New VAT Regulations open Africa for SA business
14 June 2014
Posted by: Author: Diane Seccombe
Author: Diane Seccombe (Mazars)
African VAT vendors involved in the export of goods will warmly welcome new VAT
regulations, which became effective on the 2nd of May 2014.
African legislation seeks to increase exports by incentivising exporters in
many forms, and the Value-Added Tax Act (the Vat Act) is no exception. Where
goods have been "exported” (as defined in section 1 of the Vat Act) by a
vendor the supply is regarded as zero rated. A zero rated supply is beneficial
as, despite attracting no output VAT, the vendor may still claim all the input
VAT to which they are entitled, often placing the vendor in a VAT refund
position. Vendors are well aware that due to the scrutiny placed by SARS on VAT
refunds, vendors must ensure they obtain all relevant documentation timeously
(as set out in Interpretation Notes 30 or 31) to substantiate that the goods
were exported as required.
above analysis is made slightly more complicated when we examine the definition
of "exported” in more detail. The definition provides that when a vendor opts
to export the goods by physically delivering the goods to the foreign recipient
at an address in the export country, either personally or by way of the vendor
appointing a cartage contractor, the supply is automatically zero rated. This
is often referred to as a direct export.
the vendor choose not to assume the cost and risk of delivering the goods to
the foreign recipient, the situation changes. Where the goods are supplied by
the vendor to a foreign recipient in the Republic and then removed from the
Republic by the foreign recipient this is often referred to as an indirect
export. Goods supplied in terms of an indirect export, are for the most part no
longer regarded as "exported” for the purposes of the Vat Act and the supply is
standard rated leaving the vendor to account for the output VAT at 14%. The
foreign recipient, on removal of the goods from the Republic may obtain a refund
of the 14% VAT paid by way of the VAT Refund Administrator (VRA).
exception in terms of which goods could be indirectly exported at a zero rate
arose if the vendor elected to utilise the now defunct export incentive scheme.
The scheme laid down specific requirements and if met by the vendor the
indirect export of goods could be zero rated at the outset. One of the more
limiting factors of the export incentive scheme, particularly for trade into
Africa, was that it did not encompass the foreign purchaser removing the goods
purchased from the Republic by road or rail, only by sea or air. This left
indirect exports into Africa at a distinct disadvantage due to the fact that
goods are often transported by road or rail.
foreigner purchasers have proved unwilling to pay the 14% VAT triggered by an
indirect export of goods by road or rail, and suffer the administrative
inconvenience of obtaining a VAT refund from the VRA. Fears over possible
cash-flow consequences should the refund be delayed are often cited as a
further reason despite proven efficiency by the VRA. This unwillingness has
translated into lost sales for supplying vendors.
new VAT regulations have provided a welcome solution. The regulations are
divided into two parts. Part one deals with the requirements to obtain a VAT
refund via the VRA. Part two is further divided into section A and section B.
Section A replaces, and to a limited degree mirrors, the old export incentive
scheme whereby the indirect export of goods by sea or air could be zero rated.
As with all regulations, the definitions and requirements set out must be
studied in detail. This article will focus only on section B of part two whereby
for the first time, an indirect export of goods via road or rail can be zero
regulations define a "qualifying purchaser”, essentially the foreign purchaser,
and an "agent”. The "agent” is essentially a South African vendor who is
nominated and appointed by the qualifying purchaser, to "collect, consolidate
and deliver movable goods” to the qualifying purchaser at an address in the
export country. The regulations detail the various registration requirements
for all parties and the legislation in terms of which the registration must
take place, one example being the Customs and Excise Act.
all parties are in place and registered as required, the supplying vendor will
make a supply of movable goods to the qualifying purchaser in the Republic, and
the goods will be exported from the Republic by the qualifying purchaser’s
agent. The supplying vendor can elect to supply the goods at a zero rate,
provided the supplying vendor is able to show that the goods were consigned or
delivered to the agent’s premises (in the Republic), and once the myriad of
paperwork has been obtained and finalised as required by the regulations. Most
importantly the South African vendor must ensure that the qualifying
purchaser’s agent removes the goods from South Africa within ninety days of the
earlier of; the time the invoice is issued by the supplying vendor, or the
payment of any consideration has been made to the supplying vendor. Both the
supplying vendor and the qualifying agent can make use of a cartage contractor
in respect of the physical transfer of the goods.
qualifying purchaser’s agent must ensure that the goods leave the country via
one of the designated commercial ports listed in the regulations. It is to be
welcomed that, despite not being listed in the draft form of the regulations,
Beit Bridge (between South Africa and Zimbabwe) and Lebombo (between
South Africa and Mozambique) have now been added to the list and are thankfully
recognised designated commercial ports.
cannot be over-emphasised that parties wishing to make use of this new
opportunity to zero rate the indirect export of goods by road or rail, must
carefully study the regulations and ensure they are completely familiar with
all the obligations, documentation and time limits prescribed. Should a
supplying vendor elect to zero rate the supply of goods as permitted and all
the requirements set out in the regulations are not fulfilled timeously, the
supplying vendor will be deemed to have made a standard rated supply in respect
of the export and have to account to SARS for output VAT calculated as the VAT
fraction (14/114) multiplied by the cost of goods supplied. It is highly
unlikely that the foreign purchaser will be amendable to compensating any
supplying vendor for the output VAT liability triggered by non-compliance with
This article first appeared on the May/June edition of Tax Talk.