VAT on online purchases how will this effect us?

tbulford

There is new legislation for VAT to be added to online purchases! This is not really a surprise however the timelines given for it to go live are extremely short.

http://mygaming.co.za/news/news/61709-new-tax-to-hit-online-gaming-in-sa.html

Its still unclear how it will be controlled and how it will be decided weather or not you have to charge VAT to your customers. I am concerned this might effect small indies in the following ways.

1. Selling from your own site you will need to charge VAT or show that the customer is not from South Africa (Our current requirements for this are quite unsuitable for online. Also this would depend on if the normal VAT requirements apply if so you don't need to include VAT until we making about 1 mil a year)
2. Potential additional steps getting your relationship with international vendors approved. VAT certificate. (If we are forced to have a VAT certificate by the online retailers then we will have to start including VAT on our own sites too.)
3. Forcing our product to sell for 14% more making us less competitive. Or simply eating 14% out of the already diminished percentage developers get.

Celestial is not VAT registered and in all honesty the hoops you have to jump through have not made it worth doing. If this goes live in April and there are advantages/requirements to been VAT registered now is the time to start thinking about it.

Thoughts?

LexAquillia

Non story: You've always been liable to pay VAT (if you are a VAT vendor) on digital sales. When I have time I'll answer all the quesitons:

But for now, read here: page 71 Example 30

tbulford

@LexAquillia hmm I don't think anyone has ever submitted VAT to SARS as per example 30.

Hopefully it doesn't mean some digital stores wont simply decide its not worth the trouble doing business here.

I do remain curious though under current legislation if I am selling from my own site and I am VAT registered do I allow foreigners to be VAT exempt? Are there similar laws in other countries that insist I request sales tax from a purchaser and then pay it over to their government?

On the other hand I really don't know how the government intends to police this and how that's going to effect us. I am not convinced this is a non story although I understand that its not really a change in terms of whats owed to whom just who is responsible for collecting it. I do hope you are right though and it is just that.

LexAquillia

hmm I don't think anyone has ever submitted VAT to SARS as per example 30

That's the point of the change in legislation, they are shifting the responsibility to the sellers (which is bringing us inline with pretty much the rest of the world).

Let's try tackle some questions then:

1. Selling from your own site you will need to charge VAT or show that the customer is not from South Africa (Our current requirements for this are quite unsuitable for online. Also this would depend on if the normal VAT requirements apply if so you don't need to include VAT until we making about 1 mil a year)

You will only need to charge VAT if you are a VAT vendor, even with this change. If you are a VAT vendor you charge VAT on every sale. The onus is on the foreign purchasers to claim the VAT back from SARS.

2. Potential additional steps getting your relationship with international vendors approved. VAT certificate. (If we are forced to have a VAT certificate by the online retailers then we will have to start including VAT on our own sites too.)

You won't need the VAT certificate, they will. They are selling the goods on your behalf so they are responsible for collecting the VAT (Basically Steam, Humble, Apple whatever will all be required to register with SARS if they want to provide services here).

3. Forcing our product to sell for 14% more making us less competitive. Or simply eating 14% out of the already diminished percentage developers get.

Not really, remember every other seller is selling with their domestic sales taxes already (especially if they are in the US or the EU, if anything we've been free riding off their system for a long time now)

tbulford

@LexAquillia thanks for the insights.

ghost

I have a general question at the community,

What are the chances of Steam/Apple/Blizzard etc just choosing not to provide those services in South Africa? There are ways around this obviously but it would be a pain to jump through hoops.

-R

tbulford

I suspect some services might do that. Especially the ones without a local office. Guess its going to come down to cost versus effort. Keeping in mind that the prices will now be higher on those services so they might loose sales too. The weak rand contributing to that too.

LexAquillia

I don't see the major platforms geofencing us. They've already got the systems in place to deal with multiple tax regimes, our a flat 14% is trivial compared to the state by state taxes in the US. Some of the smaller vendors may opt out, but then it raises the question if they are eligible to be VAT vendors anyway.

ghost

Okay, thanks for the opinions. Let's see how it plays out.

Bensonance

@LexAquillia

If that does that happen it sounds like an opportunity for MGSA to get involved somehow. Championing that could be a big PR coup for us. [Sorry... this is how I think now - it's @dammit's fault :/ ]

dammit

I was just thinking we need our resident lawyer on camera explaining this one too...

Boysano

For clarity sake, how would it influence say a SA company creating a web platform to sell games like steam, which also accepts games for resale from any country to any country online.

Or we can always convert to Bitcoin?

LexAquillia

@Boysano new regulations doesn't effect your scenario at all. For completeness sake though, The theoretical SA company would need to register for and apply VAT ANYWAY once it met the thresholds (i.e. more than R1million in revenue a year).

EvanGreenwood

For clarity again, can anyone describe what happens in this scenario:

A South African company (let's say Free Lives) sells their game (let's say Broforce) through an online vendor (let's say Steam) (and they sell more than R1million worth of it to customers around the world).

Specifically: Does Steam (the vendor) pay VAT to SARS, or does Free Lives pay VAT to SARS, or do both? And is this in addition to the VAT that is paid to other tax agencies in other countries (like Europe) when the sale happens there?

More specifically: Does VAT get paid twice when the sale is to a foreigner?

LexAquillia

No, Steam pays the VAT, technically you Freelives are not making the sale (so you don't have to collect the VAT even though you are a vendor) Steam is. If you sold on your own site, the you would need to collect and charge the VAT

EvanGreenwood

Thanks @LexAquillia! That clears it up.

LexAquillia

In terms of the foreign VAT, there should never be double VATing I.e. If the sale is to an EU customer then EU vat is applied, if to a South African customer, RSA vat is applied

rumor

With regards to the example BlackShipsFilltheSky made, what then is the point of registering for IRS, and doing your W-8EN to get your Tax back? I still get confused with all the VAT, Sales Tax and anything else that has to come off ones sold items.

Anyone know what steam/iOS/microsoft hold when they refer to TAX and you having to submit the W-8EN to get your TAX back?

dislekcia

rumor said:

With regards to the example BlackShipsFilltheSky made, what then is the point of registering for IRS, and doing your W-8EN to get your Tax back? I still get confused with all the VAT, Sales Tax and anything else that has to come off ones sold items.

Anyone know what steam/iOS/microsoft hold when they refer to TAX and you having to submit the W-8EN to get your TAX back?

That is so that the IRS doesn't force the company paying you your earnings (that they have collected for you by selling your game) to withold 30% of those earnings as potentially taxable income that you would have to pay to the IRS.

South Africa has a tax treaty with the US that means SA companies don't pay tax in the US, all that US-based income is just local SA income and is taxed here in SA accordingly. This is profit-based taxation at the business scale and has nothing to do with VAT which is applied at the level of each individual consumer according to their location and sales tax rules in that area.

rumor

Thanks dislekcia! :D

I have been racking my head for a bit trying to understand everything with regards to all the international business and tax.