South Africa: Update on taxation of eservices

Further to our previous blog post, the South African Revenue Service (“SARS”) is planning to implement new VAT legislation which targets eservices provided by foreign (non-established) businesses to customers located in South Africa.

We have mentioned that at the end of August PwC South Africa was going to have a meeting with SARS and the National Treasury on this topic, in respect of which we are now pleased to provide you with an update. All parties agreed at the meeting that there are a number of issues that need to be addressed in respect of the proposed amendments. Nevertheless, there was consensus that the amendments need to proceed as a matter of priority, to ensure that there is no loss of tax revenue on these types of supplies, particularly as this is an area where trade is growing.

The wording in the current legislation is too broad and therefore it was accepted to specify the main areas of concern to books, music, apps and games. The discussion around the effective date of the legislation revolved around whether it is possible to have retrospective legislation and also the changes that were required to the SARS’ system to accept registration from foreign entities. Therefore, the implementation date has been moved to 1 April 2014.

It was indicated that the amendments would proceed but the wording in the legislation would be amended from the existing wording and in addition to this a Regulation would also be issued dealing with particular aspects. In particular, the term “eCommerce services” will be replaced by “electronically supplied services”, the scope of which will be defined in the Regulation to be issued. The definition is anticipated to be in line with international norms and trends, but, as we expect, it will only include books, music, games, apps and possibly software.

It is also proposed that a registration threshold of R 50’000 (approx. USD 4’900) per a twelve month period is introduced. This is lower than the normal VAT registration threshold for businesses, however it is seen as necessary to prevent distortion of competition between local and foreign suppliers.

What does this mean for you?

You should consider that you may need to have an additional VAT registration in South Africa soon, which will result in a range of challenges for your business: reconfiguration of your ERP system, changing your customer contracts, recalculating your profit margins – just to name a few. Of course, as soon as the draft legislation is issued, we will provide you with further updates.

About Sophie Claessens

Senior Tax Manager PricewaterhouseCoopers Tax Consultants Belgium email: Mobile: +32 473 91 05 67 Office: +32 3 259 3169

Sophie Claessens is an international VAT advisor, based in Antwerp, Belgium, with a particular focus on business-to-consumer industries, including telecommunications, media, internet and e-commerce. She supports major industry players on sector-specific issues, including VAT compliance at both an operations and strategic level, and is directly involved in policy work for businesses in these industries, both at the Belgian level and at the level of the European Commission. She is responsible for indirect taxes in the communications sector at PwC Belgium and is a driver of PwC's Business Working Group on the EU 2015 VAT changes. She has authored articles for publication in Belgian and international tax journals.