South Africa kicks off VAT on online sales

Last week the tax man in South Africa published draft legislation that taxes online sales to South-African residents. Although the rules look pretty straight-forward, there are lots of open ends. A couple of initial thoughts:

  • How do they want a U.S. online seller to register in South Africa? There is currently no mechanism to register, file returns and pay taxes for non-resident businesses.
  • This applies to sale to both South-African resident individuals as well as businesses. A reverse charge for the latter would be much simpler.
  • In the EU only “automated” online sales (f.e. downloads of software) are covered by the e-commerce VAT rules. Non-resident sellers of for example one-on-one teaching (say via Skype) are not required to account for VAT. The South African rules include this type of services, which can be challenging if an exemption applies for classroom teaching.

The rules are slated to take effect from April 1, 2014.

Have a look here for more info:

http://www.bdlive.co.za/business/2014/01/31/government-wants-to-levy-vat-on-foreign-e-commerce-firms

http://www.news24.com/Technology/News/SA-eyes-VAT-on-e-books-apps-games-20140131

The document is here:

Download (PDF, 217KB)

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How much is a lack of VAT knowledge costing you? UPDATED

As most of you know, the importance of efficient Global VAT management is a recurring theme in my webinars, client meetings and here on the VAT Blog. The article linked below is a brief for smaller businesses, but nevertheless the numbers speak for themselves.

“Businesses need to understand that VAT doesn’t have to be such a headache, especially when the savings they’re able to make are so staggering. The process doesn’t need to be as time consuming as businesses believe it to be,” Chris Stonehouse, Category Manager at Sage, commented.

How much is a lack of VAT knowledge costing you?.

UPDATE: More coverage here from the Irish Independent newspaper:

“Now a study by business software provider Sage suggests that only half of business are confident that they are processing VAT correctly.”

via Complicated system leads to SMEs overpaying their VAT – Independent.ie.

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Welcome Croatia! – UPDATED

Today, July 1, marks the first day of the newest and 28th EU member state – Croatia. See more here: http://www.bbc.co.uk/news/world-europe-23118035.

There is not much Croatia-related news in my daily VAT news flow. A few weeks ago, KPMG came up with the below newsletter. The VAT rules do not seem to be different from those in the other EU member states, but – as we all know – the proof will be in how the Croatian authorities deal with the new intra-EU VAT system. No one blinks at Croatia’s 25% standard VAT rate anymore. Neighboring EU country Hungary has 27%.

UPDATE – As expected, there are some glitches in the transition, as in 1300 trucks waiting to cross the Croatia – Serbia border: http://www.nytimes.com/reuters/2013/07/02/world/europe/02reuters-croatia-serbia-border.html?smid=pl-share 

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An E&Y update, with focus on China

In the second report I received today, E&Y provides global updates on VAT. I must say that this report has a couple of excellent pointers, both for current changes as well for brewing challenges. For example, E&Y mentions about the joint liability rules in Slovakia – if your supplier does not pay the VAT over to the government, the tax man may go after you. Actually, this rule applies in a number of other countries as well, but it is good to keep this in mind when dealing with new vendors.

They also discuss the VAT reform in China, which is really a hot topic this year. I am still hopeful that a appropriate solution is found for the Chinese VAT issue on royalties – see my earlier comments about that herehttp://www.us-vat.com/blog/?p=668,

Download (PDF, 7.14MB)

 

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KPMG on upcoming EU VAT changes

Two new reports in my inbox today: the first one is from KPMG, discussing the new rules on telecommunications, broadcasting, and electronically supplied services to businesses and individuals. They also address What the modifications could mean for future changes to the EU VAT.

EU – Modifications to VAT sourcing rules | KPMG | GLOBAL.

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China: VAT on royalties paid to foreigners

There is a surprising kink in the cable of the VAT / business tax reform in China. VAT is being withheld on royalties paid to foreign companies – see the articles below.

This is a serious matter, and so wide-spread that two of my clients have already complained about it.

Here is the issue: Chinese company uses copyrights/patents etc. from a U.S. company. Chinese company pays the U.S. company royalties. On the licensing service supplied by the U.S. company 6% VAT is due. This is collected by way of a reverse charge (self-assessment), by the Chinese company. So far, this is fine.

The U.S. company agreed that the royalty payment (license fee) would be “exclusive of any taxes”. This means that taxes must be added by the Chinese company. For the VAT, the expectation would be that the Chinese company has the right to credit or deduct the VAT on the license fee. Thus, VAT would not be a cost to the Chinese company. This is not in dispute.

According to the new rules, the Chinese company must withhold 6% VAT from the payment. Again, this VAT is recoverable to the Chinese company.

The solution is of course to change the license agreement in such a way that the U.S. company is compensated for the withheld VAT.

If you have any experience with this, please let me know!

Hollywood surprised by tax from China – L.A. Biz.
Hollywood Studios Clash Over New China Tax – WSJ.com.

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Global VAT registration requirements

Daniel Keller, who is a Friend Of The VAT Blog, wrote a comprehensive summary of global VAT registration requirements.

Daniel says:

It is important to note that the requirements (or even the ability) to register vary from country to country – some countries require registration for making any taxable supplies within their borders; some permit non-residents to voluntarily register; and others refuse to allow non-residents to register under any circumstances.

Have a look at his article here:

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