The draft Taxation Laws Amendment Bill for 2013, released for
public comment in early July 2013, has proposed an interesting new
rule applicable to foreign suppliers of e-commerce products.
Presently foreign suppliers of e-books, e-music, e-movies or
e-software programmes that transact over the internet with their
South African customers are not required to register as vendors for
value-added tax ("Vat") purposes. South African Vat
legislation does not cater for place of supply rules in order to
determine which jurisdiction has taxing rights in respect of
supplies made by foreign suppliers to South African
The acquisition of any e-products by any person in South Africa
from a foreign supplier is currently classified as an imported
service in terms of the Value-Added Tax Act (89 of 1991 ("Vat
Act")). Most e-commerce customers are unaware of their
obligation to account to the South African Revenue Service
("SARS") for Vat at the standard rate of 14% in respect
of their purchases of e-products from foreign suppliers. This is
known as the reverse Vat charge and requires the customer to
conduct a self-assessment for Vat. The compliance history in
respect of Vat self-assessments is relatively low regarding
e-commerce transactions. The self-assessment mechanism is
administratively burdensome and impractical from a SARS enforcement
perspective. The other major concern regarding e-commerce
transactions is that local suppliers of the same products are at a
disadvantage as their prices include Vat at the standard rate
whilst foreign suppliers pricing excludes any Vat.
The place of supply rule imposes the Vat liability on the actual or
deemed location of the supplier to determine whether a foreign
supplier must charge Vat on a supply. It has been proposed in
accordance with the Organisation for Economic Co-operation and
Development principles that place of supply rules be introduced for
e-commerce transactions. Under the proposed draft rules the foreign
supplier will be required to register as a South African Vat vendor
once it makes supplies of e-commerce services to South African
customers. Often the customer location is unknown to the supplier
and it is proposed that a proxy for customer location will be used.
The proposed proxy for customer location will be payment from a
South African bank account or customer residence in South Africa.
The reverse charge mechanism for imported services will be retained
and will be applied in conjunction with the place of supply rules
for e-commerce transactions. Foreign suppliers will be entitled to
Vat refunds if the cash payments exceed total outputs.
The draft amendments applicable to foreign suppliers is proposed to
become effective from 1 January 2014 and all foreign suppliers of
e-commerce services to South African customers will have a
compulsory obligation to register as a South African Vat vendor
from that date.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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