Explained: Changes to VAT on Electronic Services

VAT changes can be confusing at the best of time. When amendments are made over the course of a number of years, it can be even harder for businesses to know how best to proceed under the updated regulations. Staying ahead of amendments is essential to ensure that you do not run the risk of penalties or problems. To help you better understand the VAT changes on electronic services, which go into effect on 1 April 2019, we have put together a brief outline. In the 2017/2018 budget, National Treasury published an amended regulation for electronic services. In this updated regulation, Treasury stated that the VAT base for these services would be expanded. These changes were in line with the proposal set by South Africa’s finance minister in the 2017 budget review.

What exactly do these changes mean for local businesses, and how will they affect foreign trade here in South Africa? Let’s take a look.


VAT Changes on Electronic Services

Essentially, these VAT changes apply to a full range of electronic services. They especially affect international suppliers to South Africa, who need to determine whether their supplied services qualify as electronic services. If the supplied services are qualified as electronic, it could potentially create issues with VAT registration in South Africa.

Some of the most important changes in regulation include the following:

  • A wider definition of ‘electronic services’. Under the changed regulations, electronic services will be defined as ‘ ‘any services supplied by means of an electronic agent, electronic communication or the internet for any consideration.’ It will not include educational services regulated by an educational authority in the export country and will also exclude telecommunications services.
  • Electronic services include a wide range of services. These could be anything from software supplies, anti-virus programmes, cloud computing, gaming, training, online advertising, broadcasting, and online consulting.
  • B2B and B2C transactions are treated the same. Although there some relief for B2B intra-group transactions in the case of South African companies that are a wholly owned subsidiary of the international company, the majority of transactions will have no distinction, whether they cater to B2B or B2C markets.

Some other things to note about the updated regulations:

  • Activities of intermediaries are incorporated in the scope of enterprises.
  • VAT registration threshold for suppliers of such services is increased to R1 million on a 12 month basis.

All services supplied internationally by an electronic agent or the internet are now considered to be electronic services as far as VAT goes.

At MJ Chartered Accountants, our goal is to help make your life simpler. We will work with you each step of the way to ensure that your business can easily navigate the upcoming VAT amendments. Contact us today to get expert help on VAT changes and anything else you may need to stay tax compliant.