Vat On Electronic Services Provided By A Foreign Group Of Companies
The VAT Act provides that VAT be levied is levied on imported services. Of late the focus has been on Electronic Services provided by non-residents to residents. Examples of these electronic services will be the provision of cloud computing as well as online services.
The obligation to declare and pay VAT rests on the supplier of the electronic service. Previously the VAT Act provided for this obligation to rest on the recipient of the service however, this was amended upon publication of the Government regulations in relation to VAT on electronic services.
The non-resident supplier of electronic services will be required to register for VAT in the following instances:
- The electronic services are supplied from a place outside South Africa.
- The non-resident is deemed to be conducting an enterprise in South Africa.
- At least two of the below circumstances are present:
- The recipient of the electronic services is a resident of South Africa.
- Payments made to the supplier are from a South African registered bank under the Banks Act 94 of 1990.
- The services are rendered to a recipient who has a postal, business or residential address in South Africa.
It is common in a multinational group setting for companies to supply electronic services to each other. Where electronic services are supplied by a non-resident company to a resident company for the exclusive consumption by the resident company and the two companies form part of the same group of companies, the supplier of the services does not need to register for VAT as such services do not constitute an electronic service as defined.
It is important to note that a group of companies for IFRS purposes is different to a group of companies for tax purposes. A group of companies for tax purposes requires that there be a 70% shareholding. Where the shareholding between the two non-resident companies is less than 70%, the non-resident company will be required to register for VAT if the foreign supplier makes more than R1 million from the supply of electronic services in a 12-month period. SARS has introduced a process that is simplified with regards to the VAT registration of foreign entities providing electronic services. The SARS VAT Registration Guide for Foreign Suppliers of Electronic Services can be consulted in regards to this.