South Africa - New VAT Rules Proposed for Electronic Services

For some time now, there have been indications that South Africa might amend the Value Added Tax (VAT) Act, significantly the articles related to electronic services. In August, the National Treasury of the Republic of South Africa (National Treasury) published the proposed amendments for public comment. 

As announced in the draft Regulations, new rules will take effect on April 1, 2025, more reflecting the needs and challenges of the digital economy.

Current Rules and Proposed Amendments

Under the current VAT rules, all foreign digital service providers who provide services to consumers in South Africa must register for VAT purposes and collect and remit VAT once they exceed the 12-month turnover threshold of ZAR 1 million (around USD 56,000). The current law does not distinguish B2C and B2B transactions for the VAT registration obligation, and all transactions are included in the turnover.

One of the most significant amendments proposed is that services supplied by foreign digital service providers solely to local vendors are excluded from the definition of electronic services. 

However, this definition already faces criticism as being imprecise and unclear. Therefore, additional changes to proposed amendments might be expected before amendments are adopted. 

In addition to this exclusion, new amendments also include the so-called Intra-group exclusion. Electronic services supplied by a foreign company to a South African company that is part of the same group are not considered electronic services for VAT purposes. However, the amendments introduce a more expansive definition of these services as exclusively discovered, devised, developed, created, or produced for consumption by the resident company.

Conclusion

From this perspective, additional work on the proposed amendments is needed. Even if the text of the proposed amendments is not changed and adopted as proposed, the National Treasury should provide further explanations and clarifications related to implementing new VAT rules applicable to electronic services.

Source: ENSAfrica - VAT treatment of electronic services, Draft Regulation, Explanatory Notes