Direct exports – Aren’t all exports treated the same for VAT purposes?

A fundamental principle of VAT is that the goods or services supplied by a vendor in the course or furtherance of the vendor’s enterprise should generally be subject to VAT at the standard rate, currently 15%. However, the legislation provides for certain supplies to be zero-rated, the exportation of goods being one of them. This means that the supply is still a taxable supply that is subject to VAT, albeit at the rate of zero percent.  

In order to zero-rate these supplies, the goods have to leave the country within the required time frame and the required documents have to be obtained. 

The application of the legislation largely depends on whether the export is a direct or indirect export and the mode of transport used to export the goods, such as via road, rail, sea or air.  

It is important to note that with regards to the mode of transport used, the goods have to be exported through designated exit points on the borders of South Africa, e.g. there are designated harbours, airports, border posts, railway stations etc. that are required to be used.  

What are direct exports? 

This article is going to dive a little deeper into direct exports. For more details on indirect exports, refer to our previous article titled VAT & Indirect Exports: What South African sellers should know. 

With direct exports, the vendor / supplier / seller will be responsible for delivering / consigning the goods to a recipient at an address outside of South Africa (SA). This also applies where the seller contracts a cartage contractor to deliver the goods on the seller’s behalf. 

This is the most commonly used type of export, because it is less risky as the seller is in full control of the process, can ensure that the goods leave the country and that the correct documentation is obtained.

Timelines and supporting documents 

The general rule is that goods are required to be exported within a period of 90 days from the earlier of the issuance of an invoice or the time any payment of consideration is received.  

There are exceptions to the above for instances where an advance payment is required, for the supply of precious metals, hunted animals or tank containers, and for instances where moveable goods are subject to repair, improvement, erection, manufacture, assembly or alteration, for example. 

The vendor is required to be in possession of the required supporting documents within 90 days from the date that the goods are required to be exported unless an exception exists. If the relevant time frames are not adhered to, an output tax adjustment is required to be made. However, where the documents are obtained within a period of 5 years, an input tax adjustment may be made to effectively reverse the previous output tax adjustment. 

The exact supporting documents required depends on whether the goods are transported via road, rail, sea or air etc. Supporting documents may include documents such as:  

• Copy of the zero-rated sales invoice; 
• Customs documentation; 
• Proof of payment of the goods and transport; 
• Freight documentation; and 
• Order / contract between the customer and seller 

Take away 

Direct exports present less risk compared to indirect exports when it comes to the application of VAT at the zero rate. However, sellers are required to ensure that their compliance processes and systems are in order to ensure that not only the goods are exported within the required timeframe, but that the correct supporting documents are obtained timeusly. 

Access the full document here: SARS Interpretation Note 30 (Issue 3)

Author: 

Leila Wright, Manager