Africa: taxing digital services supplied by foreign companies

African tax jurisdictions, following South Africa's lead, have started the process of changing existing VAT systems to tax the supply of digital services by foreign companies.

Aug 28, 2019

Nigeria plans to tax online sales from January 2020, according to the executive chairman of the country’s Federal Inland Revenue Service (FIRS). 

This move by Nigeria is another example of how countries on the African continent are changing how they tax the digital economy. Back in June 2014, South Africa became a pioneering tax jurisdiction, not just in Africa but worldwide, when the country extended its VAT rules to bring the supply of cross-border digital services into scope. Foreign suppliers of such services were now in the scope of the South African VAT system and had to register once they exceeded a modest threshold of ZAR50,000. A new system was born.

Africa-digital-services-tax

Since then numerous other countries on the African continent (especially in the last 12 months) have started the process of changing existing VAT systems to mirror what South Africa did back in 2014 or, in some cases, introduce new VAT systems.

In early 2019, South Africa made further changes to its system: extending the definition of affected digital services and also increasing the original threshold of ZAR50,000 to the current one of ZAR1 million. South Africa also introduced the concept of the intermediary in their updated legislation.

In this post, we provide a summary of selected African tax system positions when it comes to the cross-border supply of digital services.

South Africa

VAT rate: 15%
Date of introduction: June 2014
In April 2019, South Africa’s rules on digital supplies provided by foreign companies were updated with an expanded definition of what electronic services were affected. The new definition states that all services supplied by means of an electronic agent, electronic communication or the internet are within the scope of the new rules.

There was also an increase in the threshold level that triggers registration obligations for affected foreign companies. The threshold increased from ZAR50,000 (circa USD$3,500) to ZAR1 million (circa USD$70,500).

In addition, the updated South African rules provide for the concept of the intermediary in the collection and remittance of VAT due to the South African Revenue Services (SARS).

“Section 54(2B) of the VAT Act provides that where electronic services are supplied by an intermediary who is acting on behalf of another person who is the principal for the purposes of that supply, that supply shall be deemed to be made by such intermediary and not by that principal where:

  • the intermediary is a vendor;
  • the principal is not a resident of the Republic and is not a registered vendor; and
  • the electronic services are supplied or to be supplied by the principal to a person in the Republic.”

This South Africa Revenue Service (SARS) link is an excellent source.

Angola

VAT rate: 14%
Date of introduction: October 2019 (planned)
Angola was set to have introduced a new VAT system on July 1, 2019. However, just days before this date a new plan was revealed with the implementation date moved to October 2019.

The date may have changed but the detail of the VAT system did not. A threshold of USD$250,000 applies only to local companies, as does a transitional period that has previously been flagged in reports. This transitional period does not apply to non-resident digital service suppliers which means in effect that there is a zero threshold for non-resident digital service providers.

It is expected that a simplified registration for non-resident service providers will be subject to future regulation. More here in our dedicated Angola blog.

Kenya

VAT rate: 16%
There is currently an obligation for foreign companies supplying digital services to Kenya-based customers to collect and remit Kenyan VAT to the Kenya Revenue Authority (KRA). These companies also need to appoint a local fiscal representative.

As of May 2019, Kenya was also devising a policy aimed at taxing Over-the-Top (OTT) subscription services provided by non-resident organisations (or foreign companies).

Quoted in ITwebAfrica.com during an online tax forum organised by the KRA, its operations manager, Githinji Gathirwa, said that the challenge with taxing foreign suppliers is their visibility at the point of payment and added that the “KRA will come up with guidelines to address the taxation of non-resident organisations that make money from Kenyans online.”

We will provide an update when we learn of the content of such guidelines.

Nigeria

VAT rate: 5%
There are currently no obligations for foreign-based companies with online sales to register in Nigeria. 

Nigeria has been investigating its options into the collection of Value Added Tax (VAT) on online sales.

In August 2019, the executive chairman of Nigeria’s Federal Inland Revenue Service (FIRS), Mr Babatunde Fowler, was quoted by Nigeria’s New Telegraph website saying that Nigeria would start charging VAT on online sales from January 2020. He added that this date would be subject to government approval. Mr Fowler made the comments at an African Tax Administration Forum (ATAF) Technical Workshop on VAT. 

Previously, Mr Fowler told Nigeria’s Premium Times that “with the existing laws in Nigeria, we can appoint the banks as agents. First of all, all those who make payments for purchases online using bank cards and instruct their bankers to pay, we will tell the banks that, going forward, everyone who gives instructions for service for purchase online, they should deduct five per cent VAT.”

In an earlier interview, Mr Fowler explained that such a move was part of measures by FIRS to meet its N8 trillion (USD$22.2 billion) revenue target for 2019.

Zambia

Sales tax rate: 16%
There are currently no obligations for foreign-based companies supplying digital services to register in Zambia.

Zambia, however, is planning to move away from its VAT system to a sales tax system in the near future. Finance Minister Bwalya Ng’andu told a local business website in early August 2019 that Zambia will delay implementing a new sales tax until January 2020 to allow for further refinement of the law.

It is possible that digital services supplied by non-resident businesses may be subject to a proposed new sales tax rate of 16%.

An opinion piece by the Zambia Revenue Authority (ZRA) chairman Kingsley Chanda in August 2019 provided some background as to why Zambia plans to move away from a VAT system.

Zimbabwe

Sales tax rate: 15%
There are currently no obligations for foreign-based companies supplying digital services to register in Zimbabwe.

According to TechZim website Zimbabwe's Finance Minister Mthuki Ncube - in his mid-term budget review in July 2019 - has again bemoaned the fact that many ‘foreign domiciled’ companies provided services in Zimbabwe but do not pay taxes locally. He stated: “Income earned in Zimbabwe by foreign domiciled satellite broadcasting services and electronic commerce platforms is deemed to be from a source in Zimbabwe for tax purposes.

“However, technological advancements have enabled the development of other electronic commerce platforms, which facilitate the utilisation of digital media services and content. Such platforms are not covered within the definition of satellite broadcasting services.

“I, therefore, propose to extend the scope of revenues deemed to be from a source in Zimbabwe for tax purposes to include amounts received by or on behalf of a radio or television broadcaster domiciled outside Zimbabwe or an electronic commerce operator domiciled outside Zimbabwe.”

As of August 2019, there is no official date for the proposed extension of Zimbabwe’s tax system to such services.

Taxamo content is created for guidance only, please consult your local tax advisor.

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