Regulation amending VAT on Foreign Suppliers of Electronic Services

Regulation amending VAT on Foreign Suppliers of Electronic Services

On 14 March 2025, South Africa has published the Regulation covering amendments to the Electronic Services definition for the purposes of VAT. This has been eagerly anticipated since the amendments were published in draft form on 1 August 2024. The fundamental impact of the amendments are as follows:

• the definition of "electronic services" will exclude supplies made by a non-resident in an export country where the supplies are made solely to South African VAT-registered vendors; and
• enforce more restrictive rules for intragroup supplies.

In addition, a recent amendment to Section 54(2B) of the VAT Act allows non-residents to use intermediaries irrespective of VAT status.

The amendments are effective from 1 April 2025.

Exclude supplies to South African VAT-registered vendors

The definition of "electronic services” now exclude transactions between a foreign electronic services supplier and a South African VAT-registered vendor. For this exclusion to apply, the foreign electronic services supplier must supply foreign electronic services exclusively to South African VAT-registered vendors. The amendment is based on an “all or nothing” rule. This amendment was necessary as the supplies made to VAT-registered customers had little to no benefit for SARS as the local business would pay the VAT on the foreign electronic services and claim it as an input on their VAT return.

If the foreign electronic services supplier supplies foreign electronic services to both VAT-registered and non-VAT-registered customers in South Africa, they must still account for VAT on all supplies made to all customers in South Africa, regardless of whether or not they are a VAT vendor. A foreign electronic services supplier that supplies foreign electronic services to both VAT-registered and non-VAT-registered customers must consider all of its foreign electronic services supplies when determining whether they have exceeded the VAT registration threshold of R1-million in a consecutive 12-month period.

Therefore, for the exclusion to apply, the foreign electronic services supplier must ensure that all of its customers in South Africa are VAT registered vendors. The foreign electronic services supplier can verify this by requesting latest VAT registration certificate of the customer or verify the VAT details of the customer on the SARS link https://secure.sarsefiling.co.za/vatvendorsearch.aspx

In the event that a non-resident supplier meets the strict criteria of this new amendment, it will no longer be considered to be conducting an enterprise in South Africa and will need to deregister as a VAT vendor.

Intra-group Exclusion

The new amendment adds an additional requirement regarding foreign electronic services between group companies where the foreign electronic services supplier and the local customer are in the same group. Previously, the exclusion applied to foreign electronic services supplied by the foreign group company to the local group company for exclusive use by the local group company.
According to the Regulation, the new requirement is that the foreign electronic services supplied by the foreign group company to the local group company must have been specifically devised, developed, created or produced for the purposes of consumption by the company that is resident in South Africa.

Intermediaries

In addition to the amendments made to the Electronic Services Regulation, section 54(2B) of the VAT Act was updated regarding rules applicable to the use of an intermediary. Based on the previous law, the intermediary would not have been deemed to make the supply on behalf of the principal if that principal is a resident of South Africa or a registered vendor. The new amendment deletes the “registered vendor” requirement.

As a result, from 1 April 2025, where electronic supplies are made or supplied by the intermediary, acting on behalf of the principal, the supply may be deemed to have been made by the intermediary, even if the principal is a registered VAT vendor. However, tis does now also require that the principal and intermediary agree in writing to treat the supply as if made by the intermediary. This will ensure that VAT is not account for twice by the principal and the intermediary. 
A further amendment to this Section states that where the parties have agreed to treat the supplies as being made by the intermediary, then both parties will be held jointly and severally liable for performing the duties of the principal or the intermediary under the VAT Act and paying the tax imposed by the VAT Act in respect of those taxable supplies.

Certain foreign suppliers of electronic services may not have qualified to benefit from the previous intermediary rules if they were already a registered VAT vendor. However, if that foreign supplier can now apply the intermediary provisions, they may qualify to deregister as a VAT vendor.

Conclusion

The above amendments are significant and may result in an impact on the foreign electronic services suppliers’ responsibilities and obligations under the VAT Act. All foreign electronic services suppliers need to reassess their VAT obligations and should seek professional advice where applicable.

Contributors:

Musa Nkosi - Consultant: Corporate Tax

Neil Hughes - Director: Tax & Trusts