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Supply Of Goods To A Branch In An Export Country

02 June 2011   (0 Comments)
Posted by: Author: Mahomed Kamdar
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Supply Of Goods To A Branch In An Export Country

Question:

A South African taxpayer supplies goods to Central Africa, for example, Democratic Republic of Congo, via say, Zimbabwe. The head office of the taxpayer’s customer is in Zimbabwe and the head office has a branch in South Africa. Does the South African taxpayer levy an output VAT? Or is the supply by the taxpayer construed as an `indirect’ export and therefore zero-rated?

Answer:

We have not been advised whether, firstly, the registered vendor (the taxpayer) supplies directly to the local branch of the Zimbabwe’s head office. Alternatively, it could be that the taxpayer (supplier) has been requested to supply the goods to the local branch (also a registered vendor) of the Zimbabwe’s head office for re-routing of the goods to recipients in the export country.

Any supply made by a South African enterprise (the taxpayer) to a branch located in South Africa will be taxable at the standard VAT rate. The taxpayer (local supplier) has to issue a tax invoice to the local branch of the Zimbabwe’s head office.

Second Scenario – Supply of goods to a local branch of an export country:

If goods are supplied by a vendor who carries on an enterprise in South Africa to his / her branch that is permanently located at premises outside the borders of South Africa and if the following circumstances prevail:- The branch can be separately identified, and- An independent system of accounting is maintained the supply will be zero-rated provided the goods are supplied toa branch in an export country. This can best be explained by a hypothetical example: Khumalo’s Clothing Retailers, a South African company, has branches in South Africa, Swaziland and Zambia. Independent accounting and financial systems are maintained for the business activities in South Africa and Zambia, but the Swaziland’s business activities are accounted for in the financial records of Khumalo’s Clothing operation in South Africa.

Therefore, the following is the VAT outcome:- Sales to the Zambia branch will be zero-rated- Sales to the Swaziland branch will not have VAT consequences since there is `no supply’.

Only a single entity is affected – one accounting system is maintained. In order to justify the zero-rating of the supply, in circumstances whereby a branch is permanently located at premises outside the borders of South Africa, the following documents are required:- Supplier’s copy of the zero-rating tax invoice,- Copy of the export documentation prescribed under the Customs and Excise Act 91 bearing an original SARS customs stamp;- Copy of the transportation document or transporter’s tax invoice,and- Import declaration in an export country.The zero rating would not apply, if the goods transferred are second- hand and not brand-new.

Exporting of second-hand goods:

While goods exported in the circumstances described above, are subjected to VAT at zero percent, this zero per cent does not apply if the goods are second-hand goods and the deduction of notional input tax has been made by the supplier. Once again, a hypothetical example would be useful. For example, if VAT-registered general dealer purchases goods from a non-vendor for R11 400, he / she deducts notional input tax of R1 400 calculated as follows:

R11 400 × 14 = R1 400
                   114

Thus the cost of the goods to the general dealer is R10 000. If he then exports the same goods, for say R22 800, he is obliged to account for VAT in respect of his / her cost (inclusive of VAT) of R11 400 (i.e. R11 400 × 14/114 = R1 400).

For example, if the general dealer sells the same goods to Mr Manana, from Swaziland, for R22 800 (R20 000 plus VAT of R2 800) the tax invoice should show:

Price excluding VAT R20 000

- VAT @ 14% R2 800

- Total payable R22 800V

- Total VAT R2 800

- Notional input tax R1 400

- VAT refund amount R1 400

Must be borne in mind that the export sale is not zero-rated but the consideration in money for the sale is deemed to be R11 400 – the purchase price including national input tax. The general dealer will, therefore, have to account for the output tax of R1 400.

Source: By Mahomed Kamdar (Technical Advisor, SAIPA)


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