Value-added tax

VAT on electronic services

Revised regulations

Revised regulations to prescribe and clarify the extent of electronic services (e-services) supplied by foreign suppliers to South African consumers which are subject to VAT were proposed in 2018. These regulations significantly broadened the scope of e-services. In the 2019 Budget Review the Minister of Finance then announced that further amendments would be made to the e-services regulations to broaden the scope of e-services that would be subject to VAT in line with the Organisation for Economic Co-operation and Development/Group of 20 Base Erosion and Profit Shifting Action 1 Report (OECD BEPS Report). The revised regulations came into effect on 1 April 2019.

It is proposed that further changes will once again be made to the e-services regulations to account for further developments in this area. 

Registration exemption

Foreign suppliers of e-services are required to register as VAT vendors in South Africa to the extent that they make taxable supplies of e-services in excess of R1 million in a 12-month period.

It is proposed that where a foreign e-services supplier makes a once-off supply of e-services in excess of the R1 million registration threshold, that a specific exception to the rule requiring registration be considered. This will prevent unnecessary registrations, costs and the administrative burden for both non-resident suppliers and the South African Revenue Service (SARS). Notably, it is an exception already available to resident suppliers who exceed the registration threshold only as a result of “abnormal circumstances of a temporary nature”.

Section 72 arrangements and decisions

Section 72 of the Value-Added Tax Act 89 of 1991 (VAT Act) deals with the Commissioner’s discretion to make arrangements or decisions to overcome difficulties, anomalies or incongruities that vendors may face when applying the VAT Act as a result of the manner in which the vendor conducts their enterprise.

This section was amended in 2019 to narrow the extent of the South African Revenue Service (SARS) Commissioner’s discretion in making such a decision and to clarify the circumstances under which the provision can be invoked.

It is proposed that the legislation be amended to incorporate specific dispensations which require decisions under the new provisions of section 72, in order for vendors or classes of vendors to operate in terms of the VAT legislation as opposed to under a special dispensation.