OPINION: These place the foreign supplier in a similar tax position as a domestic supplier and allows them to compete on a level playing field.
However, the growing cross-border supplies of services via the internet, cloud or other electronic means is generally invisible to tax authorities.
Before 2014, the domestic recipient of electronic services from a foreign country was obliged to declare VAT on the services received. After March 2014, the onus to declare the VAT shifted from the domestic consumer to the foreign supplier of electronic services.
Draft regulations and proposals were published by the minister of finance in February to overhaul the VAT treatment of electronic services.
Previously, the regulations specified categories of electronic services such as internet-based auction services, games, electronic betting, e-books, subscription services, etcetera.
The proposal is to now widen the definition of electronic services to include any services supplied by means of an electronic agent, electronic communication or the internet for any consideration. Excluded from the definition are regulated educational services and telecommunication services.
It is proposed that where electronic services are supplied using the electronic platform of another person (ie, intermediary), such person will be deemed to be the supplier for VAT purposes where that person facilitates the supply of the electronic services and is responsible for the issuing of the invoice and the collection of payment.
The proposal is that a supplier of electronic services must register for VAT in South Africa if the electronic services are supplied by a person from a place in a foreign country.
Furthermore, the person must be conducting an enterprise in South Africa (as defined in the VAT Act), and at least two of the following circumstances must be present:
* The recipient of the electronic services is a resident of South Africa;
* Any payment made to the supplier in the foreign country
(for the supply of the electronic services) originates from a bank authorised or registered in South Africa;
* The recipient of electronic services has a business, residential or postal address in South Africa.
The final requirement for the VAT registration is that the total value of the taxable supplies made by that person in South Africa has exceeded R50000 within any consecutive 12-month period.
This threshold is significantly lower than the R1-million threshold that applies to a local business VAT registration. It is proposed that the amendments to the regulations come into effect on October 1.
* This article has been written by Graeme Palmer, a Director in the Commercial Department of Garlicke & Bousfield Inc. For more information contact Graeme on telephone : +27 31 570 5496, email: [email protected]
NOTE: This information should not be regarded as legal advice and is merely provided for information purposes on various aspects of tax law.