ZERO-RATING VAT SALES ON FOREIGN EXPORTS: AN EXECUTIVE SUMMARY
9 November 2018
Under the right circumstances issuing a zero-rated invoice on the supply of export goods is not a problem, however, suppliers should make sure that they familiarise themselves with the provisions of SARS Interpretation Note 30 dated 5 May 2014, as well as the “Export Regulations” published in Government Gazette Notice GG37580. These publications respectively set forth the requirements which need to be met in order to give effect to a valid zero-rated sale of export goods. It is also important to note that the so-called “Export Regulations” were issued in terms of Section 74(1) read with paragraph (d) of the definition of “Exported” in section 1(1) of the Value-Added Tax Act, 1991 (Act No. 89 of 1991) and that these regulations effectively replaced the former “VAT Export Incentive Scheme” which came into effect on 16 November 1998.
Prior to dealing with the requirements themselves, it is essential to understand that the set of requirements applicable for zero-rating a particular sale of goods are dictated by the categorization of an export as either a direct or an indirect export. A direct export occurs when a local supplier or seller of goods consigns or delivers the goods to a recipient at an address in an export country. The primary element of a direct export is the fact that the seller is in control and is ultimately responsible for all aspects of the exportation. An indirect export on the other hand occurs when the recipient of the goods is in control and ultimately in charge of the exportation process by removing or transporting the goods to an address in an export country.
In this article, we will briefly set forth the requirements which would need to be met in order for a supplier to be in a position to levy VAT at the zero-rate on the sale of export goods.
In order to apply the zero-rate in respect of direct exports, the following requirements (as set forth in SARS Interpretation Note 30 dated 5 May 2014) must be met:
- The supplier must actually deliver (or appoint a cartage contractor to deliver) the goods to the recipient, the recipient’s appointed agent or a customer of the recipient at a physical address in an export country;
- The supplier must export the goods within 90 (ninety) days from the earlier of the date of the relevant invoice being issued or the time of payment for the goods being received by the supplier; and
- The supplier must be able to submit the requisite documentation supporting the zero-rating of a sale to SARS. The nature of this documentation will be dictated by the mode of transport selected by the supplier to export the goods and must, as a general rule, be obtained and submitted to SARS within 90 (ninety) days from the date when the goods are required to exported.
When considering whether it is possible to zero-rate a sale of goods which qualifies as an indirect export of goods, all local suppliers have the following three options and must meet the requirements applicable thereto:
- Option 1: This option is dealt with in Part 1 of the Export Regulations, which provides that a qualifying purchaser, its duly appointed agent, or cartage contractor appointed by the qualifying purchaser may export the goods. In this instance, the supplier is obliged to levy VAT at the standard rate and issue a tax invoice to that effect. The qualifying purchaser may then claim a refund of the VAT paid on the goods exported by applying therefor to the VAT Refund Administrator (“the VRA”). The supplier would then be required to inform the qualifying purchaser of his entitlement to apply for a refund and may even wish to go as far as to advise the qualifying purchaser of the requirements for claiming such a refund. The goods must be exported within a period of 90 (ninety) days from the date of an invoice being issued to the qualifying purchaser. The goods must be exported through a “designated commercial port” (as defined in the Export Regulations) and must also be declared to a customs official and the VRA present at the designated port in question.
- Option 2: This option is dealt with in Part 2: Section A of the Export Regulations, which provides for a scenario where the supplier procures the delivery of the goods to a designated commercial port. In terms of this part, the supplier must ensure that the goods are delivered to a designated commercial port from where the goods are to be exported by the qualifying purchaser. It is also required that the goods must be exported from South Africa within 90 (ninety) days from the earlier of the time an invoice is issued by the supplier or the time payment is received by the supplier.
- Option 3: This option is dealt with in Part 2: Section B of the Export Regulations, which provides for the procedure which the parties to a sale of export goods would need to follow where the goods are to be exported via road or rail. To validly exercise this option, the supplier must consign or deliver the goods to the qualifying purchaser’s agent’s premises, which agent must be a registered vendor located in South Africa and who is appointed by the qualifying purchaser to deliver the goods to the qualifying purchaser at an address in an export country. From the supplier’s perspective it is of vital importance to ensure that the qualifying purchaser’s agent is registered under the Rules to Section 59A of the Customs and Excise Act, 1964 and is licensed as a remover of goods in bond. Similarly to the position set forth at option 2 above, the goods must be exported from South Africa within 90 (ninety) days from the earlier of the time an invoice is issued by the supplier or payment is received by the supplier.
As a general rule to the above options available to a supplier when exercising an election to levy VAT at the zero-rate on a sale of export goods, the supplier must obtain and submit to SARS the requisite supporting documents evidencing the zero-rating within 90 (ninety) days from the date that the goods are to be exported. Failing to do so, would typically result in the supplier being obliged to account for VAT at the standard rate of 15%. However, should circumstances beyond the suppliers control render it impossible to obtain the requisite supporting documents, the supplier does have a period of 5 (five) years within which to obtain the documentation and apply to SARS to reverse the output tax component for the relevant period.
It is perhaps understandable that foreign qualifying purchasers who intend to export goods from South Africa insist on being issued with zero-rated invoices on the sale of export goods. However, if suppliers do not thoroughly consider their position regarding such exports and ensure that the requirements are adequately complied with, it could result in them being exposed to unwanted tax liability. As a supplier, you should always consider the fact that you will be liable to account for the output tax if the requirements set forth above are not met. The purchaser would long since have received his goods, leaving you to face the consequences of prematurely electing to levy VAT at the zero-rate on a sale of export goods.