Impact of changes to zero VAT tax scheme for indirect exports for South Africa

23/6/2014

Aaron Poole from BRInternational explains about the recent changes to the South African VAT scheme and their impact on freight where the:

  •  Vendor can elect to apply the zero VAT rate where goods are supplied to a qualifying purchaser
  • When you can get zero rating for goods delivered by the vendor to a local harbour or airport for subsequent exportation

The role of BRInternational in exporting and importing products from Africa

Aside from the low cost labour force, abundance of raw materials and low cost agricultural products offered by Africa, it is attracting more investors, importers and exporters. Moves like that from South Africa with its Zero Vat Export Scheme demonstrate its eagerness to promote increased investment in the country.

With a wealth of experience dealing with international shipments and customs clearance procedures, BRInternational and Aaron Poole can build strategies and tailor solutions that are in sync with your goals and requirements to foster better trading relationships with your African partners.

The following is Aaron’s informative take on recent changes to the South African VAT Scheme.

Click here to go straight to Aaron’s take on what is the impact of the recent changes to the VAT scheme for South Africa

Understanding the South African VAT system

With offer of 0% VAT rate for goods exported from South Africa, considering these will be consumed outside of the country, Carmen Moss-Holdstock of DLA Piper LLP provides these insights:

‘The South African VAT system is essentially destination based, which means that the supply of goods or services are to be taxed in the country where such goods or services are consumed. In other words, where goods are exported from South Africa, the goods will be consumed outside of South Africa, and the supply of such goods should therefore not attract VAT in South Africa. Section 11(1)(a) of the Value-Added Tax Act, No. 89 of 1991 (VAT Act) gives effect to this general rule by providing that movable goods that are ‘exported’ from South Africa in terms of a sale or instalment credit agreement will attract VAT at the rate of 0%, as opposed to the standard rate of 14% – provided that sufficient documentary proof relating to such exportation is in place (s11(3) of the VAT Act).’

But with this incentive, are exporters really gaining much from it?

The Export Incentive Scheme

The Export Incentive Scheme requires the assistance of customs clearance and legal experts to properly prepare the documents necessary for the Government to grant Moss-Holdstock:

‘In terms of the Scheme, the vendor was required, in the first instance, to account for output tax at the standard rate where the recipient of the supply took possession of the goods in South Africa. The recipient was however entitled to apply to the VAT Refund Administrator for a VAT refund under Part One of the Scheme, provided that the recipient was a ‘qualifying purchaser’ as defined and the required documentary proof was retained.’

With these, it is made obvious that the Scheme is to apply solely to vendors who will elect to apply the zero rate in circumstances wherein goods were:

  • Supplied to a ‘qualifying purchaser’
  • Transported by ship or by air to an export country (delivered to a local harbour or airport for subsequent exportation)
  • Exported by means of a pipeline or electrical transmission line

Consequently, the supplier assumes the obligation to obtain proof that the goods were in fact subsequently exported. They also bore the risk of having to account for VAT at the standard rate if the required documentation could not be obtained within the prescribed time periods.

Zero rating of indirect exports

How about vendors (businesses) engaging in indirect exports? Will they also benefit from the Incentive Scheme?

A qualifying purchaser may opt to apply for the Incentive Scheme if and only if the vendor supplies the goods under these circumstances:

  • Flash title basis
  • Delivers the goods to another local vendor before transporting it to certain harbours and airports for purposes of:
    • Processing
    • Repair
    • Improvement
    • Manufacture
    • Assembly
    • Alteration
  • Goods destined to be exported from South Africa are situated at the designated harbour or airport and brought within the control area of the airport authority or delivered to either the:
    • Port authority
    • Master of the ship
    • Container operator
    • Pilot of an aircraft

How to apply

This is a wonderful opportunity for businesses wishing to decrease expenses. Check the details below if you are qualified to apply for the Scheme.

The following are qualified to apply for the VAT Export Incentive Scheme of South Africa as stated in the South African Revenue System (SARS) website.

Non-resident

This refers to individuals who order movable goods from South Africa and have goods exported on their behalf by a qualifying purchaser’s cartage contractor who are:

  • Not South African passport holders
  • Not in South Africa at the time of the supply
  • Permanent residents of an export country

Tourist

This refers to individuals who export movable goods from South Africa according to the provision of the Scheme mentioned above who are:

  • Not South African passport holders
  • Travel to South Africa on a non-resident travel document
  • Permanent residents of an export country on a temporary visit to South Africa

Foreign enterprise

This refers to enterprises or businesses which is carried on continuously or regularly by any person (including South African passport holders) in an export country in the course or furtherance of which goods and services are supplied to any other person for a consideration.

Foreign diplomat

These are diplomats who were stationed in South Africa that are permanently departing from South Africa permanently conclusion of their term of duty and who is exporting the movable goods in accordance with the Scheme.

The Government is more than positive that the Zero Vat Scheme will attract more investors, importers and exporters. Nevertheless, the benefits should give additional optimism to large scale enterprises wishing to further expand their operations.

At present, China is seen as the primary offshore destination of manufacturing firms; but with these declaration South Africa is very well determined to get its fair share into their economy. The challenge how businesses will make the best out of it.

Other export marketing and investment schemes in South Africa

There are many programs and schemes in place to further develop export markets from within South Africa. These are also designed to recruit new foreign direct investment into the country. These include Export Marketing and Investment Assistance (EMIA) such as:

  • Capital Projects Feasibility Programme (CPFP)
  • Sector Specific Assistance Scheme (SSAS)
  • Industrial Development Corporation (IDC)
  • Export Credit Insurance Corporation
  • Credit Guarantee Insurance Corporation
  • Customs and Excise Duty Refunds

If you are looking to start or improve import and export relationships with your African partners, contact Aaron Poole of BRInternational and learn what opportunities you may have to maximize your position.

References:

http://www.sars.gov.za/TaxTypes/VAT/Pages/VAT-Refund-on-Exported-Goods.aspx

http://www.lexology.com/library/detail.aspx?g=935d9eb3-0c69-433f-9b17-d62057a11ab4

http://www.southafrica.info/business/trade/export/incentives.htm#.U5edKnJdUha

This entry was posted in Public News on by Aaron Poole.

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