The rapid growth of the e-commerce sector has resulted in a number of changes to legislation across Africa, as governments seek to implement tax on digital transactions. In addition, online marketplaces and platforms may soon have to be VAT registered in the countries in which they transact due to the global tax changes currently being put in place by the Organization for Economic Co-operation and Development. E-commerce businesses transacting across borders should be aware of their local and international VAT and customs obligations.
The global economy has recently seen a rapid rise in online marketplaces and platforms, whereby sellers can easily connect and transact with buyers.
This substantial increase in digitization has led to a number of African countries making changes to their current legislation in order to implement digital taxation. It is anticipated that online marketplaces and platforms may soon have an obligation to be VAT registered in the countries to which they supply goods. This is as a result of the multilateral international tax changes that will be implemented by the Organization for Economic Co-operation and Development (OECD).
On 8 October 2021, 136 members of the OECD formally agreed on fundamental aspects relating to the reallocation of some taxing rights to market jurisdictions under Pillar One, and the introduction of a global minimum effective taxation under Pillar Two. Technical details of the rules will be released over the next few months and will officially come into force in 2023.
The United Kingdom has already implemented VAT and customs marketplace liabilities reforms from 1 January 2021, and as of July 2021, the European Union (EU) jumped on the bandwagon by implementing VAT and customs obligations on electronic interfaces (i.e., online marketplaces, portals or other platforms), which facilitate cross-border sales to consumers via third parties.
In essence, the VAT reform rules in the EU considers online marketplaces to be the ‘deemed supplier’ of the goods in certain cases and places the responsibility for charging and collecting VAT on deemed supplier transactions in the marketplace.
Interestingly, if the online marketplace is the 'deemed supplier', it avoids compliance issues for the EU, as it would be practically difficult to ensure compliance if the supplier was responsible for the VAT liability. The EU VAT reform rules also reduce the administrative burden on the supplier having to collect VAT and register for VAT in the countries to which they supply goods.
In terms of the EU VAT reform rules, the VAT rate charged is that of the consumer's country of residence and the online marketplace does not take on product liability or regulatory obligations. For imports not exceeding EUR 150, instead of import VAT, the marketplace must charge the customer VAT at the point-of-sale and declare it instead of the seller.
An online marketplace is considered to facilitate a sale when it directly or indirectly sets the terms and conditions of the sale, authorizes the charge to the consumer in respect of the payment for the supply, and/or orders or delivers the goods to the consumer.
However, the online marketplace is not considered to facilitate the sale if it only provides one of the following services in relation to the sale: (i) payment processing, (ii) listing or advertising the goods, and (iii) redirecting customers to other marketplaces where the goods are offered, without any further involvement in the sale. Therefore, businesses based in the EU that commonly use social media platforms to advertise and sell their goods will not be liable for VAT.
As a result of the ongoing international tax changes, online marketplaces and platforms must ensure that they are aware of their international VAT and customs obligations, particularly if they supply goods to consumers in multiple countries.
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