Foreign suppliers of electronic services to South Africa may be obliged to register for tax
As an upstream internet provider, Workonline Communications investigated these changes and turned to Simone Esch, senior tax advisor at Themis Law Chambers, for expert insight.
By Simone Esch, senior tax advisor at Themis Law Chambers
On 1 April 2019 South Africa's National Treasury put into effect the amended regulations regarding electronic services for purposes of the South African Value Added Tax Act ("Amended Regulations"), the intention thereof being mainly to reduce the risk of distortions in trade between foreign and domestic suppliers. According to National Treasury, not having to pay VAT gives an unfair advantage to non-resident suppliers.
This means that foreign suppliers of "electronic services" as defined by the Amended Regulations, which amount to more than R1 million over the preceding 12 months, will be obliged to register for VAT in South Africa. For the consumer enjoying these electronic services in South Africa, this could mean an additional cost of 15%.
The Amended Regulations have widened the definition of "electronic services" to include any electronic services supplied by an electronic agent, electronic communication or the Internet for any consideration, except for:
1. Educational services supplied by a place in an export country and regulated by an educational authority in terms of the laws of that export country;
2. Telecommunications services; and
3. Cross-border intergroup supplies that are used exclusively by the SA resident group company.
What do they mean by "telecommunication services"?
A definition for "telecommunications services" has not been adequately provided in the Amended Regulations. However, our view is that the definition would be similar, if not identical, to the definition provided for "electronic services" included in the South African Electronic Services Act No 36 of 2005, which is defined as:
"the emission, transmission or reception of information, including without limitation, voice, sound, data, text, video, animation, visual images, moving images and pictures, signals or a combination thereof by means of magnetism, radio or other electromagnetic waves, optical, electromagnetic systems or any agency of a like nature, whether with or without the aid of tangible conduct, but does not include content service."
In other words, the transmission of information via cell phones, fibre etc would not be subject to tax but the actual information or data conveyed/transmitted via these mediums would be subject to tax.
For many electronic suppliers this definition would not provide much certainty leaving their individual status subject to interpretation and the particular facts and circumstances of the cross-border supply. Should no additional clarification be provided by the South African government the definition will no doubt need to be determined by SA courts. It is worth consulting a local tax expert if you are unsure of your organisation's status.
South African law
A foreign supplier of "electronic services" as defined in the Amended Regulations above will be carrying on an "enterprise" for VAT purposes and thus be required to register for VAT in South Africa in terms of the VAT Act where:
1. such "electronic services" are supplied from a place in an export country and at least two of the following three circumstances are present:
i. The recipient of the electronic services is a resident of South Africa;
ii. Any payment made to the foreign supplier for the supply of the electronic services originates from a bank registered in South Africa in terms of the Banks Act 94 of 1990; or
iii. The recipient of the electronic services has a business, residential or postal address in South Africa; and
2. The total value of the taxable supplies made by the foreign supplier of electronic services in South Africa has exceeded R1 million within any consecutive 12-month period. This compulsory registration threshold is the same as for local suppliers.
What about intermediaries and platforms?
Currently neither the VAT Act nor the Amended Regulations provide for intermediaries and platforms to be the principal supplier of the electronic services. However, further amendments have been proposed to address this, including that where a supplier uses an intermediary to deliver services to the end-user, the intermediary would be deemed to be the supplier for VAT purposes if it facilitates the supply and is responsible for invoicing and collecting payment for the service.
For example, iTunes or the Apple App store would be considered the supplier even though the music and apps they sell belong to third parties. Conversely, a pure-play intermediary platform could be exempt from the VAT obligation if it is only facilitating a service for a third-party supplier.
How do I, as a foreign supplier of electronic services, comply?
Foreign electronic services suppliers who are obliged to register for VAT in South Africa can register by using the procedures provided by SARS – see the useful links below.
Good to know:
1. Foreign electronic services suppliers who are obliged to register for VAT in South Africa are not required to have a bank account in South Africa.
2. It is possible to register for VAT on a "payments" basis – in other words, the VAT only becomes due when the cash flows.
3. Foreign electronic suppliers are not subject to the standard VAT registration procedures. The South African Revenue Service ("SARS") has created a unique subset on its electronic filing system to cater for these specific vendors.
4. After completing and signing the VAT Application Form (see link below) it should be emailed together with the supporting documents to SARS at: eCommerceRegistration@sars.gov.za
5. SARS will process the application and set the date from which the foreign electronic services provider is required to commence charging VAT to South African customers
at the standard rate (currently 15%).
6.SARS requires that an electronic services supplier must issue a tax invoice for a supply of electronic services containing, as a minimum, the following information:
(a) The name and VAT registration number of the electronic services supplier.
(b) The name and address of the electronic services recipient.
(c) An individual serialised number.
(d) The date of issue.
(e) A description of the electronic services supplied.
(f) The price for the service in the currency of any country. If the consideration is reflected in the currency of –
i. South Africa, the amount of the VAT charged or a statement that it includes a charge for the VAT and the rate at which the VAT was charged; or
ii. any country other than the Republic, the amount of the tax charged in the currency of the Republic or a separate document issued by the electronic services supplier to the electronic services recipient reflecting the amount of VAT charged in South African Rands.
(g) The exchange rate used.
You can register for VAT via the South African Revenue Services (SARS) website.
Using this form: VAT101 - Value Added Tax Registration Application - External form