Taxation of the digitized economy has been an area of focus for the international tax policymakers since at least the emergence of electronic commerce in the 1990s. In the digital market, products and services are uploaded, downloaded and used without any product or person physically crossing the international borders.
It has been observed that significant profits are often generated from sources within countries without establishing a physical presence in those countries. The rules require that suppliers of services such as applications, games, software downloads, e-books, music, and video streaming to apply to collect and remit the tax due for sales to EU-based consumers. South Africa was the second country in the world to introduce legislation on digital goods after Norway.
Rules of Taxation of Digital Goods in South Africa
South Africa’s tax on digital services was unveiled by the South African Revenue Service (SARS) on June 1st, 2014 at a rate of 14% and later on raised to 15% on April 1st, 2018. In South Africa, a digital product is defined as any product that is stored, delivered and used in an electronic format. These are normally goods or services that a customer will receive digitally either through email or through logging into a website.
For those dealing with digital goods in South Africa, one is required to register with a fee annually if the sales from the business that one is running are above ZAR1,000,000, annually. However, if the sales are below that, then the annual fee is not levied. If the sales surpass that target, then one is under obligation by the law to register for a VAT registration number which will be tracking the business through the system and you will be expected to file your returns by the end of the year.
At times foreigners may be having issues with compliance issues for dealing with digital goods, here one is advised to solicit information online on the rules for remitting taxes when one is within the country or visit the SARS website or even offices for advice. Generally, the rate of the taxes is 15% on every sale that is made to a South African Resident.
The invoices used to remit VAT for digital goods are required to have the following, the business name and address, the VAT number of the person conducting the business, invoice date, invoice sequencing number, the buyer’s name as well as contacts, buyer’s VAT number, the VAT amount and the rate applied to each item, if the transaction involves a number of items. Final amount after VAT is added and the currency used when effecting the transaction.
It is very important that one files the returns to ensure that the process is complete and ensuring that whatever one owes the government is settled in good time to avoid penalties. It is also important to note that foreign businesses are expected to file tax returns every month and one has a few days after a month comes to an end to file and pay taxes from digital goods.