Africa: taxing digital services supplied by foreign companies

South Africa led the way, now African jurisdictions are amending VAT (and sales tax) systems to tax the supply of digital services by foreign companies.

Africa-digital-services-tax

A host of countries on the African continent have started the process of amending VAT systems to tax foreign-supplied digital services. In doing so they mirror what South Africa did in 2014. 

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.

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
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.

More here in our dedicated Angola blog.

Algeria

VAT rate: 9%
Date of introduction: January 2020

The taxation reform in Algeria was prompted by changes approved by parliament in the 2020 Finance Law.

As a result, digital services consumed by Algeria-based customers will be subject to 9% VAT, or Taxe sur la Valeur Ajoutée (TVA) as it is known in Algeria.

At the time of writing, the administrative comments were not published and there is no information about the process to be followed to comply with those new regulations. More here.

Cameroon

VAT rate: 19.35%
Date of introduction: January 2020

At the end of 2019 (December 24 to be precise), Cameroon changed its VAT rules via their 2020 Finance Law to extend VAT to foreign and local supplies of e-commerce platforms.

The scope of the rule change covers goods or services sold through foreign and local e-commerce platforms and commissions that are received by these platforms from these sales. 

The law came into effect on January 1, 2020. There is also no sales threshold for affected foreign suppliers. More here.

Zimbabwe

Sales tax rate: 14.5%
Date of introduction: January 2020

Zimbabwe amended its VAT rules effective January 1, 2020, to tax the supply of digital services provided by non-residents to customers based in Zimbabwe.

The rules require affected non-resident businesses to register with the Zimbabwean tax authority to collect and remit VAT on these sales. Affected supplies include the online sales of ebooks, games, software, videos, etc. In September 2020, Facebook revealed that they will be charging Zimbabwe advertisers VAT on the sale of ads due to Zimbabwe's aforementioned new rules on the supply of digital services.

Kenya

VAT rate: 16%
Date of introduction: March 10, 2021

Kenya is set to introduce additional VAT (current rate is 16%) rules taxing B2C sales by non-resident businesses via digital marketplaces and websites in March 2021.

Rules governing these sales were officially gazetted on September 10, 2020, and - by law - must come into effect within six months, or March 10, 2021. It is important to note that Kenya's standard VAT rate reverted to 16% on January 1, 2021.

The rules are outlined in a regulations document – officially titled ‘The Value Added Tax (Digital Marketplace Supply) Regulations, 2020) – released by the Kenya Revenue Authority (KRA). The regulations follow a now-familiar approach for affected online businesses regarding how to determine the end customer’s location and usage of a simplified online registration system. 

Read more here on our specific Kenya blog.

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.

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