As of 2014, the definition of “enterprise” in section 1 of the VAT Act was amended to include the supply of electronic services by a person or business outside of South Africa, to a recipient in South Africa.
This means that any person (including a business) will be liable to register as a VAT vendor and charge VAT on the supply of electronic services in South Africa, to the extent that the value of their taxable supplies exceeds R50,000 in any consecutive 12-month period, explains Greg Shapiro, a partner at law firm Eversheds Sutherland.
“With the abovementioned amendment, National Treasury published the Electronic Services Regulations to give effect to these amendments,” he said.
“The Regulations, inter alia, prescribe a limited scope of electronic services that will attract VAT liability in South Africa.”
- Games and games of chance;
- Internet-based auction services;
- Audio-visual content;
- Still images; and
- Music and subscription services.
Specifically excluded from the definition of ‘electronic services’ is cloud-computing and software.
Expanding the regulations
In the 2017 Budget Review, then-minister of finance Malusi Gigaba, announced that National Treasury will be amending the regulations with the aim to widen their scope to apply to “all services” as defined in the VAT Act, “that are provided by means of an electronic agent, electronic communication or the internet”.
“However, it is proposed that educational services regulated by an offshore educational authority and telecommunications services, will be excluded from the definition of “electronic services” in the regulations, said Shapiro.
“Regrettably, the regulations (albeit in draft) are not very clear on what the definition of telecommunication services includes or excludes.”
He adds that these new proposals effectively result in suppliers of any form of supply of electronic services (except those specifically excluded) potentially being required to register and charge VAT on their supplies, where their taxable supplies exceed R50,000 in any consecutive 12-month period.
“It has further been proposed that the regulations be amended to provide that where suppliers provide electronic services using the electronic platform of another person (i.e. an “intermediary”), the intermediary will be deemed to be the supplier for VAT purposes if they facilitate the supply of the electronic services and if they are responsible for, amongst other things, the issuing of the invoice and the collection of the payment,” he said.
According to Shapiro, the proposed amendments to the regulations are due to come into effect on 1 October 2018.
“Accordingly, offshore suppliers of electronic services that fall into the scope of the amendments will be required to register for VAT in South Africa.”