Skip to main content

The uncertainty regarding the definition of electronic services

From 1 April 2019, the law dealing with electronic services supplied by foreign entities into South Africa was amended. The change in legislation effectively resulted in scrapping a very narrow definition of ‘electronic services’, which was introduced in 2014 and outlined a new definition to broaden the scope of ‘electronic services’ supplied by foreign entities.

The National Treasury set out the new definition of ‘electronic services’, and this definition refers to any services supplied by means of an electronic agent, electronic communication or the internet for any consideration; excluding certain educational, telecommunication and intra-group transactions.

The reason for the change, which is explained in the Explanatory Memorandum (EM)1 issued by National Treasury in March 2019, is to increase visibility of e-services to the South African tax authorities. This levels the playing field and ensures fairness in the tax treatment for all taxpayers regardless of whether they are domestic or foreign suppliers. As a result, where a foreign entity supplies ‘electronic services’ from a place in an export country to a recipient based in South Africa, such a foreign entity would be required to register for VAT in South Africa subject to meeting certain requirements.

It is however unclear how far reaching the new definition was supposed to be. The concern is that any service provided electronically could easily find its way into this new definition; however, was this the intention of the legislator? Most suppliers of electronic services were of the view that the intention was to only include the services which are electronic in its nature and not all services delivered electronically.

The EM addresses only those services which are provided using minimal human intervention, and for only those to be subject to VAT.  In other words, any service supplied by a foreign entity which involves a fair amount of human intervention will not be regarded as an electronic service. The EM provides the following example of when a service will not be an electronic service: Legal advice was prepared outside of South Africa but emailed to the recipient in South Africa. SARS also provided a Frequently Asked Questions guide2 that was released shortly after the changes to The Act clarifying which services fell ‘in’ or ‘out’ of the new ‘electronic services’ definition.

Whilst this guide contains various scenarios along with the SARS guidance and interpretation, there is a risk that it could also be contrary to the intention of the policy. The uncertainty therefore creates confusion as to who should account for the VAT; i.e., is it the South African recipient (imported services) or the non-resident; and also whether all services supplied to South African residents would result in the non-resident applying for VAT registration if the threshold is exceeded.

We would like to see National Treasury firm up the legislation and that the regulation provides a clear definition of electronic services that supports the policy intention as captured by National Treasury in the EM. 



1Regulations prescribing electronic services for the purpose of the definition of “electronic services” in section 1(1) of the value-added tax act, 1991

2Frequently Asked Questions: Supplies of Electronic Services Issue 3 date 5 July 2019

Did you find this useful?

Thanks for your feedback

If you would like to help improve further, please complete a 3-minute survey