RSM South Africa

New regulations imposing VAT on electronic services in South Africa

On the 24th of October 2018, the National Treasury published new regulations for the purpose of “electronic services” as defined in Section 1 of the Value Added Tax Act (VAT) Act of 1991 but specifically relating to the supply of electronic services and which will come into effect from the 1st of April 2019.

The National Treasury widened the definition of “electronic services” to mean “any services supplied by means of an electronic agent, electronic communication or the internet for any consideration...” It requires foreign electronic service companies supplying services to qualifying recipients to register for VAT in South Africa. Electronic services including online advertising, online consulting services, software subscriptions, streaming services, online games, podcasts, online courses and publications will be required by law to be a registered VAT vendor and will be liable to pay the 15% VAT rate for services rendered. However, educational services supplied from a place in an export country and regulated by an educational authority in terms of the laws of that export country will be exempt.

The changes will have a major impact on various Multinational companies such as Facebook, Google, and Twitter who currently have access and provide the majority of online services to South Africans. These companies will now be obliged to register as VAT vendors (if they are not yet registered with the South African Revenue Services) and pay the 15% output VAT or face the possibility of incurring interest and penalties or prosecution for non-compliance. The relief for the new regulations is that the onus of proof has been shifted from the consumer receiving the services to the foreign supplier providing the services. Under the old regulations, the South African consumer had the burden of declaring the VAT on the electronic services received.

SARS amended the rules on electronic services in order to protect local suppliers, addressing the VAT leakages and tax consumption in South Africa. Special requirements into the amendments have not yet been announced but may include having a local bank account and a tax representative may need to be appointed by the foreign companies.

It will be interesting to see in 2019 by April how many foreign electronic service providers will register as VAT vendors and how SARS will monitor non-compliance and enforcing of non-compliance by these Foreign Service providers.

Maselaelo Mphela

Corporate Tax Compliance Officer, Johannesburg

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