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Should an SA company selling online tickets to an overseas event charge VAT on ticket sales?

09 March 2015   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

Q: Background information:

1.            My client’s company is registered in SA – Pty Ltd (new company). They do events.

2.            Their customers are international (mostly from Africa). 

3.            The events will not take place in South Africa.


1.            Merchandise/tickets will be sold online.

2.            Revenue is estimated to be more than R 1million (VAT legislation should apply)


1.            Should VAT be charged on the online sales to costumers if the event does not take place in SA?

2.            Is withholding tax on sales applicable?

3.            Will there be foreign taxes applicable to be aware off?

A: I think that firstly one has to consider the nature of the supply which your client makes to the foreign company.

"Goods” are defined as;

-          Corporeal moveable things

-          Fixed property

-          Any real right in such thing or fixed property, and

-          Electricity

"Services” is also widely defined and includes the granting, cession or surrender of any right or the making available of any facility or advantage. Ss 8 and 18(3) of the VAT Act furthermore has certain deeming provisions, none of which appear to have any bearing on the transaction described below.

It is submitted that the supply constitutes a supply of "services” as a facility is made available. In terms of s 11(2)(l) of the Act, the supply of a service will be zero rated if the services are directly supplied to that non-resident (as defined for VAT purposes (please note this differs from income tax)).

The zero-rating does not apply if, amongst other, (1) the non-resident (or any other person to whom the service is rendered) is in the Republic at the time the services are rendered (refer section 11(2)(l)(iii) or (2) the service is directly connected to movable property situated in the Republic at the time when the service is rendered (refer section 11(2)(l)(ii)).

The question then remains:

1.)   Is the supply of e-commerce (website, domain hosting etc.) connected to movable property (server for example) of the foreign company situated in the Republic?

No specific case law exists in South Africa to determine whether website and domain hosting can be said to be rendered directly in connection with movable property in South Africa at the time of the rendering of the service. No clear view can therefore be expressed.

The following guidance may however be useful in making the determination:

In New Zealand case law (case of Wilson & Horton v CIR (1994) 16 NZTC 11,221) (the GST legislation contains a provision similar in many respects to s 11(2)(l)) that a clear connection to identifiable movable property was required and that the requirement of connectedness to movable property has to be interpreted narrowly.

In that case it was held that advertising space was not directly connected to the advertising medium (publication). A similar argument may apply in the case of website and domain space located on a server in South Africa. It must however noted that tax compliance relies on geographical boundaries and in cyber space these boundaries are non-existent and beyond a reasonable means of definition.

The tax issues associated with e-commerce, specifically cross-border activities on the internet, remain unresolved and it was proposed in the 2013 budget speech that foreign businesses that supply digital goods and services be required to register as vendors in South Africa. No similar guidance has been proposed in respect of outward electronic commerce supplies.

Disclaimer: Nothing in this query and answer should be construed as constituting tax advice or a tax opinion. An expert should be consulted for advice based on the facts and circumstances of each transaction/case. Even though great care has been taken to ensure the accuracy of the answer, SAIT do not accept any responsibility for consequences of decisions taken based on this query and answer. It remains your own responsibility to consult the relevant primary resources when taking a decision.


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