[FAQ] Exports from Zimbabwe to China

[FAQ] Exports from Zimbabwe to China

• 10 September 2021
• The Tax Faculty Tax Specialist

This article is based on tax law for the year ending 28 February 2021.

Background

Company A, tax and VAT registered in South Africa, is facilitating a sale of chrome out of Zimbabwe to a client in China. Company A is invoicing Company B in Mauritius in USD for the chrome. Company B then sells it to the end client in China. The goods are in Zimbabwe and will be exported directly from Zimbabwe to China. The goods will never enter South African borders.

How must the VAT on the arrangement be handled?

Answer

The VAT Act

Section 11(1)(a)(i) of the VAT Act zero-rates a supply of goods where the supplier has supplied the goods in terms of a sale or instalment credit agreement and the supplier has exported the goods in the circumstances contemplated in, amongst others, paragraph (a) of the definition of “exported” in section 1(1) of the VAT Act. In practice this category of export is generally referred to as direct exports. Paragraph (a) of the definition of “exported” in section 1(1) of the VAT Act defines as exported in relation to any moveable goods supplied by any vendor under a sale or an instalment credit agreement, goods consigned or delivered by the vendor to the recipient at an address in an export country.

Section 11(3) of the VAT Act provides that a VAT vendor making supplies at the zero-rate of VAT must obtain and retain such documentary proof substantiating the vendor’s entitlement to apply the zero-rate of VAT as is acceptable to the Commissioner. The documentation that must be obtained and retained is set out in VAT Interpretation Note 31 (Issue 4) (“IN 31”). IN 31 cross-references to VAT Interpretation Note 30 (“IN 30”) as far as the documentary requirements for direct exports. IN 30 also deals with the general rules governing direct exports.

IN 30 Paragraph 8.3.2 of VAT Interpretation Note 30 (Issue 3) contains the rules governing the sale of goods situated outside South Africa. It states the following:

“In instances where a vendor sells movable goods situated outside the Republic, for example, a sale on the high seas, and the vendor consigns or delivers those movable goods to the recipient at an address in an export country, the supply of the movable goods is subject to VAT at the zero rate under section 11(1)(a)(i), read with paragraph (a) of the definition of “exported” in section 1(1). In this instance, “at an address in an export country” includes consignment or delivery of the movable goods to the recipient on board a ship while on the high seas.

The vendor must obtain and retain the required documentary proof as stipulated in 6. In addition to the documentation required in 6, proof that the movable goods were situated outside the Republic at the time of supply must also be obtained and retained by the vendor.”

Application of the principles

The sale of the goods outside South Africa is a zero-rated supply, being a direct export as envisaged in section 11(2)(a)(i) of the VAT Act read with IN 30. The documentation that must be obtained and retained are set out in Paragraph 6 of IN 30. The supplier must furthermore obtain and retain proof that the goods were physically outside South Africa at the time that it was supplied.

Webinar commentary

Refer to the following webinar: VAT Series: VAT and the Cross-Border Movement of Goods: Exports here.

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