South Africa: Update on new VAT rules for eservice suppliers

In line with the new VAT legislation, set to take effect on 1 April 2014, electronic/digital services (“eservices”) supplied by a business outside South Africa to a recipient in South Africa will require the supplier to register for Value-Added Tax in South Africa.

The recipient is deemed to be located in South Africa if:

  • that recipient is a resident of South Africa or
  • where payment originates from a bank registered or authorized in terms of South African law.

It is important to realize that this definition applies supplies made both to B2B (Business – to – Business) and B2C (Business – to – Consumer).

Local VAT registration required

The new legislation may have strong impacts on international eservice providers offering their services to anyone in South Africa. They will be required to register as a VAT vendor in South Africa and account for and l pay locaVAT where their annual turnover in South Africa exceeds R50.000 (approximately US$4.500).

Draft regulation defining eservices published

Draft regulations prescribing which electronic services will be included within the definition of the legislation have been issued. Any service supplied by means of an electronic agent, electronic communication or the internet may fall under the definition of an eservice (which is wider than the definition used in the EU). Examples of these are:

  • Educational services including distance and web-based learning;
  • Internet based gaming including certain electronic betting and wagering;
  • Information system services including access to information, transmission or routing of data and the processing and storage of data;
  • Maintenance Services including the administration, maintenance and technical support of databases, websites and information systems;
  • Multimedia including the supply of e-books, films, images, music and software;
  • Subscription services including blogs, databases, journals, magazines, newspapers, editorials, web-apps, social networking services….

The draft regulations contain a more detailed list of everything considered as an eservice for South African VAT purposes and we strongly recommend you to review it.

Some more information can be found in this VAT alert.

What does this mean for you?

The definitions of eservice and recipient of eservice in South Africa differ from those we are familiar with in the EU VAT legislation. This might in some cases lead to double taxation. Please note also that VAT registration procedure in South Africa is usually not as straightforward and quick as one might hope for. if you believe that your company might be affected by this new law we advise you to start planning your next steps now.

For further information, please contact Charles De Wet, VAT partner at PwC South Africa.