Vat Exports and the Zero Rate


“La donna è mobile”, decides Verdi in his opera Rigoletto.  Our currency is just as fickle, with downward mobility seeming to be the trend.  Only for the select few who make a living out of exporting goods, does the plummeting rand mean good business.  Export these goods at a zero rate, and things are really looking up.

The South African Revenue Service has one primary purpose; to collect the taxes due in terms of the provisions of the various tax Acts.  Of these taxes, Value Added Tax (VAT) is arguably the one tax that affects everyone across the board, with VAT being payable on most consumer goods and a large number of services.  A registered vendor making a taxable supply, is responsible for levying, collecting and paying the VAT to SARS.  In principle, VAT is levied at the standard rate (14%) on all goods and services supplied by a vendor.

As far as income tax is concerned, we have a residence base of taxation.  In other words, a South African resident needs to declare all his income, irrespective of source, in his tax return.  VAT, however, is destination based and aimed at only taxing the consumption of goods and services in the Republic.  Therefore, where the goods supplied (in terms of a sale or an instalment credit agreement) are exported, the supply will be taxed at a rate of zero per cent.

In ordinary terms, “exported” may be defined as sending goods produced or manufactured in one country to be sold in another country.  The definition of exported in section 1(1)(a) of the VAT Act is a bit more comprehensive:

“exported” in reference to any movable goods supplied by any vendor under a sale or an instalment credit agreement, means –

Consigned or delivered by the vendor to the recipient at an address in an export country as evidenced by documentary proof acceptable to the Commissioner.

From the definition it is clear that the simple sale by a vendor of goods to a buyer in another country will not suffice.  The requirement relating to documentation is built into the definition, and failure to obtain and keep the required documentation will result in the supply being taxed at the standard rate.

“Supply”, as defined in the Act, includes performance in terms of a sale, rental agreement, instalment credit agreement and all other forms of supply, whether voluntary, compulsory or by operation of law, irrespective of where the supply is effected.  In the context of exports, “supply” is limited to goods sold; either outright, or in terms of an instalment credit agreement.  Other manners of supply referred to in the general definition will not be treated as exports.

A “recipient” is simply the person to whom the supply is made.  There is no definition of “delivered” in the Act, and the word should carry the ordinary meaning of passing possession of the goods to the recipient.  The inclusion of goods “consigned” is interesting, given that in commercial terms a “consignment sale” is a trading arrangement in which a seller sends goods to a buyer or reseller who pays the seller only as and when the goods are sold.  The seller remains the owner (title holder) of the goods until they are paid for in full.  Often, after a certain period, the seller takes back the unsold goods.  (Reference  Consigned, it may therefore be argued, is something different to an outright sale.

For practical purposes, the most significant difference between the statutory definition and the ordinary meaning of “exported” is the “documentary proof” requirement.  SARS issued Interpretation Note 30 – THE SUPPLY OF MOVABLE GOODS AS CONTEMPLATED IN SECTION 11(1)(a)(i) READ WITH PARAGRAPH (a) OF THE DEFINITION OF “EXPORTED” AND THE CORRESPONDING DOCUMENTARY PROOF to specify and prescribe exactly what documentation will be required before they are willing to forgo their 14% tax.

The Note goes wider than merely listing the documents that a vendor needs to obtain.  It effectively expands the definition of exported to encompass the following requirements:

  • “Consigned or delivered” is interpreted to mean either physical delivery by the vendor to the recipient at an address in the export country, or delivery by a “cartage contractor” engaged by the vendor. There needs to be a contract between the vendor and the cartage contractor, with the contractor being liable for the delivery of the goods to the recipient and the vendor being liable for the full cost relating to the delivery.  The vendor needs to invoice the vendor and the vendor needs to be able to provide proof of payment of the transport costs.
  • The vendor may also make use of the services of a courier company or the Post Office, who would in effect be performing the services of a cartage contractor.
  • In order for a supply to qualify as an export, the goods must be exported via a “designated commercial port”. The list in the Note includes the international airports, certain land border posts and a number of railway stations (including Germiston).
  • The goods must be exported from the Republic within 90 days from the earlier of the time an invoice is issued by the vendor, or the time any payment of consideration is received by the vendor.
  • The vendor then has another 90 days to obtain the required documentation. If not, the supply does not qualify as an “export” and the vendor must apply the standard rate to calculate the VAT on the supply.

The Note lists the documents required in respect of the various means of export.  In general, the documentation consists of the “official documentation” (export or removal documentation prescribed under the Customs and Excise Act, for instance the Customs Declaration or SAD500) and “commercial documentation” providing proof of the transaction and the transportation of the goods.

