VAT: Electronic Services to be introduced on 01 June 2014

In the recent CA(SA) DotNews newsletter sent out, SAICA touched on the latest amendments to the Value-Added-Tax (VAT) legislation regarding foreign suppliers of e-commerce services (E -Books and Music).

As this is a new and unchartered area, we would like to draw your attention to the following important details:

  • All foreign entities supplying electronic services to South African residents need to register for VAT in South Africa, where the total value of electronic services supplied in South Africa exceeds R50,000 in any 12 month period. These entities are called FESE.
  • The regulations apply to any supply of electronic services in the course or furtherance of an enterprise carried on by a person in an export country:
    • to a recipient that is a resident of the Republic; or
    • where any payment to that person in respect of such electronic services originates from a bank registered or authorised in terms of the Banks Act, 1990 (Act no. 94 of 1990).
    • The effective legislation date is 01 June 2014.
    • The services listed in the regulations are electronic services where such services are supplied by means of any electronic agent, electronic communication or the internet for any consideration and comprise the following:
      • Educational services
      • Games and games of chance
      • Internet – based auction service
      • Miscellaneous i.e. e-book, audio visual content, still images and music
      • Subscription services

The breakdown of these individual services are contained in the Government Gazette No. 37489.

  • The accounting basis for the VAT returns is the payment basis (cash basis). This means that the FESE only accounts for South African VAT on the actual payments in respect of taxable supplies during the relevant tax period.
  • The FESE is required to use the Swift MT103 payment method for VAT payments

At MD Accountants and Auditors Incorporated, we can assist with not only the VAT registration of the foreign entity but also with the various compliance requirements for the bi-monthly VAT submission process.

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