South Africa: Tax authority targets e-service suppliers and VAT compliance
SARS has started issuing letters to non-resident suppliers of e-services, notifying then to register for VAT or provide an explanation.
Tax authority targets e-service suppliers and VAT compliance
The Commissioner for the South African Revenue Service (SARS) in the agency’s annual performance plan for 2022-2023 confirmed that its mission continues to focus on collecting all revenues due and ensuring optimal compliance with tax legislation.
One of the “key must-win battles” for SARS is to broaden the tax base, and to this end, SARS has identified and communicated focus areas for 2022-2023 that include
- Tax base broadening using third-party data
- Value added tax (VAT) on e-commerce
Non-resident suppliers of electronic services to recipients in South Africa are required to register for VAT in South Africa (subject to the registration threshold) and account for VAT at the standard rate (currently 15%) on the supplies made. This includes supplies to other businesses (business-to-business or B-2-B), supplies to end-consumers (business-to-consumer of B-2-C) and, subject to certain exceptions, supplies to group companies in South Africa. However, whether due to ignorance of the law or other reasons, SARS observed that not all non-resident suppliers are duly registered.
From recent communications received by non-resident suppliers of electronic services (e-services), it is evident that SARS has started implementing its performance plan.
SARS has started issuing letters to non-resident suppliers of e-services, notifying these suppliers to register for VAT or to submit information and reasons why they believe that a VAT registration is not required. SARS merely states in the letters that the determination is based on “the information at our disposal.” While it is uncertain where SARS obtained its information, it could be from various sources—for example invoices issued to South African recipients, payments made from South Africa to foreign suppliers, the internet, etc.
From these notifications, SARS is, as promised, focussing on VAT on e-commerce and simultaneously broadening the tax base. One important consideration for non-resident e-service suppliers that are not duly registered is that, once SARS has issued a notification for registration, the option of mitigating penalties under the voluntary disclosure programme (VDP) for historic non-compliance falls away, since a VDP application will no longer be considered “voluntary.”
In the interest of complying with the legislation and limiting any exposures, non-resident suppliers of e-services need to consider assessing their registration obligations. In this regard, suppliers need to note that the South African legislation does not distinguish between B-2-B or B-2-C supplies.
Read an August 2022 report [PDF 275 KB] prepared by the KPMG member firm in South Africa
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 3712, 1801 K Street NW, Washington, DC 20006.