The advent of the digital age has brought about many challenges for tax systems around the world. The South African VAT system was, prior to 1 April 2014 no exception to this with only a reverse charge mechanism being employed as a VAT collection method where foreign supplied electronic services were being consumed in South Africa. With effect from 1 April 2014, however, South Africa, in an attempt to catch up with other countries who have long since taken great strides in combatting the lack of effective collection methods in the digital space, legislated a new set of rules.
In principle, the rules require of suppliers of electronic services to register with the South African Revenue Service as a South African VAT vendor if:
- The supply is of ‘electronic service’ as defined by regulation; and
- The recipient of the supply is a South African resident;
- The payment made for the service rendered is made from a South African bank account; or
- The recipient of the supply has a postal, business or residential address in South Africa; and
- At least ZAR50 000 has been made from such supplies in a 12 month period.
Once registered as a vendor, foreign suppliers will be required to account for VAT like any other South African vendor and conform to compliance regulations.
Establishing whether or not a registration obligation exists under these rules is often difficult especially given the lack of exact parameters in the regulation setting out the definition of electronic services. It is recommended that expert advice be sought to determine whether or not an obligation exists.