more than 183 days in a 12-month period.
VAT and Import Duty Calculator
For assistance calculating Value-Added Tax on imported services, refer to our VAT and Import Duty Calculator.
Frequently Asked Questions
What is a cross-border service for VAT purposes?
A cross-border service is any service provided by a South African entity to a foreign or non-resident entity that is used outside South Africa.
Are imported services subject to customs duty?
No. Imported services do not attract import duty but may be subject to VAT.
Can exported services be zero-rated?
Yes. Services exported directly can be zero-rated if you can provide reasonable evidence that they were supplied for use outside South Africa.
What is the R100 exemption?
Imported services with a value of R100 or less are exempt from VAT.
Who must complete the VAT215 form for imported services?
The importing entity is responsible for declaring and paying VAT using the VAT215 form within 30 days of invoice or payment.
Next Steps and Guidance
- Apply for an Import/Export License to ensure compliance with SARS regulations.
- Download Free Guides and eBooks for practical tips on importing and exporting services.
Contact Us: Our qualified advisors can provide guidance for your import and export ventures. Call +27 87 550 1038 or sign up for our newsletter.
Need help calculating your Value-Added Tax? – refer to our VAT and Import Duty calculator
