Author: Gerhard Badenhorst of ENSafrica
The VAT legislation has been amended with effect from 1 April 2014 to give effect to governments proposal that all foreign suppliers of electronic services in South Africa are required to register for VAT in South Africa.
The legislation amendment places an obligation on foreign suppliers to register for VAT in South Africa if they make supplies of electronic services in excess of R50 000 in a 12 month period to South African customers who are either tax resident in South Africa, or where payment for the services by such customers originates from South African banking accounts.
The final regulations specifying what constitutes electronic services for purposes of the VAT Act were published on 28 March 2014, but they will only come into force on 1 June 2014. Therefore, although the legislative amendment in this regard is effective from 1 April 2014, foreign suppliers of electronic services only need to register and comply with the VAT Act requirements from 1 June 2014.
The scope of the final regulations has been significantly reduced from that of the draft regulations first published, following a consultation process undertaken by National Treasury. The electronic services which are included in the regulations, and for which supply foreign suppliers must register for VAT in South Africa, are the following:
- educational services, excluding educational services provided by a supplier that is regulated by an educational authority in the foreign country;
- games and games of chance;
- internet-based auction services;
- the supply of e-books, audio visual content, still images or music; and
- subscription services to any journal, magazine, newspaper, game, publication, web application etc.
The reduced scope of the regulations is welcomed. The electronic services which were included in the draft regulations such as the transmission or routing of data messages, data processing and storage of data, maintenance and technical support of a web site and the supply of software (which are all now excluded) are generally supplied to businesses who are in any event entitled to claim any VAT payable as input tax. The inclusion of these services would only have resulted in increased administration for the SARS and the foreign supplier, with very little (if any) additional revenue for the State.
It should be noted that where any electronic services which are not listed in the regulations and which are supplied to a consumer who would not be entitled to claim the VAT as input tax if VAT would have been charged, the consumer remains liable to account for VAT on such services as imported services.
SARS has simplified the VAT registration process for foreign suppliers of electronic services who are obliged to register for VAT in South Africa. The foreign supplier must complete a VAT registration application form VAT 101, which must be submitted together with certain required documentation. The application form and documents can be submitted via electronic mail to SARS for processing. The foreign supplier is also not required to open a South African bank account, and the appointment of a South African resident representative vendor is also not required. Foreign suppliers of electronic services are entitled to apply for VAT registration from 7 April 2014, but the registration will only be made effective from 1 June 2014. SARS has also published a VAT Registration Guide for Foreign Suppliers of Electronic Services to provide guidance with the registration process, the submission of VAT returns and the payment of VAT. The Guide is available on the SARS website.