South Africa treats the bank's return on a mudaraba as an exempt financial service for VAT
This page records one dated change. For the rules in South Africa as they stand today, see the South Africa guide →
- Jurisdiction
- South Africa
- Tax
- VAT
- Change type
- Rate change
- Status
- In force
- Impact
- FYI
- Announced
- 24 December 2024
- Effective
- 1 April 2025
- Instrument
- ZA-ACT-42-2024
- Authority
- Parliament of the Republic of South Africa
- Verified
- Fetched from official source · high confidence
Banks offering Sharia-compliant mudaraba products, and the clients who receive returns under them.
Islamic finance product providers offering Mudaraba should review VAT treatment of profit distributions with effect from 1 April 2025.
Section 47 of the Taxation Laws Amendment Act 42 of 2024 (GG 51826, 24 December 2024) adds subsection (3) to section 8A of the VAT Act 89 of 1991 (Sharia-compliant financing): for a 'mudaraba' as defined in section 24JA(1) of the Income Tax Act, the portion of the return paid or payable by the bank to the client is deemed to be consideration for a financial service under section 2(1)(f), so it is exempt, except to the extent it is a fee, commission or similar charge. Effective 1 April 2025.
What changed in detail
Section 47 of the Taxation Laws Amendment Act 42 of 2024 (Government Gazette 51826, 24 December 2024) adds subsection (3) to section 8A of the Value-Added Tax Act 89 of 1991. Section 8A deals with Sharia-compliant financing arrangements.
The new subsection applies to any mudaraba as defined in section 24JA(1) of the Income Tax Act. The portion of the return referred to in paragraph (e) of that definition that the bank pays, or must pay, to the client is deemed to be consideration to the client for a financial service under section 2(1)(f) of the VAT Act. Financial services under section 2 are exempt from VAT.
The deeming does not apply to any part of the consideration that is a fee, commission or similar charge. Those amounts keep their normal VAT treatment.
Under section 47(2), the subsection comes into operation on 1 April 2025.
What it means
The amendment is in force. It aligns the VAT treatment of a mudaraba with that of conventional interest-bearing deposits. The client’s share of profit is treated as an exempt financial service, so no VAT is due on it, and the client does not need to consider registering because of it.
Banks offering mudaraba products should keep the profit-share return separate from fees and charges in their systems. The fee element remains taxable and is not covered by the exemption.
Proof
the portion of any return contemplated in paragraph (e) of that definition that is paid or payable by the bank to the client shall be deemed to be consideration to the client in respect of a financial service provided as contemplated in section 2(1)(f)
Source snapshot of the official page. Open full size ↗Archived from the official distribution · Taxation Laws Amendment Act 42 of 2024, Government Gazette No. 51826, 24 December 2024 · www.sars.gov.za