Value-Added Tax (VAT) is an indirect tax on the consumption of goods and services in South Africa. It is charged at each stage of the supply chain at a standard rate of 15%. When goods and services are exported out of South Africa, different VAT rules apply. So do you pay VAT on exports in South Africa?
In this blog, we’ll explore the key aspects of VAT on delivery/ exports in South Africa. Let’s start the journey.
How Exports Are Treated for VAT
Unlike standard domestic transactions, exports are free from VAT. When goods are exported from South Africa, the exports are zero-rated for VAT purposes. This means VAT is charged at 0% on goods and services exported outside South Africa.
Some Examples Of VAT-Free Exported Goods
- A South African clothing company ships t-shirts to a retailer in the UK
- A Cape Town vineyard exports a batch of wine to China
- A Durban manufacturer sells machinery to a company in Zambia
In these scenarios, the South African company does not collect any VAT from the overseas customer. They also pay no VAT on inputs related to the export product.
This VAT exemption on exports applies to:
- Goods exported out of South Africa by air, sea, rail, road or post
- Some services supplied to non-residents, like consulting, tourism, or transportation
So exports are treated favorably for VAT. But why does South Africa do this?
Why Exports Are Zero-Rated?
There are good reasons why exports don’t carry VAT in South Africa:
Keeps Exports Competitive
Charging VAT on exports would make South African goods and services more expensive for international buyers. This harms the competitiveness of local companies in global markets. Zero-rating exports keeps South African exporters competitive in foreign trade.
Avoids Double Taxation
South Africa has no jurisdiction to collect taxes for other governments. So VAT is only collected on goods consumed locally. Foreign customs authorities impose their own duties and taxes on imports. Charging VAT on top of this would amount to double taxation.
Aligns With International Norms
Most countries with VAT systems follow the destination principle and don’t tax exports. South Africa models its VAT rules on international best practices. Not charging VAT on exports aligns with what most trading partners also do.
Encourages Export Activity
Zero-rating boosts exports by removing a tax burden. This creates an incentive for local companies to export more. Higher exports are ultimately good for the broader economy.
So in summary, not charging VAT on exports makes perfect economic and policy sense for South Africa.
The VAT Process on Exports
Zero-Rate The Sale
When a local company exports products or services, they issue a tax invoice to the foreign customer showing VAT as 0%. No VAT needs to be collected locally.
Claim Input VAT
The exporter has likely paid input VAT on materials, utilities, manufacturing equipment etc. used to produce the export goods.
With the export sale treated as VAT-free, the exporter can claim back the VAT paid on inputs from SARS by submitting a VAT return. This input credit reimburses them for VAT originally charged by suppliers.
Verify Export Documents
To claim the input VAT refund, the exporter must hold supporting documents that confirm goods left South Africa. SARS requires export proof like customs documentation, airway bills, or freight forwarder declarations.
Obtain VAT Refund
Once the VAT return is submitted with verified export evidence, SARS pays back the input VAT claimed to the exporter. This tax saving goes straight to the exporter’s bottom line.
Common VAT Pitfalls on Exports
While exports don’t incur VAT, there are still some compliance points for exporters to avoid:
Not Retaining Export Proof
All zero-rated exports need supporting customs documentation. Exporters who dispose of airway bills or shipment invoices can lose their VAT refund rights.
There are time limits for issuing tax invoices and claiming input tax credits on exports. Exporters must know the VAT timeframes to maximize refunds.
Exceeding Write-Off Thresholds
If goods are removed from an excise warehouse for export but don’t leave South Africa, there are tax implications. Strict rules govern the write-off limits for lost, stolen or damaged excisable inventory.
Options If You Charge VAT in Error
Sometimes exporters make mistakes and inadvertently charge VAT on exports. What happens if you collect VAT by error on zero-rated exports?You have two options to remedy this per SARS guidelines:
Refund the VAT to the customer: Issue a credit note or payment to refund the VAT charged in error to the foreign buyer. Amend the tax invoice accordingly.
Submit a disclosure to SARS: If unable to refund the foreign customer, report the VAT charged in error to SARS. Submit supporting documents explaining why you couldn’t repay the overseas buyer.
These measures let you correct any accidental VAT charges on exports and avoid non-compliance penalties.
South Africa’s VAT system contains special provisions for export transactions. Unlike standard domestic supplies, exports are zero-rated – meaning VAT is charged at 0%. This favorable tax treatment has clear policy motivations – maintaining the competitiveness of local goods abroad, preventing double taxation, aligning with global tax norms, and promoting higher exports.
By not imposing VAT on exports, South Africa also creates administrative responsibilities for exporters related to tax invoices, input credits, customs proofs and adhering to VAT timelines. Overall, understanding the specific VAT rules for exports enables South African companies to expand into overseas markets and make the most of available tax reliefs. Managing the related documentation and deadlines allows exporters to access refunds in full while staying compliant. So while no VAT gets collected on exports themselves, there are still exporting protocols for VAT that South African companies must follow.
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Frequently Asked Questions
What Tax Do You Pay When Exporting Goods FromSouth Africa?
You don’t pay any VAT when exporting goods from South Africa. Exports are zero-rated, so VAT is charged at 0% on goods leaving the country.
What Documents Do You Need To Claim VAT On Exports?
To claim back input VAT, you need to retain supporting export documents like air waybills, shipping documents issued by customs, packing lists, invoices, and proof that payment was received from the overseas buyer.
Can You Claim VAT On Services Exported FromSouth Africa?
Yes, VAT incurred on services exported from South African can also be claimed as input credits. Common examples include consulting, auditing, engineering, marketing, sales, and software services supplied to clients outside South Africa.
Is There A Time Limit To Claim VAT Refunds On Exports?
Yes. Exporters have time limits imposed by SARS to claim VAT refunds within specific periods. Failure to meet the deadlines will result in the input VAT claim being rejected.
What If Goods Removed From An Excise Warehouse Aren’t Actually Exported?
If excised goods don’t leave South Africa after being removed from an excise warehouse, there are strict VAT limitations. Exceeded write-offs due to goods damaged, lost, or stolen become subject to VAT payments.