Electronic invoicing is gaining popularity in South Africa as a reliable method to prepare and document digital B2B invoices. Although the e-invoicing model is not currently mandated by the South African Revenue Service (SARS), the agency has implemented rules concerning the conditions for their utilization by VAT-registered businesses.
Businesses in South Africa are rapidly adopting the e-invoicing model as it helps to streamline the invoice processing cycle.
It can save several person-hours wasted in documenting, processing, and tracking conventional paper-based B2B invoices.
Seeing an increase in the popularity of e-invoices, the South African tax authority has formulated several rules and regulations outlining the conditions and requirements such invoices should fulfill to avoid tax fraud.
The new requirements went into effect on December 10, 2021.
Understanding the regulatory requirements before shifting to the e-invoicing system is essential to avoid breaking the rules and incurring harsh penalties.
In this article, we will talk at length about the e-invoicing system in South Africa, the various rules and regulations businesses must follow while issuing them, and the benefits the e-invoicing model can provide to your business.
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Is e-invoicing mandatory in South Africa?
E-invoicing is becoming increasingly popular in South Africa as more businesses have recently moved towards digital operations. Although e-invoicing is not mandatory in South Africa for B2B transactions, the South African Revenue Service tax authority has implemented regulations controlling them.
Before we further discuss regulations governing e-invoices, it is important to understand what constitutes an e-invoice in South Africa.
E-invoicing refers to issuing, receiving, and processing invoices electronically rather than using paper-based methods.
It can be done through various electronic platforms, such as email or specialized software.
The e-invoicing model has many benefits, such as reducing administrative costs and increasing efficiency and accuracy due to digital certificates.
The South African Revenue Service (SARS) tax authority does not have a mandatory e-invoicing model for businesses.
However, businesses registered under the VAT (Value Added Tax) Act must submit their VAT returns electronically via the South African Revenue Service eFiling platform.
It includes providing invoices as supporting documents for the VAT return.
So, while e-invoicing systems are not mandatory in South Africa, businesses must submit digital invoices as part of their VAT returns.
Additionally, certain industries and businesses may have e-invoicing requirements. For example, the South African National Treasury has announced plans to implement an e-invoicing model shortly to procure government supplies.
Once implemented, the system would require all suppliers to the government to submit digital invoices.
Similarly, some private sector companies may require their suppliers to submit digital invoices as part of their procurement processes.
It is worth noting that even if e-invoicing is not currently mandatory for a business, it may still be beneficial to adopt tax e-invoicing.
E-invoicing can improve efficiency and accuracy and reduce administrative costs, increasing the cash flow.
Additionally, e-invoicing can improve data security and reduce the risk of fraud.
Who oversees the implementation of e-invoicing in South Africa?
Various organizations and agencies oversee the implementation of e-invoicing in South Africa. The primary organization responsible for e-invoicing is the South African Revenue Service (SARS).
The tax authority is responsible for collecting taxes and enforcing tax laws in South Africa, and it plays a key role in implementing e-invoicing in the country.
South African tax authority has implemented a system for e-invoicing through its eFiling platform, which businesses use to submit their VAT returns electronically.
The system allows businesses to submit invoices as supporting documents for their VAT returns.
While you don’t have to use e-invoicing for business transactions, businesses registered for VAT must submit their VAT returns via the SARS eFiling platform.
As digital invoices count as supporting documents for these returns, you must produce them irrespective of whether you use them for B2B transactions.
In addition to the tax authority, the National Treasury also plays a role in implementing e-invoicing in the country.
The National Treasury is responsible for managing the country's finances and implementing policies to improve the efficiency of government spending.
The National Treasury has announced plans to implement an e-invoicing system for government procurement, which would require all suppliers to the government to submit digital invoices.
The system would ensure that the government can track and manage its spending more effectively.
Other organizations that play a role in implementing e-invoicing in the country include the South African Post Office (SAPO) and the South African Banks Council (SABC).
