Original Research

Merchant cash advances: investigating the taxation consequences in South Africa

Eduard Kilian, Rudie Nel
Journal of Economic and Financial Sciences | Vol 8, No 2 | a101 | DOI: https://doi.org/10.4102/jef.v8i2.101 | © 2019 Eduard Kilian, Rudie Nel | This work is licensed under CC Attribution 4.0
Submitted: 21 December 2017 | Published: 30 July 2015

About the author(s)

Eduard Kilian, TFG Financial Services, South Africa
Rudie Nel, School of Accountancy, Stellenbosch University, South Africa

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The merchant cash advance is an emerging lending product designed to address the need to maintain cash flows and is essentially the business equivalent of a “payday” loan. A lump-sum advance is made by the merchant cash advance service provider to a business (the merchant) in exchange for an agreed upon percentage of future credit and/or debit card receivables. This article investigates the taxation consequences of merchant cash advance transactions in South Africa, in an attempt to provide guidance which is currently lacking. Although it is posited that a merchant cash advance is a form of debt factoring, the income tax treatment of the initial advance and the resulting discount reflect that of a loan. Through the investigation it was determined that merchants will be able to deduct the discount and processing fees from income. The merchant cash advance service provider will include such discount and processing fee in ‘gross income’. The initial advance and any resulting discount are held to be a ‘financial service’ and therefore an exempt supply for VAT purposes, with the processing fee constituting a taxable supply.


debt factoring; discount; financial services; interest; loans; merchant cash advance; sale of future receivables


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