VAT - 'Electronic services' (e-commerce) regulations finally promulgated

It is clear that the introduction of the new VAT regime for cross-border e-commerce transactions is a major game changer, regardless of whether the recipient is an individual or company.

While South Africa has since 2014 imposed VAT on the supply of "electronic services" by suppliers from outside South Africa (provided they met the registration threshold of ZAR50 000 at that time), the scope of the definition of 'electronic services' was limited to the types of services specified in a Government Notice issued in 2014.  Those services were in essence of a non-business nature, such as games and games of chance, e-books, music, subscription services, etc.

In line with measures to more effectively impose VAT on cross-border e-commerce transactions, Government proposed in 2018 to broaden the scope of the definition of 'electronic services', while at the same time increasing the registration threshold to ZAR1 million in line with the compulsory VAT registration threshold that applies generally.  In order to give effect to this scope broadening initiative, it was proposed to amend the definition of 'electronic services' with effect from 1 April 2019.  The necessary amendments to the 'electronic services' regime have now been promulgated by a Government Notice issued on 18 March 2019.

"Electronic services" is now defined as:

    "any services supplied by means of an electronic agent, electronic communication or the internet for any consideration, other than -

    1. educational services supplied from a place in an export country (i.e. any country other than South Africa) and regulated by an educational authority in terms of the laws of that export country; or
    2. telecommunications services; or
    3. services supplied from a place in an export country by a company that is not a resident of the Republic to a company that is a resident of the Republic if -
      1. (i) both companies form part of the same group of companies ; and

        (ii) the company that is not a resident of the Republic itself supplies those services exclusively for the purposes of consumption of those services by the company that is a resident of the Republic" (emphasis added).

In order to fall within the ambit of the amended definition of "electronic services" the services (as defined for VAT purposes) must be supplied "by means of" an electronic agent, electronic communication or the internet. All these terms are defined by reference to their meaning in the Electronic Communications and Transactions Act No. 25 of 2002.

An "electronic agent" is defined as "a computer program or an electronic or other automated means used independently to initiate an action or respond to data messages or performances in whole or in part, in an automated transaction."

Electronic communicationmeans "a communication by means of data messages."

Internetmeans "the interconnected system of networks that connects computers around the world using the TCP/IP and includes future versions thereof."

Data” is in turn defined as "electronic representations of information in any form."

As regards the exclusions from the definition of "electronic services" (and a non-resident supplier will therefore not fall within the new regime), "telecommunication services" are supposedly defined by reference to definition of that term in section 1 of the Electronic Communications and Transactions Act, but we have been unable to find such a definition in section 1 of that Act.

A very important exclusion is provided for in relation to supplies made by foreign companies to group companies in South Africa.  "Group of companies" is defined in Regulations (as amended) as:

    "two or more companies in which one company (the 'controlling group company') directly or indirectly holds shares in at least one other company (the 'controlled group company') to the extent that -​​​

      (a) 70 per cent of the equity shares in each company are directly held by the controlling group company, one or more controlled group companies or any combination thereof; and

      (b) the controlling group company directly holds 70 per cent of the equity shares in at least one controlled group company."

It is important to note that the exclusion only applies to intra-group company supplies.  The exclusion does not extend to supplies made by a foreign main business or branch to a South African main business or branch.

While the foreign supplier of "electronic services" is required to register as a vendor for South African VAT purposes if the supplier's taxable supplies (supplies made to persons in South Africa) exceed ZAR1 million, where such services are supplied by an "intermediary" acting as agent on behalf of the foreign supplier and who is a vendor, the supplies are deemed to be made by the "intermediary" and not the foreign supplier (section 54(2B) of the Value-Added Tax Act, 1991 - the "VAT Act"). The practical effect of this provision is that the "intermediary" will need to account for VAT on the supplies made by the foreign supplier on behalf of the foreign supplier and will need to issue the requisite tax invoice relating to those deemed supplies and account for VAT in respect thereof.  An "intermediary" is defined as "a person who facilitates the supply of electronic services supplied by the electronic services supplier and who is responsible for issuing the invoices and collecting payment for the supply" (section 1(1) of the VAT Act).  These provisions read together suggest that the foreign supplier of electronic services could appoint a vendor in South Africa to effectively account for VAT on its behalf and thereby avoid establishing a VAT presence in South Africa.

It must be borne in mind that where the foreign supplier of "electronic services" is not required to register for South African VAT purposes in terms of the new regime, the local recipient of those services may nevertheless still be required to account for VAT in respect of those supplies on the basis that the services constitute "imported services" as defined (section 1(1) of the VAT Act).  An "imported service" is essentially services rendered by a non-resident or a supplier that carries on business outside South Africa to the extent that those services are utilized or consumed in South Africa otherwise than for the purpose of making taxable supplies.


These materials are provided for general information purposes only and do not constitute legal or other professional advice. While every effort is made to update the information regularly and to offer the most current, correct and accurate information, we accept no liability or responsibility whatsoever if any information is, for whatever reason, incorrect, inaccurate or dated. We accept no responsibility for any loss or damage, whether direct, indirect or consequential, which may arise from access to or reliance on the information contained herein.

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Webber Wentzel > News > VAT - 'Electronic services' (e-commerce) regulations finally promulgated
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