The SAPO is responsible for providing postal and courier services. It is working to develop an e-invoicing system that allows businesses to send and receive invoices electronically.
On the other hand, the SABC represents the interests of banks in the country and is working to promote e-invoicing among its members.
Who needs to comply with e-invoice regulations in South Africa?
In South Africa, compliance with e-invoice regulations depends on the type of business and its operations.
As we discussed earlier, the SARS does not mandate that businesses need an e-invoice system in South Africa.
Most businesses can still use paper-based invoices to carry out their B2B transactions.
However, things are slightly different for businesses registered under the VAT system.
While they still don’t need to use e-invoicing to conduct business, they must use it to file their VAT returns using the eFiling platform maintained and operated by the tax authority.
So, for businesses registered under the VAT system, uploading digital invoices to the eFiling platform is mandatory when they file their VAT returns.
Therefore, businesses registered for VAT must comply with the regulations as part of their VAT compliance.
Other industries with electronic invoice regulations include the financial, healthcare, and logistics sectors.
Banks, for example, may require their suppliers to submit digital invoices as part of their procurement processes.
Similarly, hospitals and other healthcare providers may require their suppliers to submit automated invoices for reimbursement purposes.
Characteristics of the electronic invoice in South Africa
The South African tax authority introduced regulations regarding automated invoices in the country beginning in December 2012.
The organization has outlined certain characteristics that invoices must have to comply with tax regulations.
Here are some characteristics of the electronic invoice in the country:
Compliance with South African Revenue Service(SARS) VAT regulations
E-invoices in South Africa must comply with Value-Added Tax (VAT) regulations by the South African Revenue Service (SARS).
Businesses must upload their digital invoices to the SARS eFiling platform, which acts as supporting documents for the tax return. Filing your tax returns in the country is impossible without e-invoices.
E-invoices must be digitally signed to ensure their authenticity and integrity. Digital signatures provide a secure and tamper-proof way of signing an electronic document.
The SARS mandates that all digital invoices must be digitally signed, whether used to issue against B2B transactions or for uploading on the eFiling platform.
As the tax authority specifies, digital invoices in the country must be in a standard format.
The format includes information such as the invoice date, the invoice number, the supplier's details, the customer's details, and a detailed description of the goods or services provided.
Unique invoice number
Each electronic invoice must have a unique invoice number. The invoice number is used to track and monitor the invoice and to ensure that the invoice is not duplicated.
Electronic data exchange
An electronic invoice in the country must be exchanged electronically between the supplier and the customer.
It can be done through various electronic platforms, such as email or specialized software.
Digital invoices must be submitted promptly. The invoice should be sent to the customer immediately after providing the goods or services.
Digital invoices must be securely transmitted and stored to ensure their confidentiality and integrity.
It includes encryption, security protocols to transmit the invoice, and secure servers to store it.
Retention and e-archiving
An electronic invoice must be retained and archived for at least five years per the new tax laws. It allows businesses to access invoices easily for compliance and auditing purposes.
While the e-invoicing system might seem intimidating initially, it is possible to make a stress-free transition to the e-invoicing system with the right help and guidance.
Providers like Storecove provide comprehensive custom solutions to help you make the transition.
How to send and receive compliant e-invoices in South Africa?
In South Africa, e-invoicing is governed by the SARS and the National Treasury. You must adhere to the established guidelines and requirements for compliant e-invoicing.
Send e-invoices in South Africa
A business must take the following steps to send a SARS-compliant electronic invoice to the country.
- Register for e-filing with SARS and obtain a valid tax reference number
- Ensure that their e-invoicing system complies with the South African e-invoicing standard based on the UN/CEFACT cross-industry invoice (CII) standard.
- Provide all the necessary information in the invoice, including VAT numbers, tax amounts, and invoice numbers.
- Submit the invoice electronically to the recipient, who must have the capability to receive an electronic invoice.
