Currently foreign suppliers of e-commerce services (such as electronic programs, games and books) to South African customers are not required to register as South African Vat vendors. This is so as the Value-Added Tax Act, 89 of 1991, does not have any place of supply rules which dictate which jurisdiction has taxing rights in respect of e-commerce transactions. As such, foreign suppliers are not required to register as Vat vendors and consequently do not charge Vat on these supplies. Customers are then required to account for Vat on these imported services by means of the self-assessment reverse charge mechanism.
National Treasury has said that customer compliance under the reverse charge mechanism is particularly low in e-commerce transactions. This, together with the fact that local suppliers are then placed in an uncompetitive position vis-à-vis foreign suppliers of e-commerce services (in that their services must include Vat at 14%), has led to certain amendments of the Vat Act which will now require foreign suppliers of e-commerce services to register as South African Vat vendors and levy Vat on their e-commerce supplies with effect from 1 April 2014.
The e-commerce services referred to are defined in the amendments as being 'those electronic services prescribed by the Minister by regulation'. No such regulations have yet been released.
In light of the fact that the customer location will be unknown National Treasury has decided to use a proxy for customer location. In this regard the trigger will be the supply of electronic services by a person outside of South Africa to a recipient that is a resident of South Africa or where payment for those services originates from a South African bank.
The obligation on the foreign supplier to register for Vat arises where the total value of taxable electronic supplies made exceeds R50 000 within a 12 month period. In respect of all other taxable supplies one is only required to register when the taxable supplies exceed R1 million in a 12 month period. The lower threshold for electronic services was introduced to level the playing field between local and foreign suppliers of electronic services.
Foreign suppliers will be allowed to register for Vat on the payments basis in order to streamline compliance. In addition, where a supply does not exceed R5 000 then the foreign supplier will be entitled to issue an abridged tax invoice which must be in South African Rands.