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VAT on the importation of goods is often shrouded in mystery.
This does not need to be the case. In this short article we’ll explore where VAT on the importation of goods fits into the bigger picture and how it impacts on your business.
Who pays VAT on the importation of goods?
The short answer is, everybody, unless you are a ghost! The VAT Act imposes VAT on the importation of goods by any person that imports goods into South Africa.
VAT on the importation of goods is therefore not linked to whether or not the importer is registered as a VAT vendor in South Africa; everybody pays!
There are a few imports that are exempt from importation VAT. We’ll deal with these exceptions towards the end of this article.
How do I determine the value on which VAT is payable?
This is where the link between VAT and the Customs and Excise legislation (C&E) becomes important.
The enquiry commences with the value placed on the goods by C&E. The C&E value is normally the actual price charged for the goods, i.e. the invoice price.
This value may however need to be adjusted where goods are imported from a related person. Where this is the case an adjustment may be required to adjust the price to an arms length price.
Once the Customs value has been determined, regard should be had to the origin of the goods.
If the goods are imported from a Southern African Customs Union (SACU) country, the value placed on the good is the Customs value without any further adjustments. The SACU countries are Botswana, Lesotho, Namibia and Eswatini (formally Swaziland).
For example, if goods are imported from Namibia with an invoice value of R100, importation VAT of R15 is payable (R100 × 15%) to SARS.
If the goods are imported from a country other than a SACU country, the value on which the importation VAT is payable is computed as follows: the Customs value plus 10% of the Customs value plus any duty payable on the importation of the goods.
For example: if the goods are imported from the United Kingdom for an invoice value of R100 and Customs duty of R20 is payable on the importation of the goods into South Africa, the value for VAT purposes is computed as follows: (R100 × 110%) + R20 = R130. The importation VAT payable would accordingly be R19.50 (R130 × 15%).
When may the South African importer recover the VAT from SARS?
Only a registered VAT vendor is entitled to claim input tax from SARS.
The VAT vendor must accordingly be the importer of the goods. In practice, the VAT vendor is not necessarily the physical importer of the goods, as an import agent is often interposed to facilitate the physical importation.
It may, therefore, happen that the customs documentation is issued in the name of the agent, and not in the name of the principal that the agent represents.
The VAT Act deals with both these commercial arrangements.
The second requirement to claim an input tax deduction is that the importer must import the goods for use in the importer’s VAT enterprise.
For examples, if the importer imports the goods for use in a VAT exempt activity (for example a financial institution that only supplies exempt financial services), no input tax deduction may be made.
The last requirement is that the importer must be in possession of the required documentation to prove that he or she is entitled to the input tax deduction on the importation of the goods.
The VAT vendor making the claim must be in possession of the prescribed documentation at the time that the VAT return in which deduction is claimed, is submitted.
What is the documentation that should be kept?
Documentation issued in the name of the importer
In the case where the documentation is issued in the name of the importer (i.e. not in the name of an import agent), the importer must hold a copy of the bill of entry (SAD500), the customs clearance notification indicating that the goods have been cleared for home use (also refer to as home consumption) and a copy of the receipt issued by Customs for the payment of the Customs VAT.
The input tax deduction may be made in the tax period that the goods are cleared for home use (this date will be reflected on the customs clearance notification issued electronically).
It may however only be claimed if the physical payment of the importation VAT has been made to SARS by the time that the VAT return in which the deduction is claimed, is submitted.
For example, if the goods are cleared for home use in the February 2019 tax period and the actual payment to SARS in respect of the importation VAT is made on the 7th of March 2019 in terms of a deferment arrangement between SARS and the importer, the input tax deduction may be claimed in the February 2019 VAT return, provided that the VAT return is not submitted before the 7th of March 2019.
Documentation issued in the name of the agent
Where C&E issues the Customs documentation in the name of the agent, the agent may physically hold the documentation (i.e. there is no requirement that the principal must be provided with copies of the import documentation to make an input tax deduction).
The agent must, however, issue the principal with a statement reflecting a full and proper description of the goods, the quantity or volume of the goods, the value of the goods imported and the amount of VAT paid on the importation of the good.
The agent must furthermore provide the principal with the receipt number of the payment to SARS.
The agent must issue this statement within 21 days of the end of the calendar month during which the goods were imported.
The principal will be entitled to claim the importation VAT based on the above statement, on the condition that the agent holds the original Customs documentation.
The rules governing the tax period in which the input tax deduction may be made are the same as those applying to instances where the documentation is issued directly to the importer.
Special cases
The VAT Act makes provision for certain special cases with regards to claiming input tax on the importation of goods by agents on behalf of non-resident principals.
The rules are essentially aimed at ensuring that input tax deductions are not forfeited in circumstances where it should, in reality, be allowed.
For example, a special rule allows for the import agent to claim input tax in respect of goods imported on behalf of a non-resident principal be the goods are ultimately owned for a recipient in South Africa.
The special rules are complex and fall outside the scope of this article.
As a general rule though, where importation VAT cannot be claimed notwithstanding the fact that the ultimate recipient of the goods is a VAT vendor in South Africa, consideration should be given to whether the special rules contained in the VAT Act would not remedy the situation.
Professional assistance should be sought for transactions of this nature
Exempt imports
Certain specific categories of imports of goods are exempt from importation VAT. The exemptions are contained in Schedule 1 to the VAT Act.
The exemptions are primarily linked to specific categories of imports listed in the C&E Act, e.g. goods imported for diplomatic and other foreign representatives, goods imported by immigrants, tourists, returning residents and other passengers for their personal use, good reimported previously temporarily exported, certain specific goods for industrial and commercial purposes, goods temporarily admitted for processing, repair, cleaning, reconditioning or the manufacture of goods exclusively for export, etc.
The Schedule also exempts from importation VAT any goods that would normally be supplied in South Africa at the zero rate of VAT, for example, basics foodstuffs.
Conclusion
This article is a bird’s eye view of the rules governing VAT on the importation of goods. Generally speaking, the rules are not complex and complying with the relevant requirements is a tick-the-box exercise.
Where uncertainty exists though mistakes can be costly.
Please contact Tuffias Sandberg for professional advice on VAT.
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