Be Aware Of the Changes to VAT on Electronic Services

New regulations coming into effect on 1 April 2019 will considerably widen the application of VAT to electronic services.

Firstly, the definition of “Electronic Services” has been substantially broadened and we discuss some of the more common types of business which will now fall into the net. We look also at the exclusions and at the position of intermediaries.

Tempting as it may be to procrastinate on this, we end off with the thought that it’s better to take the time now to consider how this will affect your business than to have to negotiate penalties later with SARS.

The Minister of Finance warned in his 2017 Budget speech that VAT on electronic services would be widened. Treasury has now published regulations that come into effect on 1 April 2019.

The major changes

The definition of “Electronic Services” has been considerably broadened to include virtually all services. There are few exclusions namely:

  • Intra group transactions if the local company is a wholly- owned subsidiary of a foreign entity
  • Telecommunication services
  • Educational services provided by an entity regulated in a foreign country.

This means that B2B (Business to Business) transactions are included in the definition. This differs from other countries who exclude B2B and only tax B2C (Business to Consumers) transactions.

Electronic Services include cloud computing, advertising services, software subscriptions (such as anti-virus software), access to databases, the use of software provided by a foreign holding company (unless the above exclusion applies), broadcasting, and price reservation services.

Another point to consider is that intermediaries providing a platform for offshore entities are included in the Electronic Services definition. Thus a platform which invoices and collects payment on behalf of a foreign entity is included. This is sensible as it will be administratively simpler not to unnecessarily involve foreign businesses.

The threshold for businesses to register for VAT is R1 million in annual turnover from Electronic Services.

Take time to consider how this will affect your business. Better to get it right now than to have to negotiate penalties later with SARS.