Requirements to zero-rate exports
07 February 2013
Posted by: Erich Bell
When a person becomes a registered vendor for Value-Added Tax (VAT) purposes, he is required to levy output VAT at a rate of 14% on every supply he or she makes. However, an exception to the general rule applies where the Act specifically classifies a transaction as zero-rated or exempt. One of these exceptions is applicable where registered vendors are involved in the exportation of movable goods. If the supply constitutes a "direct export”, the vendor will be allowed to levy VAT at a rate of 0%.
In order to determine if a direct export took place, the legal requirements needs to be considered. Firstly, there has to be a supply of moveable goods. The supply of fixed property will never be considered to be a direct export. To qualify as a direct export it is important that the South African vendor is responsible for the delivery of the goods to a location situated in an export country. The vendor is not required to physically deliver the goods himself. He may instruct another person to deliver the goods on his behalf as long as he is responsible for the shipping fees.
Normally, the place where ownership is transferred gives a good indication of the type of export that took place. For example, if an asset was sold to a non-resident during his vacation in South-Africa it is probable that the non-resident will be responsible for shipment of the asset, unless a different agreement was reached. Ownership therefore passes in South Africa and the supply will constitute an indirect export. VAT will be levied at a rate of 14%.
It is of utmost importance that the vendor acquires the necessary documentation to enable him to levy output VAT at a rate of 0%. This documentation has to be supplied to SARS within a specified timeframe. Currently the prescribed time limit is three months from the earliest of the date that appears on the invoice or the date payment was received. Failure to meet the deadline will result into an output VAT liability for the vendor at a rate of 14% of the total amount charged. Therefore, the amount charged for the export (that includes VAT of 0%) will be regarded to be inclusive of VAT of a rate of 14%. Fortunately, the vendor will still be allowed to make an input tax adjustment amounting to the output VAT levied as a result of non-submission. This will only be allowed if the required documentation is provided to SARS within one year from the date of the invoice issued. Let us look at the documents that need to be provided to SARS. This will be the following:
· A contract between the vendor and the client of the order placed by the client. Probably SARS will evaluate these forms to identify the type of goods that are supplied as well as the conditions of shipment.
· Proof of payment made by the recipient of the goods.
· A delivery note or any other documentary proof confirming receipt of goods by the client.
· A copy of the tax invoice issued by the South African vendor indicating that output VAT of 0% was levied on the supply.
· A DA74 form (application for release of goods) containing a SARS customs date stamp. This will only be required if customs previously rejected the exportation of the goods.
· Depending on the method used to submit the documentation to SARS, the following documents will be required:
- If the documentation is submitted electronically (for example via eFiling) the vendor has a choice to supply one of the following documents: export or removal documentation, custom release notification or a computer generated release notification.
- If the documentation is submitted at a customs office on a form (manually) or on a computer disk, a copy of the export or removal documentation is required and it must contain an original SARS customs date stamp. A specific computer program was designed for parties that submit documentation via a computer disk.
If the VAT vendor is in possession of the required documentation, he can rest assured that SARS will allow output VAT at a rate of 0%. Therefore the vendor will not have to increase the price charged to his customer with a 14% VAT component. It is important to take note of the deadline of submissions in order to avoid an additional output tax liability. Since the direct export of movable goods constitutes a taxable supply at 0%, the vendor will be allowed to claim input tax credits on expenses relating to the supply. If the expenses are subject to the standard rate at 14%, the net effect of the transaction will place the vendor in the privileged position to gain a refund from SARS.
Source: Natalie Cousens