Revised regulations clarifying the e-services supplied by foreign suppliers to South African consumers which are subject to value added tax (VAT) were proposed in 2018, which significantly broadened the scope of e-services. In the 2019 Budget Review, the minister of finance announced that further amendments would be made to the e-services regulations to address certain oversights.

On 18 March 2019 the revised final regulations were published in the Government Gazette, prescribing what constitutes 'electronic services' as contemplated in the VAT Act. The revised regulations came into effect on 1 April 2019.


South Africa does not have any place-of-supply rules to aid in the determination of which jurisdiction has taxing rights in respect of supplies made by foreign suppliers to South African customers. South Africa therefore introduced legislation providing a place-of-supply rule specific to e-commerce transactions for the first time with effect from 1 June 2014, which required foreign suppliers of e-services to register as VAT vendors in South Africa.

Entry requirements

Foreign suppliers of e-services are deemed to be carrying on an enterprise 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 suppliers of e-services will be required to register as VAT vendors in South Africa to the extent that they make taxable supplies of e-services in excess of the VAT registration threshold. With effect from 1 April 2019, the registration threshold for supplies of e-services was increased from R50,000 in a 12-month period to R1 million in a 12-month period.

Revised regulations

The revised regulations remove the various specific categories of e-services listed in the current regulations and widen the scope of the regulations to apply to any services supplied by means of an 'electronic agent', 'electronic communication' or the 'Internet' for any consideration. These terms are in turn defined with reference to the Electronic Communications and Transactions Act (25/2002) (ECTA).

Under the amendment, virtually all services that are supplied by way of electronic means (eg, cloud computing, computer software and any online services) are now included as 'electronic services'.

Specifically excluded from the scope of the regulations are supplies of:

  • regulated educational services;
  • telecommunication services; and
  • certain supplies between 'group companies' as that term is defined.

Further, supplies which would ordinarily be exempt from VAT if supplied in South Africa (eg, financial services) will not fall within the scope of the e-services regulations, even if supplied by electronic means.

The previous draft regulations published in November 2018 provided a detailed definition of what constituted 'telecommunication services'. However, this definition has been removed and the revised regulations now simply define 'telecommunication services' with reference to the ECTA. This is rather peculiar as the term 'telecommunication services' is not defined in the ECTA. It seems that this may have been an oversight by the National Treasury, and it is expected that this will be amended in due course.

Considering the broad definition of 'e-services' (ie, any services supplied by means of an electronic agent, electronic communication or the Internet), it is not clear whether information or advice which is communicated via an email transmitted electronically falls within the ambit of the regulation. 'Electronic communication' is defined in the ECTA to mean a communication by means of data messages, and 'data messages' is defined to mean data generated, sent, received or stored by electronic means. On the face of it, it seems that information or advice communicated via email will therefore fall within the scope of e-services. However, the explanatory memorandum stipulates that one of the policy intentions behind the amendments is to subject to VAT those services that are provided using minimal human intervention. For example, legal advice prepared outside of South Africa by a non-resident and sent to a recipient in South Africa via email will not be subject to the regulations. Notwithstanding the statement made in the memorandum, it remains that it does not have any legal status and the South African Revenue Service (SARS) should clarify and confirm this policy intention by means of a binding general ruling so as to avoid any future disputes in this regard.

Intra-group transactions

A welcome revision of the regulations is the relaxation of the rules relating to intra-group supplies. In terms of the regulations, e-services supplied between group companies are excluded from the scope of the regulations. However, in terms of the initial proposed definition of the term 'group of companies' contained in the previous draft regulations, the local recipient company was required to be the wholly owned subsidiary of the foreign group company for the exclusion to apply. Consequently, if the local company has minority shareholders, such as Black Economic Empowerment or employee incentive scheme shareholders, the exclusion would not have applied. This issue was identified and the definition of 'group of companies' was amended and relaxed to require a 70% shareholding in the local recipient company by the foreign holding company. It is important to note that to qualify for the exclusion, the foreign company must supply the e-services to the local recipient company itself.

B2B transactions

At the time of introducing the e-services regulations in June 2014, the National Treasury stated that the regulations did not impose a new tax, but merely shifted the tax liability from the local recipient of the e-services to the foreign supplier thereof to address concerns about non-compliance with the reverse charge mechanism and to level the playing field between local and foreign suppliers of e-services.

