- SARS is ready to start registering foreign based supplies of electronic services from 7 April 2014
- Based on issues raised in submissions received in response to the draft of the regulations there was a concern was too wide as it included certain types of electronic services that are predominantly of a business to business nature. As this is the first step in the implementation of the taxation of electronic services, a decision was taken to reduce the scope and to exclude certain e-services from this Regulation. It should be noted that imported services not specifically included in the Regulation are still subject to VAT in terms of section 14 of the Value Added Tax Act No. 89 of 1991
- A number of submissions also wrongly noted this amendment as imposing a new tax. This is not the case, as the Regulation merely changes the tax liability from the importer of the service to the foreign supplier to address concerns about non-compliance in terms of the current rules and to level the playing field between local suppliers of e-services and foreign suppliers
- SARS will provide for a streamlined VAT registration and administrative process that will significantly reduce the compliance burden for businesses. Hence for example, foreign electronic suppliers will not be required to open a South African bank account.
- It should be noted that the Treasury and SARS are also reviewing the current applicable registration threshold. An increase in the registration threshold for foreign based electronic service suppliers will be considered to ensure that very small electronic service suppliers are not unduly impacted
An article in Business Day notes further:
“An issue that raised concerns was the concept of someone doing an electronic course via a foreign university having to pay VAT while someone attending a South African university would not.
Piet Nel, project director for tax at the South African Institute of Chartered Accountants, said on Friday the assurance was given that registered entities would be excluded.
Another concern was the low R50,000 threshold set for the registration for VAT by foreign suppliers. Mr Nel said this affected several “business-to-business” transactions where a company which imported software for its own use would have to register.
The Treasury said it was aware of the issue and was reviewing the threshold with the South African Revenue Service.
“An increase in the registration threshold for foreign-based electronic service suppliers will be considered to ensure that very small electronic service suppliers are not unduly impacted,” the Treasury said. It said the regulation changed the tax liability from the importer to the foreign supplier, to address concerns about non-compliance and level the playing field between local suppliers of e-services and foreign suppliers.
SizweNtsalubaGobodo tax services head Zweli Mabhoza expressed concerns about the implementation of the amended legislation.
He said it was not clear how the amendment would be enforced if suppliers did not register for VAT.
It was also not clear how smaller foreign suppliers would know there had been legislative changes in SA.
The services affected by the amendment to the VAT act include the supply of educational services if a service provider is not regulated by an educational authority in the “export country” (where the service comes from).
The affected electronic services also include games and games of chance, internet-based auction facilities and the supply of e-books and audio visual content.”
__[6 April 2014] National Treasury has published new regulations introducing 14% VAT on all digital goods and services, including those bought from foreign companies.
Electronic Service Regulations 2014 (Regulations prescribing electronic services for the purpose of the definition of “electronic services” in section 1 of the Value-Added Tax Act, 1991)
While the draft regulations stipulated 1 April 2014 as the implementation date this has now been shifted to 1 June 2014.
From this date VAT will apply to services supplied by a foreign company to a SA citizen or to services where payment to the foreign supplier originates from an SA bank. There is a detailed list in the regulations covering:
- Educational services
- Games and games of chance
- Internet-based auction services
- Miscellaneous services (e-books, audio-visual content, still images, music)
- Subscription services