Authorities will make you pay, pal
Experts warn South Africans to consider legalities before launching sales through PayPal
PAYPAL HAS BECOME one of the most frequently used Internet payment mechanisms worldwide, and the recent announcement of First National Bank and PayPal’s partnership opened the channel for South Africans to withdraw payments made in US dollars to pay for goods and services, in rand.
PayPal acts as a payment proxy for your credit card and/or bank account for cash top-ups via a PayPal account to buy goods over the Internet. With the successes of international selling platforms such as eBay or Bid or Buy, PayPal has become a convenient and relatively safe way for individuals and businesses to trade via the Internet without taking on the risk and cost of using multiple payment facilities.
But experts warn South African residents should consider all the exchange control and tax implications before launching sales through PayPal.
The SA Reserve Bank will impose transactional limits when buying foreign currency through PayPal, while the SA Revenue Service (Sars) will enforce valueadded tax regulations, which is the case with all standard export transactions.
Deloitte Tax associate Keith Veitch says there are exchange control requirements relating to the export of tangible goods and it’s recommended individuals and businesses liaise with their bankers in that regard. “If the products or services are required to be paid in international currencies, it’s suggested to ask the advice of FNB about the use of a foreign currency account (where the restrictions have recently been relaxed),” says Veitch.
Deloitte Tax director Geraldine Connell says it’s important to adhere to VAT documentary requirements for the movement of goods from SA. Those depend on whether the seller has exported the goods himself or whether the buyer has collected the goods from SA.
If the seller is responsible for exporting the goods from SA, he needs to retain the order or contract with the buyer, prove the seller has paid the transport costs, a copy of the freight transport document, a stamped SAD500 form, plus proof of payment.
“Those documents must be obtained within three months and the goods must be exported within two months of the date of the invoice or the receipt of any payment. With the correct documentation and procedures in place, zero-rated VAT would apply to those export transactions,” says Connell.
SA’s VAT legislation also governs the time and value of goods being supplied but doesn’t describe the place where a service or goods are supplied. For example, a South African supplier has an online shop selling Soccer World Cup memorabilia, which is stored in a warehouse in China and dispatched worldwide. SA doesn’t have rules about where the sale takes place from a VAT point of view.
Says Connell: “In future, e-commerce VAT calculations may follow the regulations that apply in Europe, where the businessto-consumer concept applies and VAT is accounted for in the location of the supplier.” For example, if a South African sold a widget to someone in Britain, the transaction would be subject to VAT in SA. The regulation differs for business-to-business transactions, where the supply of the service or goods is deemed to take place in the jurisdiction of the customer. Here, the sale of the widget would be subject to VAT in Britain at 17%.
“For services rendered through PayPal to international regions, the VAT implications are more dependent on where the services are rendered and the location of resources used. Another consideration for international services is that, if the client is in SA – resident or not – while the service is being delivered, the supplier may be liable for SA’s 14% VAT.”
“We generally get specific rulings from Sars about this for large clients who approach us. From a customs duty perspective, exporters need to make sure they’re registered as such with Sars and that they take into account any export permit requirements relating to their products,” says Connell.