VAT in South Africa: legislation changes for electronic services

published on 8 November 2019 | reading time approx. 3 minutes

Foreign service providers, which provide electronic services to customers in South Africa are affected by changes in South African VAT legislation.

Prior to 1 April 2019 the onus was on the South African recipient of electronic services provided from abroad, to declare and pay VAT to SARS (South African Revenue Service) where such electronic services were to be used for purposes other than the making of taxable supplies (i.e where the recipient was the end user of such services – B2C services.). Where the South African recipient was a business (B2B services), which would have qualified for a VAT input credit, it was not required to pay VAT on the imported service on the basis that the business would, in any event, have qualified for an VAT input credit.

The new regulations require foreign electronic service providers supplying such services to qualifying South African recipients to register for VAT in South Africa. The onus of compliance has therefore been shifted from the customer receiving the services to the foreign supplier providing the services.

The new regulations came into effect in South Africa from the 1 April 2019. The definition of “electronic services” has been widened to include electronic or digital content supplied by means of an electronic agent, electronic communication or the internet for any “consideration” (the price paid for the services). An electronic agent is defined as a computer program or an electronic or other automated means used to initiate or respond to data messages. Data messages includes data generated, sent, received or stored by electronic means.

The expanded definition of electronic services would include software solutions and technologies provided electronically by a foreign supplier of electronic services, to qualifying recipients in South Africa.

A foreign electronic service supplier is conducting an “enterprise” for South African VAT purposes if the electronic services are supplied from a foreign country, and any two of the following three circumstances are present:

The recipient of the services is a resident of South Africa;
The payment for the services originates from a bank registered under the Banks Act 94 of 1990 (the Banks Act);
The recipient of the services has a business, residential or postal address in South Africa.

A foreign electronic services supplier that exceeds the VAT registration threshold and meets the 2 out of 3 of the above requirements, will be required to register as a vendor and account for VAT in respect of its electronic services supplied to South African customers.

The threshold for compulsory registration is ZAR 1 million in a consecutive 12 month period (previously ZAR 50 000). A foreign supplier of electronic services only needs to register once supplies since 1 April 2019 have reached ZAR 1 million. Voluntary registration is also permissible if VATable supplies have exceeded ZAR 50 000 in a preceding 12 months period. Registration of a foreign enterprise for VAT purposes will take at least 21 days after receiving all required documentation.

VAT vendors will be liable to charge the 15% output VAT (at current rates) for services rendered, and pay this to SARS. A supply is recognised on the earlier of receipt of payment or the time an invoice is issued. VAT invoices must include prescribed information. Where annual turnover does not exceed ZAR 30 million VAT returns (VAT 201) will be filed every second month by the end of the month following the two month VAT cycle. Where annual turnover exceeds ZAR 30 million returns must be filed every month. VAT returns can be completed and filed from Germany or by an appointed VAT representative in South Africa.

Customers in South Africa will qualify for VAT input credits provided they are registered for VAT. Where customers make VATable and exempt supplies they will have to apportion their input credits accordingly.

Certain electronic services are exempt, such as educational services supplied from a foreign country and regulated by an educational authority in terms of the laws of that foreign country, telecommunications services or services supplied from a foreign company to a company in the Republic if both companies are part of the same “group of companies”.

VAT registration is applied for on a VAT101 form which is uploaded electronically. If required Rödl & Partner Business Process Outsourcing Department in South Africa can assist with registration and filing processes.

All records of services supplied must be kept for five years. VAT invoices must be issued within 21 days of the supply of the service.

Foreign suppliers of electronic services should ensure that their contracts with South African customers are worded in such a way as to allow suppliers to add VAT at the prescribed rate to the consideration for the service.