[Question] Invoicing foreign clients for consulting services

[Marcello608]

Hi there,

New to this Forum, but it looks like a great place to learn about doing business in SA.

I have recently registered a company, and I will be invoicing a foreign customer an amount in US$ for consulting services I performed in SA. The money will be paid into my South African bank account.

What things do I need to consider when invoicing? Do I need to include VAT for example?

Thank you very much in advance for your insights and help.

Best,

Marcello

[Dave A]

Make sure you include your bank's SWIFT code in your bank account details if they'll be paying via EFT

Do I need to include VAT for example?

As it is an offshore supply, I should think not. However, some questions that help clarify the answer would include:
Is the company VAT registered?
Does the foreign customer have an office or presence in SA?

What you might need to keep an eye on is whether you'll need to register as a VAT vendor in the country they're operating from. When it comes to VAT, it seems quite a bit of the world is heading towards the location of the customer being the issue, rather than the location of the supplier. Normally only becomes an issue with quite a bit of trading though.

[Marcello608]

Hi Dave, thank you very much for your reply! No the company is not VAT registered. Should I consider registering for VAT? What are the benefits of doing that?

Foreign customer does not have an office in SA.

[Dave A]

No the company is not VAT registered. Should I consider registering for VAT?

There is a process to decide that.

If the Turnover is (or is likely to be) in excess of R1 million per annum, you have to register for VAT.

Below that, and we can explore "the benefits" as the decision is still "optional". One of the earliest discussions about when to register for VAT was this one - New CC vat registration, but there are others.

Practically, I still believe there's not much financial upside unless the majority of your clients are registered VAT vendors that can claim the VAT raised as Input VAT.

[Tax101]

Hi Marcello,

My understanding is that if the service is performed within the borders for RSA then you will be required to charge VAT. However, seeing that you are not registered for VAT then you would just invoice for your services excluding VAT.

[AMB57]

If you can avoid registering for VAT (revenue < 1m) then that would def be my reccommendation. Once registered for VAT, SARS will have a footing to require you to produce evidencefor why a foreign invoice should not be VAT rated - even if it is a foreign customer. I had that experience a few years ago. By not being VAT registered, that is a situation that cannot arise. Unless you have to register for VAT, i recommend that you do not.

The only other lesser issue is your taxable rand income when you invoice in US$, you will supply client with bank SWIFTCODE details and they will receive USD. Whatever the spot rate you'll see on the news or on the web, dont expect that many rands. The rate at which the bank will exchange it will be hammered - often by more than 5% (depending on who you bank with), plus perhaps a transaction fee. Just have a quick look at whether SARS prescribe an exchange rate to apply when you invoice in USD... because if so, there is likely to be a gap between that rand amount and the amount you actually receive in your bank account. I imagine you'll have to account for the difference as an expense - any fee is easy, but a ripoff exchange rate relative to the SARS one is more complicated... hope this is not an issue, just worth being sure.

Its worth asking your bank in advance at what rate they will exchange USD into ZAR, they default to a criminally low rate but often relent somewhat to being challenged on this front, especially if you indicate that this will happen regularly. If still really bad, there are certain parties whom you can pay to negotiate a better rate on your behalf - typically 0.5%, but they can potentially save you more than this with the bank relative to spot. If its material and worth doing, def worth considering.

[rawoke]

I just invoice without VAT (Kenya) and they pay me as a person not a business.