In response to the ever-increasing world of e-commerce and cross-border digital trade, South Africa introduced legislation with effect from 1 June 2014 which requires foreign suppliers of e-services to register as value added tax (VAT) vendors. The National Treasury stated at the time that the amendment did not impose a new tax, but merely shifted the tax liability for e-services from the local recipient to the foreign supplier. South Africa was one of the first countries in the world to tax e-services in this way.

Foreign suppliers of e-services must register for VAT in South Africa if at least two of the following requirements are met:

  • the recipient of the services is a South African resident;
  • the payment for services originates from a South African bank account; or
  • the recipient has a business, residential or postal address in South Africa.

Foreign e-services suppliers must register for VAT as soon as the value of the services exceeds R50,000. The current regulations divide 'electronic services' into specific categories, including:

  • non-regulated educational services;
  • games and games of chance;
  • internet-based auction services;
  • e-books;
  • music and subscription services to websites; and
  • web applications.

New e-services regulations

The minister of finance announced in the 2017 Budget Review that the regulations defining e-services would be broadened. Following the revised draft regulations which were published on Budget Day 2018, the National Treasury published the final regulations, which will significantly broaden the definition of 'electronic services'.

The various categories of e-services have been removed and the revised regulations define 'electronic services' to mean "any services supplied by means of an electronic agent, electronic communication or the internet for any consideration". These terms are defined with reference to the Electronic Communications and Transactions Act, (25/2002). The only exclusions are regulated educational services, telecoms services (but not the content thereof) and certain supplies to wholly owned group companies.

Consequently, most services that are supplied through electronic means are now e-services. The new definition includes:

  • cloud computing;
  • computer software;
  • online training;
  • online data storage; and
  • broadcasting services.

B2B transactions

Although the broadening of the definition of 'electronic services' is not problematic, the regulations make no distinction between business-to-business (B2B) and business-to-consumer (B2C) transactions. Therefore, foreign e-services suppliers to South African customers will have to register for VAT in South Africa if their customers (including businesses) are located in South Africa.

The National Treasury has indicated that the lack of distinction between B2B and B2C transactions is intentional; this distinction does not exist in the VAT Act for local suppliers and introducing this concept for non-resident suppliers would create an unfair cash-flow advantage for such non-resident suppliers.

However, the regulations were first introduced to address concerns about non-compliance by recipients of imported services. The concept of 'imported services' specifically excludes services acquired for making taxable supplies. By including B2B transactions, the regulations create a disparity between supplies of e-services and supplies of any other services by foreign suppliers. The supplies of any other services are taxed only if they are acquired for purposes other than making taxable supplies.

The inclusion of B2B transactions is also contrary to the recommendations of the Davis Tax Committee (DTC), which carried out extensive research in this field before making its recommendations. The Organisation for Economic Cooperation and Development (OECD) also recommends that a distinction be drawn between B2B and B2C transactions, and many countries follow the OECD recommendations. The DTC warned that a deviation from OECD principles will cause increasing problems with administrative enforcement. Thus, the DTC recommended that the treatment of e-services should be aligned with international treatment and harmonised with OECD principles.

In addition to the concerns raised by the DTC, the inclusion of B2B transactions will place a significant administration burden on both suppliers and the South African Revenue Service regarding the VAT registration process and the subsequent ongoing submission, processing and policing of VAT returns, with no additional revenue for the fiscus. Taxable businesses are entitled to deduct the total amount of VAT that they pay as input tax and partly taxable businesses account for VAT through the imported services rules.

Intra-group transactions

In order to limit the administrative burden, e-services that are supplied between companies in the same group are excluded. However, in terms of the definition of 'group of companies' in the regulations, the local recipient company must be a wholly owned subsidiary of the foreign group for the exclusion to apply. Consequently, if the local company has black economic empowerment shareholders, the exclusion will not apply.

The exclusion also does not apply where the foreign company procures e-services (eg, IT services) from a third party to supply to the local company. To qualify for the exclusion, the foreign company must supply the services itself.


Intermediaries that facilitate the supply of e-services or provide their platforms to foreign suppliers for rendering e-services to South African customers and are responsible for invoicing and collecting payment for the e-services, will have to register for VAT in South Africa. Accordingly, where a foreign supplier supplies e-services via an intermediary, the intermediary will be deemed to be the supplier of the services where such intermediary facilitates the supply of the e-services and is responsible for the issuing of the invoice and collection of the payment.

Registration threshold

A positive aspect is that the registration threshold of R50,000 for foreign suppliers of e-services will be increased to R1 million for any 12-month period, which aligns with local suppliers.

Effective date

The regulations have yet to be gazetted, but will come into operation on 1 April 2019.


Foreign suppliers of e-services to South African customers, local group companies and intermediaries which facilitate the supply of such services should consider their transactions in view of the new regulations. The scope of the revised definition of 'electronic services' is broad and the exclusions are limited. Many foreign suppliers of e-services to South African customers and e-services intermediaries will fall within the scope of the revised regulations. They will have an obligation to register for VAT in South Africa and will have to account for VAT on their e-services supplies with effect from 1 April 2019.

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