Company Policies

Significant changes were recently made to the rules for the zero-rating of export sales. Non-compliance could result in the seller of the movable goods being liable for output tax at the standard rate.

Significant changes were recently made to the rules for the zero-rating of export sales. Non-compliance could result in the seller of the movable goods being liable for output tax at the standard rate.

Generally speaking, output tax must be levied at the standard rate of 14% on the value of all taxable supplies of movable goods made by a vendor. An exception to this rule arises where a vendor sells goods, and he either exports them or the recipient of the goods removes them from South Africa. In these circumstances, the vendor is entitled to levy VAT at the zero rate provided that he complies with the relevant rules.

The zero-rating rules fall into two categories, necessitating a clear understanding of the contractual terms of the export sale. A direct export occurs when the seller of the goods consigns or delivers the goods to a recipient at an address in an export country. The important issue here is that the seller of the goods is contractually responsible for and in control of the export. An indirect export occurs when the recipient (who must be a ‘qualifying purchaser’) of the goods removes or transports the movable goods to an address in an export country. Here, it is the recipient who is responsible for and in control of the export.

The requirements set out in Interpretation Note 30 (issue 3) dated 5 May 2014 must be complied with before zero-rating a direct export. The requirements for electing the zero-rating of an indirect export are contained in the Export Regulation gazetted on 2 May 2014 (GG 37580). The rules for zero-rating contained in these publications cover designated commercial (exit) ports, documentation, time periods for removing the movable goods from South Africa and time periods within which the supporting documentation must be obtained.

Direct Export

To apply the zero-rate, the supplying vendor must either-

• physically deliver the movable goods to the recipient, the recipient’s appointed agent or the recipient’s customer at an address in an export country; or
• engage a cartage contractor to deliver the goods to the recipient, the recipient’s agent or recipient’s customer in an export country.

In this context, a ‘cartage contractor’ means a person whose business includes the transportation of goods and includes couriers and freight forwarders.

Generally, the movable goods must be exported from South Africa within 90 days from the earlier of the time an invoice is issued or the time any payment of consideration is received by the supplying vendor. A ruling can be obtained from the Commissioner where the goods cannot be exported within this time period due to circumstances beyond the vendor’s control. Failure to export the goods timeously will result in the supplying vendor having to account for output tax at the standard rate of 14%. The ‘removal’ rules also provide relief for unusual transactions including:

• the receipt of an advance payment;
• the export of precious metals by air;
• goods which are subject to a process of repair, improvement, erection, manufacture, assembly or alteration before being exported;
• the export of a preserved or mounted hunted animal; and
• the supply of manufactured or reconditioned tank containers.    

The documentary proof that is acceptable to the Commissioner to support the zero-rating of a direct export is listed under two headings viz. goods delivered by the vendor and goods conveyed by the vendor’s contractually appointed cartage contractor. The mode of transport will dictate the required documents and, generally, all documents must be obtained within 90 days of the time when the goods are required to be exported (or any other exceptional or approved time period). Various payment related exceptions are made to this 90 day rule including where the parties have contractually agreed to a longer payment period, where the recipient is unable to pay due to restrictions on the availability of foreign exchange by the country in which the recipient carries on his enterprise and where the vendor has written the consideration off as irrecoverable.

Where a vendor is unable to comply with the stipulated time period for obtaining the required documentation, he must account for output tax at the standard rate of 14%.  The vendor then has a remaining period of five years to obtain the missing documentation and reverse the output tax.

The ‘documentation’ rules also cater for other unusual types of supplies including:

• supplies of second-hand goods;
• movable goods exported before an invoice is issued or payment is received;
• movable goods which are already outside South Africa when they are supplied including goods that have been temporarily exported, sold on the high seas and sales of consignment stock already in an export country;
• supplies that are subject to a process of improvement, manufacture, assembly or alteration by a third party in South Africa before being exported by the supplying vendor; and
• movable goods supplied to another vendor and delivered to that vendor’s customer at an address in an export country 

Indirect Export

The rules pertaining to the zero-rating of an indirect export of movable goods are set out under the following headings:

