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  • Writer's pictureLawtons Africa

E-commerce and value-added tax

Authors: Riëtte Engels-van Zyl – Director, Marissa Wessels – Associate and Zaheer Moosa – Candidate Attorney

Due to rapid global technological advances, there has been a shift towards e-commerce and electronic transactions. In an attempt to achieve a connected enterprise model, the majority of global enterprise businesses have developed applications to enhance the consumer experience.

There has, however, always been a specific need to address the practical implementation and treatment of South African Value-Added Tax (VAT) in the context of cross-border trade in services, goods and intangible property. This international requirement has been evaluated by the Organisation for Economic Co-operation and Development (OECD) in a report titled 'Consumption Tax Aspects of Electronic Commerce – a report from working party no. 9 on consumption taxes to the Committee on Fiscal Affairs, February 2001.

The OECD essentially highlighted the following principles:

  1. The need to define the principle of taxation and the place of consumption more clearly; and

  2. The identification of collection mechanisms that can support the practical operation of this principle, with particular emphasis on business-to-business (B2B) transactions, and the relevant jurisdiction in which the recipient and consumer has its usual business jurisdiction presence.

It is no surprise that in this context, the Electronic Services Regulations of the Value-Added Tax Act No 89 of 1991, as amended from time to time, (the VAT Act) was recently published.

The Electronic Services Regulations and the VAT Act

The VAT Act requires South African suppliers of e-commerce services to register as VAT vendors where their respective turnover transactions value of taxable supplies meets the required compulsory registration threshold of R1 million in any consecutive 12-month period.

It is important to note that in terms of s1(1) of the VAT Act, a foreign non-resident supplier of electronic services will be deemed to be an enterprise (business) in terms of the VAT Act and is required to register as a VAT vendor if at least two of the following circumstances are present:

  • The recipient of those electronic services is a resident of South Africa;

  • Any payment to that person in respect of such electronic services originates from a bank registered or authorised in terms of the Banks Act, (94 of 1990); or

  • The recipient of the electronic services has a business address, residen-tial address or postal address in South Africa.

This means that both South African and foreign suppliers of e-commerce services are required to register as VAT vendors, submit the necessary returns and pay the respective VAT amounts due to the South African Revenue Service (SARS).

Examples of electronic services that would be covered by the Electronic Services Regulations issued in terms of s1(1) of the VAT Act (the Regulations) include, but are not limited to the following:

  • Education services such as internet-based courses and programmes, except where explicitly excluded and/or exempt;

  • Games and games of chance such as internet-based games, interactive games and electronic betting or wagering;

  • Information system services;

  • Internet-based auction services;

  • Maintenance services in relation to any blog, database, information sys-tem and website;

  • Online shopping portals;

  • Web-based broadcasting;

  • Access to E-books, films, images, music and software; and

  • Access to and/or subscription services relating to inter alia any blog, database, information system services, journal, magazine, newspaper, games and website.

Furthermore non-residents should also be aware of the provisions of s54(2B) of the VAT Act, which became effective from 1 April 2019. These provisions provide that where electronic services are supplied by an intermediary who is acting on behalf of another person who is the principal for the purposes of that supply, and:

  1. the intermediary is a vendor;

  2. the principal is not a resident of South Africa and is not a registered vendor; and

  3. the electronic services are supplied or are to be supplied by the principal to a person in South Africa,

that supply shall be deemed to be made by the intermediary and not by that principal.

From an exclusionary perspective, the Regulations stipulate that, 'electronic services' includes any services supplied by means of an electronic agent, electronic communication or the internet for any consideration, other than:

Examples of electronic services that would be covered by the Electronic Services Regulations issued in terms of s1(1) of the VAT Act (the Regulations) include, but are not limited to the following:

a. educational services supplied from a place in an export country and regulated by an educational authority in terms of the laws of that export country; or

b. telecommunications services; or

c. services supplied from a place in an export country by a company that is not a resident of the Republic to a company that is a resident of South Africa if:

c i. both those companies form part of the same group of companies; and

c ii. the company that is not a resident of South Africa itself supplies those services exclusively for the purposes of consumption of those services by the company that is a resident of South Africa.

For the intragroup transaction exclusion contemplated above, it is important to note that 'group of companies' means two or more companies in which one company (the 'controlling group company') directly or indirectly holds shares in at least one other company (the 'controlled group company'), to the extent that:

a. 70% of the equity shares in each controlled group company are directly held by the controlling group company, one or more other controlled group companies or any combination thereof; and

b. the controlling group company directly holds 70% of the equity shares in at least one controlled group company.

Due to the scope of the Regulations being extended to 'any services' supplied electronically, the inclusion list is by no means an exhaustive list of examples and there is no distinction between B2B supplies and enterprise (business) to consumer supplies.

It is arguable whether the SA VAT Act and the Regulations have, in fact, managed to address the defining principle of taxation of electronic commerce and, more specifically, the place of jurisdiction for both the supplier and consumer, particularly B2B transactions, as highlighted by the OECD in 2001.

It is, however, clear that non-compliance with the VAT Act and thus, the Tax Administration Act (28 of 2011), as amended from time to time, is an offence and may result in penalties, interest, a fine and/or imprisonment.

Suppliers of e-commerce should seek advisory assistance in approaching the application of the Regulations to ensure that the complexities surrounding VAT and e-commerce related transactions are adequately addressed in their respective businesses.


Lawtons Africa is a South African law firm. With roots that grew out of seeds sown in down-town Johannesburg in 1892, our history features various changes and different names. Our team of lawyers, including directors, consultants, associates and candidate attorneys is highly qualified, market-recognised and skilled. For further information, visit

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