Indirect Tax Alert | 5 March 2014

Update on the new South Africa rules for e-services

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Effective 1 April 2014, foreign suppliers of electronic services to recipients in South Africa will be required to register for VAT in South Africa and charge South African VAT on these sales. These rules apply for both business-to-consumer (B2C) supplies as well as (intercompany) business-to-business (B2B) supplies.

A month ago the South African Revenue Service (SARS) published a draft Regulation that describes the scope of the new rules. This scope was broadly defined to include most types of e-services from downloads of music to ”information system services” which include most types of information technology (IT) charges.

SARS asked for comments on these rules and organized a workshop on 20 February to discuss the comments put forward by the various stakeholders. In the workshop SARS indicated that:

  • It was never the intention to include normal B2B supplies
  • They indicated that there will be a simplified and fully electronic registration process
  • They indicated they would consider all comments on e.g., mixed supplies, exchange rates, customer identification, among others.

A follow-up meeting is expected in March and it is possible that the scope of the new rules will be limited by either excluding typical B2B type of services from the Regulation or even excluding all B2B supplies from the scope. A technical difficulty is that the law is already in place and comes into effect on 1 April. Another suggestion was that there may be a delay of a month in the implementation.

It is strongly recommended that businesses identify which companies will be affected by these rules and to ensure that the AP/AR processes and ERP systems are ready to cope with the new rules. For example, companies with a partial right to deduct should in principle stop importing VAT on e-services.

SARS indicated that written guidelines will be issued no sooner than end of March. Although SARS has been very constructive in receiving the feedback, the time to implement is limited and changing processes and ERP systems will likely require a few weeks.

For additional information with respect to this Alert, please contact the following:

Ernst & Young Advisory Services Ltd., Johannesburg
  • Folkert Gaarlandt
    +27 11 772 5220
  • Leon Oosthuizen
    +27 11 772 3612
  • Redge De Swardt
    +27 11 772 3544
Ernst & Young (China) Advisory Services Limited, Pan African Tax Desk, Beijing
  • Rendani Neluvhalani
    +86 10 5815 2831
Ernst & Young LLP, Pan African Tax Desk, New York
  • Dele A. Olaogun
    +1 212 773 2546
  • Mzukisi Ndzipo
    +1 212 773 9917
Ernst & Young LLP (United Kingdom), Pan African Tax Desk, London
  • Leon Steenkamp
    +44 20 7951 1976

EYG no. CM4224