The e-commerce VAT regulations have shifted the onus of collecting and paying VAT from the South African purchaser to the foreign supplier. The “new” e-commerce VAT regulations are in fact not a new form of VAT. VAT was always due to the South Africa Revenue Service (SARS) on purchase of e-commerce goods or services from foreign suppliers, however, it has always been the purchaser’s onus to pay over the 14% to SARS. Very few purchasers are aware of this, and SARS has grown increasingly concerned about the levels of non-compliance.
The VAT regulations will be triggered where payment is made from a South African bank account or by a customer resident in South Africa. These triggers are not entirely clear and seem to be quite far reaching. For example, a South African living temporarily in another country with a South African bank account will be subject to VAT in South Africa for purchases made from e-commerce providers in that country. These triggers will require the foreign e-commerce supplier to verify their South African customers’ residency status and bank payment details which will ultimately result in increased compliance costs for the foreign supplier.
SARS has set out specific types of e-commerce goods and services which fall within these regulations and has been mindful to exclude transactions that could include business-to-business transactions. The list includes:
- Educational services (for example, internet-based courses by a supplier not regulated by an educational authority);
- Games and games of chance (for example, role-playing games and electronic betting);
- Internet-based auction services;
- Sale of e-books, movies, music, or images; and
- Subscriptions to blogs, e-magazines or e-newspapers.
SARS has said that it has a streamlined process for foreign suppliers to register as VAT vendors and that they do not need to open a South African bank account.
‘Games of chance’ can be interpreted quite broadly and seems to include online gambling, which is currently unlawful in South Africa as there are no laws regulating online gambling. There are also many intricate online games which allow one to buy various items and credits within the game. It will be interesting to see if the gaming sector will comply with the VAT regulations.
Doubt has also been cast as to whether SARS will be able to enforce these regulations on the foreign companies. SARS has proven successful in its track record with regards to tax enforcement and many foreign suppliers are accustomed to paying VAT in other jurisdictions already. We do not think that a foreign supplier who is a good corporate citizen will choose to ignore the VAT regulations of South Africa. SARS also has the ability to issue large penalties on those who do not comply.
SARS has said that it has a streamlined process for foreign suppliers to register as VAT vendors and that they do not need to open a South African bank account. However, some suppliers may choose to open a South African bank account if it makes more commercial sense.
Foreign e-commerce suppliers have until 1 June 2014 to register as VAT vendors before SARS starts enforcing these regulations.