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Tax practitioners favour move to simplify VAT rules for foreign e-commerce

Friday, 29 April 2016   (0 Comments)
Posted by: Author: Amanda Visser
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Author: Amanda Visser (BDlive)

Tax professionals support proposed steps to ease the administrative burden of international companies supplying electronic services in SA.

The South African Revenue Service (SARS) recently published a draft binding ruling setting out the circumstances under which foreign e-commerce suppliers did not have to register or account for value-added tax (VAT) in SA.

Legislative changes about two years ago made it compulsory for foreign e-commerce suppliers of electronic books, music or other services to register for VAT locally when their supplies exceeded R50,000.

Concerns have been raised in the past about the administrative burden placed on foreign entities to register and account for VAT in SA, even if they have no presence in the country.

SARS has now issued a draft ruling saying electronic services suppliers are no longer required to register for VAT if they supply electronic services only through an intermediary platform.

An intermediary is someone who facilitates the supply of the electronic services offered by the foreign company and is responsible for the issuing of invoices and collecting of payments.

The foreign entity will not be required to register if the intermediary is already registered for VAT, and has entered into an agreement with the supplier that it will account for VAT and that it will pay the VAT to SARS.

However, if the services are not supplied through a registered intermediary, the foreign company will still be obliged to register and account for VAT on all supplies exceeding R50,000.

This low threshold has not been adjusted, despite earlier concern that it affected several "business-to-business" transactions that could "unduly" affect very small service suppliers.

An example of this is where a business that imports software for its own use triggers a VAT registration for its foreign supplier if the amount exceeds R50,000.

SARS says the draft ruling will apply from April 1 2015 until it is withdrawn or amended.

The South African Institute of Tax Professionals (SAIT) says in its submission on the draft ruling that it effectively creates a simple trade-off.

"The foreign e-commerce provider can effectively avoid the direct registration requirement, but on the other hand the South African intermediary must assume reporting and the cash-flow burden of the in and out business-to-business service charge."

SAIT proposed a further simplification in cases where a foreign company provides electronic services to its South African subsidiary, suggesting that there should be no need to engage an intermediary.

"The foreign parent company should be relieved of local registration if the South African subsidiary simply agrees to fully account for these services by way of a reverse-charge mechanism," says SAIT.

Under this mechanism, the South African subsidiary would pay the VAT on imported e-commerce services, and subsequently claim the VAT back through the VAT refund system for business-to-business transactions.

The temporary payment to SARS will effectively act as a substitute to foreign registration, and offers SARS administrative control.

This mechanism may operate as a better enforcement instrument for perceived concerns in cross-border business-to-business electronic commerce than the "unwieldy forced foreign registration" procedure.

This article first appeared on



Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.

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