Value added tax (VAT) on imported goods is paid by the person importing the goods into South Africa. VAT on imported goods is collected by customs before clearing the goods into South Africa. VAT on imported services is paid by the person importing the services into South Africa, only to the extent these services are used and consumed for non-taxable supplies. In the case of imported services, reliance is thus placed on the importer to declare and pay the VAT over to SARS .
To improve the compliance suppliers of electronic services have to register for VAT if the supplier meets the following requirements:
1. Where electronic services are supplied by a person from a place in an export country (an electronic service supplier); and
2. Such person is conducting an ‘enterprise’ in the Republic, as defined in section 1(1) of the VAT Act; and at least two of the following circumstances are present:
- The recipient of the electronic services is a resident of the Republic
- Any payment made to the supplier in the export country (for the supply of the electronic services) originates from a bank registered or authorised in South Africa in terms of the Banks Act 94 of 1990
- The recipient of those electronic services has a business, residential or postal address in the Republic, and
3. The total value of the taxable supplies made by that person in the Republic has exceeded R1 million (effective 1 April 2019, previously R50 000) within any consecutive 12-month period (section 23 (1A)). This compulsory registration threshold is consistent with the domestic compulsory registration threshold.
New regulations have been issued effective 1 April 2019 which prescribe the services that are ‘electronic services’ for the purposes of the definition contained in section 1 (1) of the VAT Act. The new regulations apply to all ‘services’ as defined in the VAT Act that provided by means of an electronic agent, electronic communication or the internet for any consideration.
The following services are, however, excluded from the definition of ‘electronic services’:
- Educational services provided by a person from an export country which person is regulated by an educational authority in terms of the laws of that export country
- Telecommunications services, and
- Certain supplies within a group of companies
The VAT Act was further amended to deal with ‘intermediaries’ and ‘platforms’.
- Supplier of electronic service registered for VAT: The VAT registered recipient of the supply may claim the VAT charged on the electronic service as an input tax credit, depending if the expenses are applied wholly or partially for the making of taxable supplies.
- Supplier of electronic service not registered for VAT: The recipient will have to declare and pay VAT on the electronic service to the extent that the services are applied for non-taxable supplies.
Why is VAT charged on the importation of goods or services into South Africa? To place the foreign supplier in a similar tax position as the local supplier. This then reduces distortions between trade competitiveness.
The new regulations have widened the scope when compared to the previous regulations. This then aligns with the policy objectives of reducing the risk of VAT distortions in trade between foreign and local suppliers. SARS has published very useful FAQs in order to provide guidance in respect of the changes.