The proposed legislation makes VAT registration of foreign e-commerce service providers compulsory where their taxable turnover exceeds R50 000 per annum. This applies where a South African resident customer consumes the electronic services for use in South Africa. A proxy is also proposed which pulls the foreign supplier into the South African VAT net where payment is made through a South African bank. These electronic service providers will be entitled to account for VAT on the cash basis of taxation.
Foreign suppliers may face a number of changes to their systems including allowance for prices adjustments resulting from the imposition of 14 percent VAT; VAT at 14 percent calculations by applying 14/114 to the VAT inclusive price or the value plus 14 percent; posting of the VAT calculated to a VAT output account; identification of South African resident customers and payments made through South African bank accounts; and effecting of changes to source documentation issued to customers.
Electronic services are defined with reference to a regulation to be published by the Minister of Finance. It is expected that the services to be listed will be limited to B2C.
Foreign suppliers may face compliance costs resulting from system changes, source documentation changes, marketing or advertising changes, VAT registration, VAT filing costs, and the appointment of a VAT representative.
This proposal is welcomed as it broadens the VAT base and addresses inefficiencies in the reverse charge mechanism. Foreign suppliers and their local counterparts will be placed on equal footing.
The challenge for foreign suppliers of e-commerce services is that they will have to ensure their readiness to comply on 1 April 2014.
The Tax Administration Act (TAA) introduced specific rules relating to electronic record keeping.
The TAA allows records to be kept electronically where the information remains complete and unaltered except for changes arising in the normal course of communication, storage and display (record integrity must comply with the Electronic Communications & Transactions Act (ECT Act)).
Records should generally be kept in South Africa. However, the South African Revenue Service (SARS) may authorize retention outside South Africa where, for example, the records can be accessed electronically at the person’s address in South Africa and where an international tax agreement with the foreign country exists for reciprocal tax administration assistance.
When computer software or electronic platforms are altered or adapted for the person’s specific requirements, additional documents need to be retained.
Finally, adequate storage and back up of electronic records should be ensured, including storage of the media where the records are stored, the storage of electronic signatures, etc. Electronic records, login codes, keys, passwords and certificates to allow access, should be available if SARS wishes to conduct a tax audit and/or to inspect the system.
The obligations and prescribed retention periods specified in the TAA and other South African Tax Acts relating to a person’s duty to keep records also applies to electronic records. SARS may have to be approached to ensure that the requirements of the TAA, the ECT Act and the relevant Tax Acts are met when records are kept in electronic format.