Irrespective of the manner of export, the vendor needs to obtain the following documents:

  • A copy of the zero-rated invoice relating to the supply of the goods
  • The recipient’s order or the contract between the vendor and the recipient
  • Proof that the vendor paid the transport costs (or postage)
  • The customs documentation
  • Proof of payment for the movable goods supplied to the recipient.

Depending on the mode of delivery or transport, whether by road, rail, sea, air or post, the vendor will also need to obtain:

  • In the case of transport by road, a copy of the road manifest issued by the cartage contractor, or the relevant document to prove that the contractor took possession of the goods; as well as proof that the goods were delivered to the recipient.
  • Either a sea freight or airfreight transport document in the case of transport by ship or aeroplane.
  • For transport by rail, a copy of the rail consignment note, a copy of the combined consignment note and wagon label, or a copy of the container terminal order or freight transit order.
  • If making use of the post, proof of receipt of the goods by the postal service.

On closer scrutiny, the Note seems to be a bit ambiguous.  And when confronted with real life transactions, it falls a bit short in providing adequate guidance.  Then again, SARS admits in conclusion that the Note “may not prescribe all possible scenarios”.

In the global village, not all exports take place in the conventional way, with a vendor manufacturing goods in South Africa and then delivering it straight to the end consumer in an export country.  The Note does attempt to address some of these out-of-the-ordinary exports.

  • If movable goods are exported from the Republic before an invoice is issued or payment is made for the supply, the export documentation will pre-date the commercial documentation. The time of supply is only triggered once an invoice is issued or any payment for the supply is received, whichever is earlier.  In these instances, the vendor will have 90 days from the time of supply, and not from date of export, to obtain the necessary documentation.
  • Consignment stock will already have been exported to a vendor’s distributor or a third party’s premises when it is on-supplied to the ultimate recipient or buyer. The supply of such goods in that export country will qualify for the zero rate.  Once again, the customs documentation will pre-date the commercial documentation.
  • The Note also makes provision for a case where a vendor sells movable goods situated outside South Africa. This scenario would include a “sale on the high seas”, where for instance a South African vendor acquires goods from a supplier in country A.  While the goods are in transit, i.e. after having left the territorial border of country A but before entering the territorial border of South Africa, the vendor sells the goods to a recipient in country B.  Delivery is made directly to the recipient in country B without the goods ever having entered South Africa.  This is clearly an exception to the requirement that the zero rate will only apply to goods exported “via a designated commercial port”.

Will this exception also apply to a South African vendor who makes use of a manufacturer in another country and then delivers his goods directly to “a recipient at an address in an export country”, without first entering the goods in South Africa?

Going even further, what is the situation with regard to internet sales? Or crowdfunding?  A platform like Indiegogo hosts campaigns for funding, but also offers a Marketplace (selling goods).  The straight marketing of a vendor’s goods on such a platform would naturally constitute a supply for VAT purposes.  As far as crowdfunding is concerned, the VAT Commission of the European Union has issued Guidelines in terms of which reward-based crowdfunding (where the contributor to a crowdfunding campaign receives a non-financial reward in the form of goods or services in return for his contribution) constitutes a taxable supply.  These transactions do not have all the characteristics of a traditional sale and a South African vendor marketing his goods on one of these platforms or even simply by using his own website, may run into problems when SARS starts demanding supporting documents as part of a VAT review.

Unfortunately, the issue raises more questions than answers.  For an export to qualify as a “direct export” and be taxed at the zero rate, the vendor needs to be in control of the export from the moment the goods leave his possession to when it is delivered to the recipient.  This becomes very difficult to prove.  Add the complication of payments by way of PayPal and Bitcoin, and it becomes apparent that SARS may have to adopt a more flexible approach when it comes to export documentation requirements.

The good news for SARS is that they are not alone.  It seems that tax authorities worldwide are struggling to make sense of our brave new world.  In issuing their Guidelines, the EU VAT Committee reached unanimous agreement on some matters, while on others they could only “almost unanimously agree”.  In the USA, the “Amazon Laws” have the different states at each other’s and constitutional challenges are looming.

But back to the issue at hand.  If VAT is aimed at taxing domestic consumption and a vendor is able to prove that the goods in issue were delivered to the recipient in an export country in any which way, it should be taxed at the zero rate.  As far as the income tax implications of the new generation enterprises are concerned, let’s turn to Puccini’s Turandot:  “Nessun dorma” – let no one sleep until that problem is solved.


Annalize Duvenage

Specialist Tax Consultant

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