Block title

-

VAT changes for software and electronic services suppliers

- Advertisment -

Conor McFadden

Before 2014 the supply of inbound electronic services required the South African recipient to declare VAT on these services. That didn’t work so well. So, with effect from 1 June 2014, the VAT Act was amended and regulations were introduced which changed the way that certain imported electronic services were to be taxed. The onus shifted from the South African consumer to the off-shore supplier of the services. However, following budget reviews and Minister Gigaba’s Budget speech in February this year, changes have again been proposed to the VAT regulations that are intended to remove uncertainties and broaden the scope of electronic services. Clearly government sees the supply of electronic services by foreign companies as an area that should fall within the South African VAT net and the draft regulations go a long way in achieving this.

According to National Treasury, the current regulations limit the scope of electronic services that are taxable. Under the amended regulations the intention is to widen the scope of the regulations to apply to all “services” as defined in the VAT Act that are provided electronically. In doing so, the policy intention is to reduce the risk of distortions in trade between foreign suppliers and domestic suppliers where VAT is one of the reasons for such distortions.

The proposed, and much wider, definition of electronic services will include “any services supplied by means of an electronic agent, electronic communication or the internet for any consideration…” but excluding educational services that are regulated by an educational authority in an export country and telecommunications services. Cloud computing, software supplies, anti-virus, online advertising, broadcasting, gaming, online consulting and training services would all now fall within electronic services. No distinction is made between business-to-business and business-to-consumer transactions.

Should you be a foreign supplier of any electronic services to a South African resident who has an address in South Africa and payment originates from a South African bank, then where the value of your electronic supplies exceeds R50 000 in any twelve month period you will be required to register as a VAT vendor in South Africa and levy VAT on those services going forward. In practice, a foreign supplier can apply for registration via electronic mail and is not required to neither open a South African bank account nor appoint of a South African resident representative vendor.

It has also been proposed by National Treasury that in order to broaden the scope even further, amendments are planned to specifically deal with “intermediaries” and “platforms”. The idea is that where suppliers provide electronic services using the electronic platform of another person (an intermediary), that person will be deemed to be the supplier for VAT purposes where that person facilitates the supply of the electronic services and is responsible for, amongst other things, the issuing of the invoice and the collection of the payment. This would not include those intermediaries that are only facilitating payment, such as pure payment platforms.

The VAT regulations are still in draft form and are intended to come into effect on 1 October 2018. As such, foreign businesses providing electronic services to South African consumers that were previously not required to register for VAT in South Africa may not be so fortunate once the proposed regulations come into effect. It would be sage advice to consider the services you provide in light of the new VAT provisions.

Contact Conor McFadden, Fasken, Tel 011 586-6087, cmcfadden@fasken.com

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Latest articles

Growing cybersecurity threats

Cybercriminals have certainly been using the pandemic in their relentless phishing and ransomware attacks. They even disguise themselves as the World Health Organisation (WHO)...

Space Weather Forecasting is in its Infancy

Science writer Mark Zastrow recently wrote: “As humanity becomes ever more dependent on technology, nations are investing more resources into space weather forecasting to...

South African stakeholders commit to responsible AI

Much like a microcosm of our socio-economic context, the Artificial Intelligence (AI) landscape in South Africa is uneven and burdened with regulatory challenges. If...

Bluetooth 5.2 SoC for small two-layer PCB designs

Nordic has introduced the nRF52805 System-on-Chip (SoC) which is the seventh addition to the nRF52 Series. It augments the already extensive collection of wireless...

Solid Data Management – Fundamental to Achieving PoPI Compliance

By Johan Scheepers, Country Head at Commvault South Africa Sections of the long-anticipated Protection of Personal Information (PoPI) Act 4 of 2013 came into effect...

Building a geosmart business

By Marinus van der Merwe, CEO, Fernridge  Geospatial technology can be used to create a multi-dimensional snapshot of the entire business, helping to support key...
- Advertisement -

New partnership makes endpoint defense more accessible

Networks Unlimited launches new MSSP partnership with SentinelOne to make endpoint defense suite offering more accessible Networks Unlimited Africa and its vendor partner SentinelOne have...

WiFi for COVID-19 patients at Baragwanath

Putting patients in touch with loved ones Reflex Solutions in collaboration with Mustek, Dark Fibre Africa (DFA) and ESET installed free secure WiFi at Chris...

RS PRO queue system for crowded environments

SMART-Q beacon tower features luminous and acoustic signalling to manage the flow of customers and staff in environments where queues can typically gather  RS has introduced...

SilverBridge, DocFusion partnership drives digitalisation in financial services

Microsoft Managed Partners SilverBridge and DocFusion have entered into a strategic alliance that sees the DocFusion document generation solution integrated into the SilverBridge digital...

SensePost teams up with Orange Cyberdefense

From 1 August 2020, SensePost has changed the name of its ethical hacking team and related services to Orange Cyberdefense. CEO Dominic White says...