• Part One: Procedures for granting of refunds of tax to qualifying purchasers residing in or conducting business in export countries;
• Part Two- Section A: Procedures for the vendor who elects to supply movable goods at the zero rate to a qualifying purchaser, where the movable goods are initially delivered to a harbour, an airport, or are supplied by means of a pipeline or electrical transmission line in the Republic before being exported;
• Part Two – Section B: Procedures for the vendor who elects to supply movable goods to a qualifying purchaser at the zero rate where the movable goods are to be exported via road or rail; and
• Part Three: The export time periods, the time period to obtain documentary proof, Government agreements and transitional rules.

Under Part One, the supplying vendor will charge output tax at the standard rate of 14% on the supply of the movable goods to the qualifying purchaser. The qualifying purchaser is then entitled to obtain a refund of the VAT paid from the VAT Refund Administrator, upon compliance with the prescribed conditions. The movable goods must be exported within 90 days from the date of the tax invoice issued to the qualifying purchaser and the goods must be exported via a designated port and declared to a customs official and a VRA official where one is present at the designated port.

Under Part Two-Section A, the supplying vendor may elect to levy VAT at the zero-rate. This election may only be made where the supplying vendor ensures that the movable goods are delivered (irrespective of the contractual conditions of the delivery) to a designated commercial port from where the goods are to be exported by sea or air by the qualifying purchaser. The goods must be exported from South Africa within 90 days from the earlier of the time an invoice is issued by the supplying vendor or the time any consideration is received by the vendor.    

In terms of Part Two-Section B, the supplying vendor may also elect to zero-rate the sale of movable goods which are to be exported by road or rail. This election may be made where a vendor supplies the goods to a qualifying purchaser and the goods are to be exported from South Africa by the qualifying purchaser’s agent or the supply and exportation is of specific lubricants by the manufacturer thereof in the Oil and Gas industry. Under this Part, the supplying vendor must consign or deliver the movable goods to the agent’s premises or ensure that the movable goods are delivered to the agent’s premises. The agent, in this context, means a registered vendor located in South Africa who is the agent of the qualifying purchaser and who has been appointed to collect, consolidate and deliver movable goods to the qualifying purchaser at an address in an export country. The agent must be registered under the Rules to section 59A of the Customs and Excise Act, 1964 (the ‘Customs Act’) and be a licensed remover of goods in bond as contemplated in section 64D of the Customs Act. The goods must be exported from South Africa within 90 days from the earlier of the time an invoice is issued by the supplying vendor or the time any consideration is received by the vendor.    

Part Three makes provision for special export time periods for the supply of movable goods involving-:

• the receipt of an advance payment;
• the export of precious metals by air;
• goods which are subject to a process of repair, improvement, erection, manufacture, assembly or alteration before being exported;
• the export of a preserved or mounted hunted animal; and
• the supply of manufactured or reconditioned tank containers.   

The stipulated export time periods may be extended by the Commissioner where the movable goods cannot be exported within the required time period due to circumstances beyond the control of the supplying vendor or due to exceptional commercial delays or difficulties.

This Part also makes provision for the supplying vendor referred to in Part Two to obtain the required supporting documentation within 90 days from the date that the movable goods are required to be exported. If all the documents cannot be obtained in time, output tax must be accounted for by the supplying vendor at the standard rate of 14%. The vendor then has a remaining period of five years within which to obtain the missing documents and reverse the output tax. Certain exceptions are made for missing payment related documents, similar to those in the rules applying to a Direct Export.

Comments

It is pleasing to see a far greater alignment beiween the zero-rating rules pertaining to a Direct Export and an Indirect Export. The inclusion of exports by road and rail in the rules relating to an Indierct Export is also welcomed. The time limits within which goods are required to be exported from South Africa have also been extended. Supplying vendors, who have accounted for output tax due to outstanding documentation, now have the balance of a 5 year period instead of the previous 1 year to obtain the missing documents and reverse the output tax. Clarification is also provided on the the treatment of a wider range of unusual transactions and, finally, there is extensive cross referencing to applicable parts of the Customs Act.