1. VAT ON E-COMMERCE : CURRENT POSITION AND WAY FORWARD PRESENTATION FOR THE SOUTH AFRICAN ONLINE USER GROUP Ruaan van Eeden Director - Tax B.Com (Acc), Higher Diploma in Tax Law, M.Com (SA & International Tax)

2. VAT ON E-COMMERCE 28 August 2014 VAT on e-commerce 2

3. VAT ON E-COMMERCE Topics for discussion  Why the change?  VAT on e-services  Final Regulations  Registration, compliance and enforcement 29 August 2014 VAT on e-commerce 3

4. VAT ON E-COMMERCE  South Africa imposes VAT on a consumption basis  The consumption basis leaves certain gaps in the definition of “enterprise”  South Africa does not have specific place of supply rules  VAT on imported services / reverse charge mechanism 28 August 2014 VAT on e-commerce 4

5. VAT ON E-COMMERCE  E-commerce difficult to tax as it could be multi-jurisdictional and ever changing  international trend is to impose VAT where the recipient of the services resides  foreign suppliers of electronic services required to register as vendors –  R 50,000 per annum turnover threshold (payment basis)  effective date 1 June 2014  regulation issued by Minister of Finance stating which type of services must register for e-services VAT 28 August 2014 VAT on e-commerce 5

6. VAT ON E-COMMERCE PRE 1 JUNE 2014 POSITION FOR EDUCATIONAL INSTITUTIONS  exempt supplies by an educational institution  VAT on imported services / reverse charge mechanism applicable to ‘educational services’  the “enterprise” definition  lack of ‘place of supply’ rules and the need to even out the playing field 28 August 2014 VAT on e-commerce 6

7. VAT ON E-COMMERCE POST 1 JUNE 2014 POSITION FOR EDUCATIONAL INSTITUTIONS  14% increase in cost of electronically supplied services  unable to claim input tax by virtue of making VAT exempt supplies under section 12 of the VAT Act  can the educational institution still be held liable for VAT if foreign supplier refuses to register?  VAT on imported services still remains as backstop  what about ‘educational services’ exemption in section 14?  what about ‘educational authority’ exemption in Regulations? 28 August 2014 VAT on e-commerce 7

8. VAT ON E-COMMERCE VAT registration and foreign suppliers  Section 7(1)(a) of the VAT Act- levying of VAT in respect of the supply by any vendor of goods and services in the course or furtherance of any enterprise carried on by that vendor.  a person or business that is not physically active in South Africa would not ordinarily be seen as carrying on an enterprise 28 August 2014 VAT on e-commerce 8

9. VAT ON E-COMMERCE  The Taxation Laws Amendment Act, No 31 of 2013 introduced amendments to the VAT Act that introduced a specific ‘place of supply’ rule in respect of electronic services.  Specifically, the definition of an 'enterprise' has been amended to include, the supply of electronic services, by a person or business outside of South Africa to a recipient in South Africa (or where payment for the services comes from a South African bank). 28 August 2014 VAT on e-commerce 9

10. VAT ON E-COMMERCE  The foreign supplier of electronic services will become liable to register as a vendor at the end of any month where the value of taxable supplies by that person has exceeded R 50 000.  Accounting for VAT will be on a payments basis and compulsory through e-filing.  Foreign suppliers only required to issue abriged tax invoices.  No refunds to be paid – any overpayments will be set-off against future liabilities 28 August 2014 VAT on e-commerce 10

11. VAT ON E-COMMERCE  Final Regulations  On 28 March 2014 National Treasury published the Government Gazette No 37489, Notice R221 (the "Regulations") which narrowed the definition of electronic services.  Under the Regulations, electronic services are divided into specific categories ‑  educational services;  games and games of chance;  internet ‑ based auction service;  miscellaneous services; and  subscription services. 28 August 2014 VAT on e-commerce 11

12. VAT ON E-COMMERCE  Final Regulations  Educational services include –  Distance teaching programmes;  Educational webcasts;  Internet based courses;  Internet based education programmes; or  Webinars But only if the supplier of the service is NOT regulated by an ‘educational authority’ in the export country 28 August 2014 VAT on e-commerce 12

13. VAT ON E-COMMERCE  Final Regulations  Subscription services include –  Blogs, journals, magazines, newspapers;  Games;  Internet based auction services;  Periodicals, publications  Periodicals, publications;  Social networking service;  Webcast;  Webinar;  Website;  Web application;  Web series. 28 August 2014 VAT on e-commerce 13

14. VAT ON E-COMMERCE PRACTICAL EXAMPLE 28 August 2014 VAT on e-commerce 14 PUBLISHING COMPANY SA UNIVERSITY WEBSITESERVER Contractual Arrangement Invoicing and payment OFFSHORE SA CLOUD SERVER

15. QUESTIONS?