Q199: Why can’t I sell FOB or FCA from South Africa?

A199: In 2014 the VAT Export Incentive Scheme was replaced with Export Regulation R.316. This Regulation is broken into parts.

Part Two of the Regulation outlines the procedure for Indirect Exports, that is, exports where the Qualifying Purchaser (the buyer) appoints and pays the carrier, and where the SA vendor elects to zero-rate the supply, at the vendor’s risk.

This part is split into two subsections (A and B) separating the rules for air and sea Indirect Exports (A) from those applicable to road and rail Indirect Exports (B).

By 2014, Customs had determined that all road and rail Indirect Exports require the Qualifying Purchaser to register with SARS as an exporter and to act in that role, and this requirement was written into Part Two B of the VAT Export Regulation.

However, Part Two A dealing with Indirect Exports by sea and air was silent on the subject, directing the vendor to retain the documents required by Customs, but with no guidance on who must act as the exporter on those documents.

The position was thereafter clarified by the SARS in 2021 when they confirmed that –

Quote “…The following persons must register as an exporter and make the relevant declarations in respect of the export:

Direct exports – the vendor that consigns or delivers the goods to an export country

Indirect exports – the qualifying purchaser (my emphasis)

The correct person must accordingly be reflected as the “exporter” on the SAD 500, in order to comply with the provisions of the Customs and Excise Act, and the relevant documentary requirements contained in (Interpretation Note) 30 and the Export Regulation…” end quote.

Thus, for ALL forms of transport the SA vendor’s exporters’ code may not be used in an Indirect Export. Alternatively, the SA vendor’s exporters’ code may only be used in a Direct Export.

In Incoterms, in every F-prefixed Rule, the buyer appoints and pays the carrier.

For the SA vendor this model would be an Indirect Export (a Direct Export being one where the SA seller would appoint and pay the carrier).

But, in an F-prefixed sale, it is the seller who has the risk and cost obligation of export clearance.

How they achieve this is not stated, and as such it cannot be assumed that the seller will directly take this role, but it is clear that the buyer does not.

It follows then that in an unmodified F-prefixed sale (an Indirect Export for VAT purposes) the buyer (the Qualifying Purchaser for VAT purposes) will never act as the exporter of record (for Customs Purposes).

Yet, the instruction from SARS (both Customs and VAT) is that for all Indirect Exports (regardless of the rate of VAT applied) the Qualifying Purchaser must act as the exporter of record (as per the extract from the SARS VAT Connect, quoted above.)

In layman’s terms, the exporter must pay the freight to the carrier – whoever pays the freight to the carrier must act as the exporter.

F-prefixed supplies can therefore never be compliant with Customs regulations from South Africa, and if not compliant under that law it could never be compliant under the VAT laws and regulations either.

Regardless of the rate of VAT applied, and regardless of the mode of transport, the only time the SA vendor’s exporter’s code may be used is in a Direct Export model.

It is apparent that many sellers / vendors / exporters in South Africa ignore the law and sell under FCA, FAS and FOB terms, supplying their exporter’s code to the buyer’s carrier and/or signing the carrier’s clearing or shipping instructions.

It is equally apparent that SARS do not appear to be enforcing the rule and penalising exporters or vendors for this irregularity.

I cannot speak for SARS, of course, but I think this is because the offence is procedural and not financial. It remains, however, an offence and may give rise to fines and penalties.

But, given that as a country we are 4,5 TRILLION Rand in debt, I think it is only a matter of time before SARS pick up on these irregularities and start to impose fines and penalties.

If you’d like to know more, then note that the next 2-day course dealing with Export Exchange Control and VAT will be held on Tuesday 23rd and Wednesday the 24th of July, in Dowerglen, Gauteng.

Mail me if you are interested, once you’ve calmed down.