Export Incoterms and VAT

Customer Question:

I am about to export copy paper from Durban to Kenya for the first time using a local shipping company, using the CIF incoterm. I will be purchasing the goods locally and paying the VAT. Normally I would charge the buyer the VAT and show the input/output VAT to SARS, but in this case I cannot do that. How can I avoid losing VAT?

answer:

VAT suppliers can claim back all input VAT on all local purchases, regardless of whether the goods are purchased for home use or exported. To understand the impact of export VAT, let’s explain the difference between direct and indirect exports.

Direct export: This refers to situations where a South African supplier arranges for the delivery of goods to a foreign buyer. In this case, the supplier can apply a zero VAT rating, meaning that no VAT is payable on the goods.

Please note that to apply zero rating to exports, suppliers must:

1. Export goods through designated commercial ports within a specified period; and
2. Get and keep the documents you need.

Indirect export: Foreign buyers are responsible for arranging the collection and transportation of goods. Suppliers charge standard VAT (15%) on sales. However, buyers can apply for a VAT refund from the South African Revenue Service (SARS) when they export goods.

Distinguishing between these two situations is critical in determining the correct VAT treatment. Suppliers should carefully consider their role in the export process to decide whether the zero VAT rate or standard VAT rate applies.

In this case, this article is Direct exportalthough suppliers Initially paying VAT on the local purchase of paper, they can reclaim this input VAT. Essentially, there is no VAT liability on the export transaction. However, in their VAT reporting, There is no output VAT that can be linked to the input VAT paid on the original purchase. This can result in a VAT deficit at the end of the VAT period, which could trigger a VAT audit by SARS. If this happens, the supplier may need to provide SARS with their shipping documents and commercial invoice to prove that the goods have left the country.

Or, for Indirect exportVAT is charged on the commercial invoice, just like a local transaction. So the output VAT on the sales matches the input VAT on the purchases.

Key Takeaways: While input VAT can be claimed on all purchases from a VAT supplier, whether output VAT is added to the invoice depends on whether it is a direct or indirect export. Direct exports may result in input VAT exceeding output VAT, resulting in a VAT deficit on the VAT report, which may trigger a SARS audit. Proper documentation and commercial invoices are essential for submission to SARS.

Want to learn more about VAT on exports? Read our blog post VAT on exports: a quick guide.