A203: A rough guide…
Pro Forma Invoice
Of the three, this may not be required. Whether it is or not depends on the buyer’s needs and it is often a requirement of the import country in initiating or supporting an import license request, or a pre-shipment inspection.
In this manner it is a precondition of the process that allows the buyer to import the goods. However, it might also be needed as a general commercial requirement for any buyer undertaking a costing, before committing to the sales contract.
Either way, if it is needed it will be driven by the buyer.
If it is part of an official import licence process then what the pro forma states and how it is laid out, both would be determined by the destination country’s standard.
Frequently, when officially required the subsequent value of the transaction may not vary from the value declared on the initial pro forma.
A pro forma may precede the export event by weeks or months and it is generally addressed to an entity in the destination country.
When it is a document required to secure an import licence there is always the possibility that the licence is refused and, in these instances, the seller needs to note that the buyer calling for a pro forma indicates that the contract may not yet be considered final.
Commercial Invoice
This is a document that serves the needs of commerce. It is not an accounting device, and although SARS for import Customs purposes (unless endorsed to the contrary) consider a commercial invoice to be a demand for payment, SARS VAT for export purposes do not.
For import Customs purposes, the layout of a commercial invoice is dictated by the Customs Act in the country of destination.
Therefore, what it looks like, how it breaks down a price and the vocabulary used both to describe the goods and the elements of the price are determined by law.
(Note that Incoterms 2020, for example, assumes that the layout and content of the commercial invoice will be confirmed or described in the sales agreement terms and conditions, presumably this will be based on the buyer’s input.)
Broadly, a commercial invoice must contain sufficient information to correctly identify the goods, the transactional value of the supply and the components of that value.
This invoice is issued by the exporter and addressed to the importer.
Note further that, as commercial invoices are not accounting records, it is possible to have a second commercial invoice for the same shipment reflecting different details.
This might arise when the beneficiary needs to tender a commercial invoice under a documentary credit (an L/C), where the description of the goods must match with the credit, as opposed to matching with the customs description.
It might also arise when the applicant to the L/C is paying in a currency other than that used for import customs purposes.
Ideally both commercial invoices would be identical (if not one-in-the-same), but unless a law requires this they need not be.
As a general proposition, a commercial invoice is usually issued in preparation for the goods leaving the point of supply.
Although not submitted to Customs for export purposes, the exporter must be able to produce the commercial invoice on request, and it is one of the copy documents that the exporter needs to retain for export Customs auditing purposes.
The currency of the commercial invoice is determined by the exchange control regulations in the destination country.
Tax Invoice
A tax invoice is subject to SA Law (The VAT Act 89/1991). What it looks like, how it is numbered, formulated, calculated, worded, and accounted for are each determined by law.
The tax invoice is always considered a demand for payment, and it must be issued on or within 21-days of, ‘supply’.
Supply is equal to the tax invoice being issued (presumably on completion of the underlying sales contract) or on any payment being received, whichever comes first.
Thus, in a prepaid transaction the tax invoice will predate the commercial invoice, supply being triggered by the payment.
However, in certain sales contracts (D-prefixed sales terms on credit, for example) the tax invoice will post-date the commercial invoice and all export paperwork, such as export customs documentation.
As the tax invoice is issued by the vendor on the party who pays them, it therefore may be addressed to a different party than the commercial invoice, which is addressed to the party the goods are consigned to.
The currency of a tax invoice (local as opposed to foreign) is determined by the rate of tax applicable to the supply.
Pro Forma: may or may not be required, but when required it is driven by the buyer. It is issued by the seller and addressed to the buyer or the proposed importer.
Commercial: always required and used for import customs purposes. It is issued as the supply chain begins and is addressed from the exporter to the importer.
Tax: always required whenever there is an underlying commercial transaction. Issued by the vendor on supply or payment, whichever comes first, and is addressed to the paying party.
You’ve still time this year to sit down and be counted…
Export Exchange Control & VAT 16th & 17th September
Commercial Terms & Incoterms 15th & 16th October
Export Exchange Control & VAT 12th & 13th November
Commercial Terms & Incoterms 3rd & 4th December
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