The regulations were accordingly first introduced to address concerns about non-compliance by recipients of imported services. The concept of 'imported services' specifically excludes services acquired for purposes of making taxable supplies. By including business-to-business (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 as imported services only if they are acquired for purposes other than making taxable supplies. The reasoning provided by the National Treasury in the explanatory memorandum is that the exclusion of B2B transactions would create an unfair cash-flow advantage for foreign suppliers. However, this reasoning does not seem to have any basis because services rendered by foreign suppliers to businesses using the services for taxable supplies are not subject to VAT under the imported services provisions in the first place.

The inclusion of B2B transactions in the scope of the e-services regulations therefore deviates from the initial intention expressed by the National Treasury. The inclusion of B2B transactions brings foreign suppliers who supply electronic services to local businesses for purposes of making taxable supplies into the South African VAT net.

It is questionable as to what benefit would accrue to the fiscus on B2B transactions if the net impact on the fiscus is nil, as any VAT charged by the supplier will be deductible as input tax by the recipient, coupled with the increased administration for both SARS and the foreign supplier, who will now need to register as a vendor and submit monthly VAT returns to SARS.

The inclusion of B2B transactions is also contrary to the recommendations of the Davis Tax Committee (DTC). The DTC recommended that the treatment of e-services should be aligned with international treatment and especially harmonised with the Organisation for Economic Cooperation and Development (OECD) principles. The OECD's International VAT/Goods and Services Tax Guidelines (2017) recommend that:

  • a distinction be drawn between B2B and business-to-consumer transactions; and
  • a customer should be liable to account for any tax due under the reverse charge mechanism where that is consistent with the overall design of the national VAT system.

The OECD further states that the application of the reverse charge mechanism has several advantages, including, among other things, reducing the administrative costs for the tax authority because the supplier will not be required to comply with tax obligations in the customer's jurisdiction (eg, VAT identification, audits and the costs associated with administering language barriers). Notwithstanding the DTC's and the OECD's recommendation that B2B transactions be excluded to ensure global harmonisation of the VAT principles, it seems that the National Treasury has chosen to disregard these recommendations.


Intermediaries who facilitate the supply of e-services or who provide their platforms to foreign suppliers for rendering the e-services to South African customers, and who are responsible for invoicing and collecting payment for the e-services, are also required 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 issuing the invoice and collecting the payment.

The VAT Act provides for suppliers of electronic services to apply to SARS to account for VAT on the payments basis as opposed to the invoice basis. However, this dispensation has not been extended to intermediaries who facilitate the supply of e-services.

Vendor registration

A foreign supplier of e-services who makes taxable supplies in excess of R1 million in a 12-month period will be liable to register as a South African VAT vendor with effect from 1 April 2019.

A simplified VAT registration process has been introduced for foreign e-services suppliers. The VAT 101 application form can be downloaded from the SARS website. The application must be completed in English and emailed together with the requisite supporting documents to SARS. It is important to note that foreign suppliers of e-services are not required to have a South African banking account to register as a vendor.

Detailed guidance regarding the registration process as well as guidance on completing a VAT201 return is provided in SARS's VAT Registration Guide for Foreign Suppliers of Electronic Services, which is available on the SARS website.

SARS has also issued a detailed document titled 'Frequently Asked Questions: Supplies of Electronic Services' (FAQs), which provides answers to various questions regarding the e-services regulations. SARS has stated that the FAQs will be updated periodically to address questions regarding the revised regulations and, as such, it is not envisaged that VAT rulings relating to the revised regulations will be issued. A dedicated mailbox ( has been set up to field any questions that are not already answered in the FAQs.

Effective date

The regulations came into effect on 1 April 2019. The revised regulations were only gazetted in their final form on 18 March 2019, providing foreign suppliers of e-services who now fall within the ambit of the revised regulations and who have not yet registered with just two weeks to register for VAT in South Africa and to update their systems to comply with the e-services regulations.


A person who is liable to register and fails to do so is guilty of an offence and is liable to a fine or imprisonment for a period not exceeding two years. A person may also be subject to additional penalties for failure to register, as well as penalties and interest on output tax not accounted for from the time such person first became liable to register. Foreign suppliers of e-services should therefore carefully consider their VAT registration obligations in South Africa and should ensure that they comply with the revised regulations and VAT legislation.

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.