Company A (VAT vendor in SA), a mining supplies company, supplies coal to Company B (VAT vendor in SA). Company B sells and exports the coal to Company X (non-vendor, situated outside SA).
Scenario:
Can Company A levy VAT at zero rate on supplies to Company B, because Company B will export directly to Company X? Company A must declare output tax when the invoice is issued to Company B, but only receives payment from Company B once the goods are delivered and accepted by Company X, which can take between 120 to 150 days. This causes cashflow constraints for Company A. Company A further maintains that they qualify for zero rating as per the Indirect Export regulations and the “Flash Title” transaction.
Any person (local or foreign) who wishes to export goods from South Africa must register as an exporter. Any foreign exporter who applies as an exporter must nominate a registered agent located in South Africa prior to the foreign exporter being registered. The registered agent will assume full liability for the acts of the foreign principal in relation to any customs business activities.
Definitions: Exported
“exported”, in relation 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; or
- delivered by the vendor to the owner or charterer of any foreign-going ship contemplated in paragraph (a)or (c) of the definition of “foreign-going ship” or to a foreign-going aircraft when such ship or aircraft is going to a destination in an export country and such goods are for use or consumption in such ship or aircraft, as the case may be; or
- delivered by the vendor to the owner or charterer of any foreign-going ship contemplated in paragraph (b) of the definition of “foreign-going ship” for use in such ship; or
- removed from the Republic by the recipient or recipient’s agent for conveyance to an export country in accordance with any regulation made by the Minister in terms of this Act.
A vendor may levy VAT at the zero rate on the supply of movable goods which are exported directly OR indirectly:
Direct export – the supplier (vendor) consigns or delivers the goods to a recipient at an address in an export country.
Indirect export – the recipient removes or arranges the transport and delivery of the goods to an address in an export country.
Indirect exports are regulated by the Export Regulations (GG 37580, No. R.316), which is divided into three main parts:
Part One: granting of refunds of tax to a qualifying purchaser from the VAT Refund Administrator Pty (Ltd) (VRA) on goods that were exported by the recipient.
Part Two: procedures for the vendor who elects to supply movable goods at the zero rate to a qualifying purchaser where the goods are to be exported. The vendor may only elect the zero rate where:
- the vendor ensures that the goods are delivered to any of the harbours or airports listed as designated commercial ports, from where the qualifying purchaser will export the goods;
- the goods are exported by means of a pipeline or electrical transmission line;
- the vendor supplies the goods to a qualifying purchaser on a “flash title” basis;
- the vendor supplies the goods to a qualifying purchaser and the time of supply is regulated by S9(1) or 9(3), and the goods are subject to repairs or alterations, and the goods are delivered to the premises where the repairs or alterations will be made, and the vendor responsible for the repairs or alterations will ensure the goods are subsequently delivered to the designated commercial port;
- the vendor supplies the goods to a qualifying purchaser OR registered vendor and the goods are-
- situated at the designated harbour or airport;
- delivered to either the port authority, master of the ship, a container operator, the
pilot of an aircraft or are brought within the control area of the port authority; and
(iii) destined to be exported from the Republic.
Part Three: sets out the time periods within which movable goods must be exported, the party responsible for exporting the goods and the time periods for submitting the documentary proof.
Definition: Qualifying purchaser
“qualifying purchaser” means a person who is not a registered vendor (excluding for purposes of paragraph (f) of this definition) and who / which is-
(a) a foreign diplomat;
(b) a foreign enterprise;
(c) a non-resident of the Republic;
(d) a tourist;
(e) any-
(i) international organisation established in terms of a Constitutive Act, a constitution or a charter for the purposes of promoting peace and security, human and people’s rights and political and socio-economic development or any similar purpose; or
(ii) organisation which is similar to an association not for gain or a welfare organisation which is registered as such in that export country; and established in an export country and not conducting any activity in the Republic; or
(f) for purposes of Part Two Section A, a person who is not a resident of the Republic who acquires goods from a vendor in the Republic with the sole purpose of selling those goods to another person who is not a resident of the Republic;
Definition: Flash Title
“flash title” means a supply of movable goods by a vendor to a qualifying purchaser contemplated in paragraph (f) of the definition of “qualifying purchaser” and that qualifying purchaser subsequently supplies the movable goods to another qualifying purchaser and ownership of the goods vests in the first mentioned qualifying purchaser only for a moment before the goods are sold to such other qualifying purchaser.
It is clear from the above that Company A does not qualify to levy VAT at zero rate on the movable goods as they do not qualify as a Qualifying purchaser and thus cannot be involved in a Flash Title transaction. The only instance where the zero rate may apply is, if, according to Export Regulation, Part Two A (e) (i), (ii) & (iii) is adhered to.
The documentary proof acceptable to substantiate the application of the zero rate to a supply of goods that are consigned or delivered to an address in an export country is detailed in Section 6 (six) and Section 8 (eight) of the Interpretation Note: Number 31 (Issue 4).
Author: Hansie Horn
