Proposed amendments to the VAT regulations on the supply of electronic services in South Africa

electronic services
12 Jun 2018

With effect from June 2014, the definition of “enterprise” in section 1 of the VAT Act, 1991 (“VAT Act”) was amended to include the supply of electronic services by a person or business outside of South Africa to a recipient in South Africa. As a result, the VAT Act prescribed that a person (which includes a business) will be liable to register as a VAT vendor and charge VAT on the supply of electronic services in South Africa, to the extent that the value of their taxable supplies, exceeds R50, 000.00 in any consecutive 12-month period.

With the abovementioned amendment, National Treasury published the Electronic Services Regulations (“the Regulations”) to give effect to these amendments. The Regulations, inter alia, prescribe a limited scope of electronic services that will attract VAT liability in South Africa and these included:

  • education;
  • games and games of chance;
  • internet-based auction services;
  • e-books;
  • audio-visual content;
  • still images; and
  • music and subscription services.

Specifically excluded from the definition of ‘electronic services’ is cloud-computing and software.

In the 2017 Budget Review, then Minister of Finance Malusi Gigaba, announced that National Treasury will be amending the Regulations with the aim to widen the scope of the Regulations to apply to all “services” as defined in the VAT Act, “that are provided by means of an electronic agent, electronic communication or the internet”. However, it is proposed that educational services regulated by an offshore educational authority and telecommunications services, will be excluded from the definition of “electronic services” in the regulations. Regrettably, the Regulations (albeit in draft) are not very clear on what the definition of telecommunication services includes or excludes.

These new proposals effectively result in suppliers of any form of supply of electronic services (except those specifically excluded) potentially being required to register and charge VAT on their supplies, where their taxable supplies exceed R50,000.00 in any consecutive 12-month period.

It has further been proposed that the Regulations be amended to provide that where suppliers provide electronic services using the electronic platform of another person (i.e. an “intermediary”), the intermediary will be deemed to be the supplier for VAT purposes if they facilitate the supply of the electronic services and if they are responsible for, amongst other things, the issuing of the invoice and the collection of the payment. However, intermediaries that are only facilitating the payment for the supply of electronic services, are excluded.

The proposed amendments to the Regulations are due to come into effect on 1 October 2018. Accordingly, offshore suppliers of electronic services that fall into the scope of the amendments will be required to register for VAT in South Africa.

See also:

(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)
Greg Shapiro

Greg Shapiro is a partner in Eversheds Sutherland's commercial group. He specialises in corporate and commercial, media, telecommunications and IT law. During the course of his experience Greg has drafted... Read more about Greg Shapiro

Mmueledi Monatisa

Mmueledi Monatisa is a senior associate at Eversheds Sutherland's corporate and commercial practice. She has extensive experience advising clients on direct and indirect taxation matters, the tax aspects of mergers... Read more about Mmueledi Monatisa


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