VAT on electronic services

As from 01 April 2019, every person conducting an enterprise in the context of electronic services, which has made taxable supplies in excess of R1 million in any consecutive 12-month period, is required to obtain a VAT registration and account for VAT at the rate of 15% on the supply.

This leaves foreign companies with very little time to register for VAT and implement the necessary changes.

The scope of VAT application includes any service supplied electronically. A basic list is given below.

  1. Educational services, such as distance teaching programmes, educational webcasts, courses or education programmes and webinars (excluding educational services that are specifically excluded).
  2. Games and games of chance such as electronic games, interactive games, electronic betting or wagering.
  3. Auction services.
  4. On-line advertising or the provision of advertising space.
  5. On-line shopping portals.
  6. Web-based broadcasting.
  7. Access to or downloading of e-books, audio-visual content, still images, music, and films.
  8. Access to blogs, journals, magazines, newspapers, games, publications, social networking, webcasts, webinars, websites, web applications, and web series.
  9. Website hosting, data warehousing, and application hosting.
  10. Downloads for access to software.
  11. Software applications downloaded by users on mobile devices.
  12. Software applications allowing users to provide sharing services such as ridesharing and accommodation.
  13. Supplies of electronic services where the non-resident company supplies procured services to the resident company and the non-resident and resident company form part of the same group of companies.
  14. On-line booking services; and on-line automated maintenance of programs.

Further categories exist and the applicable legislation must be consulted for clarity.

A foreign supplier of electronic services must determine whether:

  1. The services supplied are within the scope of the regulation and,
  2. It has made taxable supplies of electronic services that have exceeded R1 million in any consecutive 12 months.

Foreign intermediaries that facilitate the supply of electronic services (on behalf of the foreign service provider) and who are responsible for invoicing and collecting payment for the electronic services, are also required to register for VAT.

Where a foreign service provider uses an intermediary (i.e. a platform) to supply services to customers located in South Africa, and the platform is responsible for issuing the invoice and collecting the payment in respect of the supply of the services, the platform is regarded as the provider of the electronic services. The platform and not the foreign service provider would be liable to register as a VAT vendor in South Africa.

Note that foreign suppliers of such services do not have to have a local representative in South Africa. A local bank account is also not necessary.

Companies can obtain registration documents via WWW.SARS.GOV.ZA. To speed up the process SARS will allow email applications too.

A detailed document named “EXTERNAL GUIDE VAT REGISTRATION GUIDE FOR FOREIGN SUPPLIERS OF ELECTRONIC SERVICES-VAT-REG-02-G02” from SARS is available for use by members of the public.

When reviewing the changes made to these recent VAT regulations, companies should also read the Electronic Communications and Transactions Act, 2002 (Act 25 of 2002) as amended. Reference Act: Value-added Tax Act, No 89 of 1991 (the VAT Act), as amended.

This article is provided for information only, and does not constitute the provision of professional advice of any kind.