Receive e-invoices in South Africa
To receive an e-invoice in the country, businesses must:
- Register for e-filing with SARS and obtain a valid tax reference number.
- Ensure that their accounting system can receive automated invoices in the format specified by the South African e-invoicing standard.
- Confirm receipt of the invoice electronically to the sender.
- Retain all digital invoices received for at least five years for tax compliance purposes.
PEPPOL in South Africa
PEPPOL (Pan-European Public Procurement Online) is a European Union standard for electronic data exchange in public procurement.
Although it is not specific to South Africa, it is possible to use PEPPOL in the country by connecting to the PEPPOL network via a PEPPOL Access Point provider like Storecove.
You can also use the system by implementing the PEPPOL standard in a way that is compatible with South Africa's e-procurement systems.
A PEPPOL Access Point (PAP) provider can help South African businesses e-invoicing by connecting them to the PEPPOL edelivery network, allowing for electronic data exchange between businesses and SARS. It can also help meet the explicit requirements of the agency.
A PAP provider will act as an intermediary between the businesses and the network, handling the technical aspects of connecting to the network and ensuring compliance with the PEPPOL standards.
When your South African business is connected to the network via a PAP provider, you can issue e-invoices in a standard format that complies with the PEPPOL specifications.
It ensures that the e-documents are easily readable and processable by the recipients.
Additionally, PEPPOL-compliant invoices can be exchanged with other businesses and organizations connected to the PEPPOL network.
It enables trading partners to exchange e-invoices, structured data and facilitates cross-border trade including with the Latin American countries, the middle east and many other countries.
Benefits of e-invoicing for businesses in South Africa
E-invoicing can provide several benefits for businesses in the country, including the following.
Electronic invoicing offers cost savings
E-invoicing can help large companies reduce the costs associated with printing, mailing, and manually processing paper invoices.
Invoices generated electronically can automate many manual tasks associated with invoicing, such as data entry, and speed up the invoice processing time.
Automating these processes can save time, boosting your business's bottom line.
Errors in invoicing can cost businesses hundreds of thousands of dollars. E-invoicing can reduce the risk of errors and inaccuracies that can occur with paper invoicing.
Electronic invoicing systems can automatically check for errors and inconsistencies, so the chance of errors can be minimized greatly and compliance can increase.
Better cash flow management
Relying on e-invoicing can also help your business get paid faster, as electronic invoices can be processed and paid more quickly than paper-based ones.
Compliance with tax authorities is the biggest advantage of the e-invoicing system. E-invoicing can help businesses in the country comply with the regulations established by SARS and the National Treasury by ensuring that all necessary information is included in the invoice and that invoices are submitted electronically.
Better record keeping
Maintaining records becomes easy with e-invoicing. Digital invoices can be easily stored, searched, and retrieved, ensuring better audit compliance.
Better supplier relationship management
E-invoicing can help businesses to improve their relationship with suppliers by reducing the cost, complexity, and time of the invoice process.
Better access to global markets with an e-invoicing system
With the South African market expanding, it becomes essential for any business to have easy access to the international market.
E-invoicing can help businesses to access global markets by providing the ability to exchange an e-invoice with businesses in other countries that are connected to the PEPPOL network.
The government of South Africa is encouraging businesses to shift to the e-invoicing system, and it is the right time to embrace it. With the clear guidelines from SARS and the National Treasury, e-invoicing is easier than ever in the country.
The process can improve transparency and help your business comply with the VAT regulations better by increasing efficiency and simplifying the payment process. If you find the regulations around e-invoicing complicated and burdensome, Storecove can help you out.
Storecove is a certified PEPPOL access point provider, and we can connect your business in South Africa to the PEPPOL network and get you started on your e-invoicing journey.
Reach out to one of our tax experts today to learn more about how we can help in e-invoicing in South Africa and compliance with the latest regulations.
More information about e-invoicing in South Africa?