Overview: VAT and exportation Ayanda Masina

Background The South African VAT system is destination based, which means that only consumption of goods and services in SA is taxed. The general rule is that where a SA vendor makes a supply of goods or services in SA, such supply is in terms of section 7(1)(a) of the VAT Act subject to VAT at the standard rate (14%). The exception to the rule is that where the supply of the goods or services is consumed in an export country, such supply of goods or services is subject to VAT at the zero rate – section 11 of VAT Act.

Zero-rated supplies Goods A supply of movable goods which are exported may be subject to VAT at the zero-rate, provided certain requirements are met. The movable goods may be exported by either the supplying vendor (direct export) or a qualifying purchaser in limited circumstances (indirect export) to any export country. Services The general rule is that services that are supplied by a SA vendor in connection to property in an export country or services that are consumed in an export country are subject to VAT at the zero rate.

Direct exports A direct export is where the supplying vendor consigns or delivers movable goods to a recipient at an address in an export country. The supplying vendor is in control of the export and all risk and liability lies with the supplier. Where the goods are exported as per section 11(1)(a)(i) read with paragraph a of the definition of enterprise in section 1(1) and the requirements in IN30, the vendor can levy VAT at the rate of 0%. Where the supply is zero rated and the requirements are subsequently not met, the zero rating will not be applicable and the supplying vendor is obliged to account for the output tax on the supply.

Indirect exports An indirect export is where goods are exported by the recipient (a “qualifying purchaser” as defined). The qualifying purchaser removes or arranges for the removal and transport of the movable goods to an address in an export country. The recipient of the supply is responsible for the export. Where the goods are exported as per section 11(1)(a)(ii) read with paragraph d of the definition of enterprise in section 1(1) and the requirements in the Export Regulation, the vendor may levy VAT at the zero rate. Since the supply is a local supply, the supplying vendor must levy VAT at the standard rate. The qualifying purchaser may claim a refund of the VAT paid from the VAT Refund Administrator when the goods are exported. Alternatively, the vendor may elect to zero-rate the supply of the movable goods, subject to certain requirements as set out in the Export Regulation.

Direct exports In order to apply the zero-rate, the supplying vendor must either – physically deliver the goods to the recipient, the recipient’s duly appointed agent or the recipient’s customer at an address in an export country via one of the 43 designated commercial ports listed in IN30; or use a cartage contractor who is contractually obliged to deliver the goods on behalf of the supplying vendor to the recipient, the recipient’s duly appointed agent or the recipient’s customer at an address in an export country.

Direct exports Time period to export The general rule is that the goods must be exported from SA within 90 days from the earlier of an invoice being issued by the vendor or the time any payment of consideration is received by the vendor. There are exceptions to the general rule in that– The supply of movable goods for which an advance payment is required must be exported within 30 days from the date of export agreed upon in a contract between the parties; and The supply of movable goods for which the time of supply is regulated by sections 9(1) or 9(3)(b)(i) or (ii) and are subject to a process of repair, improvement, erection, manufacture, assembly or alteration must be exported from SA within 90 days from the date of completion of the said process.

Direct exports The zero-rate will apply on condition that the movable goods are exported within the required timeframe and the documentary proof as contemplated in IN30 has been obtained within 90 days from the date of export. Extension of time periods. Specific types of supplies Where a SA vendor makes a supply to another SA vendor and delivers the goods to at an address in an export country, there are two supplies involved. Supply 1- SA vendor 1 to SA vendor 2 Supply 2 – SA vendor 2 to non-resident

Direct exports The general rule is that a supply from a SA vendor to another SA vendor qualifies as a local supply and is subject to VAT at the standard rate. However, IN30 makes provision for zero rating for the local supply where the recipient (SA vendor 2) instructs the supplying vendor (SA vendor 1) to deliver or consign the goods to an address in an export country, then the supply between the two SA vendors will be subject to VAT at the rate of zero per cent.

Indirect exports – Part 1 Indirect exports are regulated by the Export Regulation, which is divided into three main parts: Part One This section deals with the procedures to be followed by a qualifying purchaser who wishes to claim the VAT paid on the supply of goods where the supplier has charged VAT at the standard rate on the supply of movable goods. The qualifying purchaser is entitled to a refund of the VAT from the VRA subject to certain limitations or conditions. The qualifying purchaser must ensure that the goods have to be exported within 90 days from date of tax invoice – no refund if not exported within the 90 days.

Indirect exports- Part 2 Part Two This section deals with the procedures to be followed by the relevant parties where the supplying vendor elects to zero-rate the supply of the movable goods. The goods can be exported via road or rail through a designated commercial port or delivered to one of the designated harbours or airports or supplied by means of a pipeline or an electrical transmission line in SA before being exported.

Indirect exports- Part 2 The supplying vendor must ensure that the goods are delivered to the airport; harbour or the qualifying purchaser‘s agent's premises, where the goods are exported via road or rail The qualifying purchaser or his agent is responsible for the exportation of the goods. There is an element of risk for the supplying vendor with indirect exports as he may not know whether or not the qualifying purchaser or the qualifying purchaser’s agent will export the movable goods within the prescribed time period or at all. Where the goods are not exported within the prescribed time period or at all, the zero rating will not be applicable and the supplying vendor must declare the output tax of 14%.

Indirect exports – Part 3 Part Three This part deals with the various time periods within which movable goods must be exported from SA, the party responsible for exporting the goods as well as the time periods within which the required documentary proof must be obtained. General rule - the goods must be exported within 90 days from date of the tax invoice being issued or payment made for the supply. There are exceptions to the rule. Exceptions to the general rule: The supply of movable goods for which an advance payment is required, must be exported within 30 days from the date(s) for export agreed upon in the contract between the vendor and the qualifying purchaser;

Indirect exports – Part 3 – exceptions to export time frame The supply of movable goods for which- the time of supply is regulated by sections 9(1) or 9(3)(b)(i) or (ii); and are subject to a process of repair, improvement, erection, manufacture, assembly or alteration, must be exported from SA within 90 days from the date of completion of the said process.

Extension of export time frame Where the goods have not been exported within the prescribed time period, the supplying vendor may request SARS to extend the period within which movable goods must be exported, provided the reasons for the extension are due to circumstances beyond the control of the vendor or due to exceptional commercial delays or difficulties. The application for an extension must be submitted to SARS before expiry of the 90 days in which to export by. However where the application is not submitted within the timeframe, the application can still be submitted within 30 days after expiry of the 90 days. The application must be accompanied by reasons why the application was not submitted in time.

Indirect exports – Part 3 The supplying vendor must obtain the required documentary proof within a period of 90 days calculated from the date the movable goods are required to be exported. The vendor can apply for an extension. Where the supplying vendor does not obtain the documentary proof within the prescribed time frame, it must declare the output tax on the supply. The vendor can deduct the output tax as an adjustment where the documentary proof is obtained within the 5 year period. There are certain circumstances where the supplying vendor does not have to declare output tax even though the supplying vendor does not have the required documentation within the prescribed time frames.

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