VAT and tax considerations when importing and exporting services
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. Example 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 will discuss the tax implications of these cross border service transactions.
For a transaction to classify as a cross border transaction it needs to meet the following criteria:
- The transaction is between local South African entity
- and a foreign or non-resident entity
- and utilized outside of the country of the seller.
It is important to point out at this point that services are not the same as electronic products, and follow different tax rules. For clarity, some examples of commonly imported or exported electronic products include: webinars, games, ebooks, educational products not provided by a recognized educational authority, online advertising, music, films, access to membership portals, on-line bookin services, webhosting, applications or “apps” and photographic images. Educational services provided by recognized educational institutions also follow their own tax rules.
In all local sales, VAT is paid over to SARS by the supplier. However with imported goods, VAT is paid by the importer. As imported services are not cleared by customs, it is up to the vendor to declare and pay the VAT according to the Value-Added Tax Act 89 of 1991 (VAT Act) section 7(1)(c).
In terms of triggering VAT, there is an additional requirement for an imported service to be liable for VAT – the imported service must not be used in the production for the production of taxable supplies. The reason for this is that, for the production of taxable supplies, any VAT added would be claimed back as input tax making the transaction overall VAT neutral. If an entity or individual is not VAT registered, and therefore does not produce taxable supplies, VAT must be paid. This ensures that local service suppliers, who are required to charge VAT, are not disadvantaged.
If VAT is due, it must be paid and a VAT215 form completed within 30 days of the foreign supplier invoice, or upon payment, whichever date is earlier.
There is an exception, services of the value of R100 or less are VAT exempt.
Fortunately, there are no import duty taxes on services
The exporting of goods and services is essentially treated the same. Services typically fall under the category of direct exports, where the South African supplier is responsible for the “export” of the service and can provide reasonable evidence that the service was provided for use outside of South Africa. All direct exports can be zero rated. If you supply a service to a non-resident within South African borders, you will need to add VAT to your invoice at the standard rate. There is also no export duty tax on services sold abroad.
All income received from international services rendered needs to be accounted for to SARS in the same way as that locally derived income is. For South Africans residents who provide services while working abroad and while in South Africa, take note of the Foreign Employment Income Exemption . This is only applicable for South African residents that are out of the country for more than 183 days in a 12 month period.
Need help calculating your Value-Added Tax? – refer to our VAT and Import Duty calculator
About the author
Tracy studied at Stellenbosch University and gained her initial experience in imports and exports through working for industry. After starting her own import business, and helping some friends do the same, she realised there was a need for reliable customs registration services. As a result, in 2011, Import Export License was born. Since then thousands of importers and exporters have been helped to obtain their import export licences, permits, specialised customs registrations and connect with Import Export License consultants for advice on importing, exporting, and other customs related matters.