South Africans to pay VAT for online PC software

The finance ministry recently published draft regulations which propose changes to the VAT Act.

If the regulations are implemented, it will result in changes to the VAT treatment of electronic services.

The 2014 amendments to the VAT Act state that foreign suppliers of electronic services are required to register for VAT where supplies exceeded R50,000.

These electronic services included games, Internet-based auction services, e-books, audio-visual content, images, and music and subscription services – but excluded services such as cloud computing and software.

The new definitions in the draft regulations will include many services previously not covered, such as:

  • Supplies of software, antivirus and cloud-computing.
  • Administrative services in a corporate group environment delivered electronically.
  • Online advertising.
  • Broadcasting.
  • Access to databases and information systems.
  • Any consulting services delivered online, including on a pay-by-use basis.
  • Training via eLearnings.
  • Monetising electronic agents, electronic communication, or websites.

To see how this will affect South African consumers, MyBroadband spoke to PwC about the new VAT draft regulations.

Software products

According to PwC, South Africans have been paying VAT for international streaming services like Netflix and Amazon Prime since 2014.

“When the regulations on electronic services were introduced in 2014, they included subscription services as well as access to audio-visual content and music,” said PwC.

“The effect of this was that the foreign providers of these services were required to register in South Africa as VAT vendors. South Africans are thus already paying VAT on these services.”

The proposed VAT regulations make no changes to streaming services, but software purchases from international vendors will be affected.

PwC said the biggest impact of the changes to the VAT Act will be seen in the software sector, with products like antivirus or anti-malware programs set to be affected.

“Currently, foreign suppliers of software via the Internet are not required to register in South Africa and charge VAT on these supplies,” said PwC.

“After 1 October, VAT will be needed to be added to the price that is charged by the foreign service provider.”

PwC said these products should already be subject to VAT, as they are regarded as imported services and South Africans are required to declare and pay the VAT.

“In practice, this never happens, and it is part of the reason why foreign service providers will, in future, be required to register and charge VAT,” said PwC.

Following the enactment of the changes to the VAT Act, international software vendors will start factoring VAT into the price of their products in South Africa.

The new VAT provisions are set to come into effect in October 2018.

Now read: E-tolls have not worked, we need a new model – ANC

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South Africans to pay VAT for online PC software