VAT effects of supplying electronic services in South Africa

A recent amendment to the Value-Added Tax (“VAT”) Act has meant that foreign suppliers of electronic services are liable to levy VAT at a rate of 14% on any supplies to South African residents. Below are five key effects or requirements resulting from this amendment:

1. The definition of “electronic services” is broad and includes education, games and games of chance, Internet-based auction services, miscellaneous services including e-books, audio-visual content, still images and music and subscription services that are provided "by means of an electronic agent, electronic communication, or the Internet”.

2. Foreign suppliers are required to register as a VAT vendor when the value of their supplies cumulatively exceed R50,000 (approximately 3,200 EURO).

3. The South African Revenue Service (“SARS”) has issued a draft ruling saying electronic services suppliers are no longer required to register for VAT if they supply electronic services only through an intermediary platform.

4. Electronic service providers must use the exchange rate published by SARB, Bloomberg or the European Central Bank on the date of supply, the exchange rate on the last day of the month preceding the time of supply, or the monthly average exchange rate of the month preceding the supply.

5. Electronic service providers may advertise and quote their prices exclusive of VAT on condition that their website contains a statement that VAT will be levied on the supply of electronic services.

This amendment has only been active for two years and so commentator are expecting further changes and clarifications on the Act and related regulations.