Cross-Border Supply of Internet Services: VAT Analysis under South African Law

Cross-Border Supply of Internet Services: VAT Analysis under South African Law

• 16 July 2025
• VAT
• The Tax Faculty

This article is based on tax law for the year ending 29 February 2026.

Question:

A South African company supplies internet access—whether via cable infrastructure or Wi-Fi gateway services—to a company situated outside of South Africa. The query concerns the correct VAT treatment applicable to this cross-border supply.

Answer:

The Problem / Facts

A South African company supplies internet access—whether via cable infrastructure or Wi-Fi gateway services—to a company situated outside of South Africa. The query concerns the correct VAT treatment applicable to this cross-border supply

Analysis of Tax Issues

The key tax considerations include:

• Classification of the supply: Determining whether the supply constitutes goods or services in terms of the VAT Act
• Place of supply: Establishing where the service is deemed to be supplied for VAT purposes
• Eligibility for zero-rating: Assessing whether the service qualifies as a zero-rated export
• Electronic services provisions: Considering whether any electronic services rules are applicable

Tax Issues and Applicable Legislation

Relevant provisions from the Value-Added Tax Act 89 of 1991 include:

• Section 7(1)(a): VAT is levied on the supply of goods or services by a vendor in the course of an enterprise
• Section 11: Determines the place of supply for services
• Section 11(2)(l): Provides for zero-rating of services supplied to non-residents, provided they are consumed outside South Africa
• Section 7(1)(c): Applies to the supply of electronic services to non-residents
• Section 1: Defines services for VAT purposes

SARS Interpretation Note 69 also provides guidance on the application of zero-rating provisions for services supplied to non-residents.

Application of Law to the Facts

• Nature of the supply: The service in question does not involve the transfer of ownership of tangible goods, but rather the provision of access to internet infrastructure. Accordingly, it qualifies as a service under Section 1 of the VAT Act.
• Place of supply: In accordance with Section 11, a service is considered to be supplied where it is utilised or consumed. Given that the customer is located outside South Africa and presumably uses the internet service abroad, the place of supply is deemed to be outside South Africa.
• Zero-rating eligibility: The service is supplied to a non-resident, and the utilisation occurs outside South Africa. Thus, the supply qualifies for zero-rating under Section 11(2)(l), provided the supplier:
  • Obtains and retains valid documentation confirming the customer's non-resident status
  • Demonstrates that the service is utilised outside South Africa
  • Maintains proper records as required by SARS
• Electronic services: While Section 7(1)(c) deals with electronic services, this is generally aimed at digital content or automated services supplied via the internet, rather than the provision of access to infrastructure. In this context, the electronic services provisions are unlikely to apply directly but should still be considered in borderline cases.

Conclusion

The supply of internet access services to a non-resident, where such services are utilised outside South Africa, qualifies for zero-rating at 0% VAT, provided that:

• The customer is a non-resident of South Africa
• The services are actually utilised or consumed outside South Africa
• The South African supplier retains sufficient documentary proof and complies with SARS record-keeping requirements

The supplier may claim input VAT on related expenses, while charging 0% VAT on the cross-border supply.

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