[FAQ] The direct delivery of purchased goods to foreign tourists

[FAQ] The direct delivery of purchased goods to foreign tourists

• 14 December 2020
• Christo Theron

Background

A company is looking to introduce a new system in their South African stores to foreign tourists as follows:

• A customer browses the smart shopper tool inside the South African store;
• The customer purchases the items from smart shopper in the store;
• The transaction always happens with the POS of the store;
• The order is always shipped from the foreign warehouse to the customers foreign address enabling the customer to have their goods delivered directly to their home in another country

May the transactions be zero-rated as the seller delivers the goods directly to the purchaser’s address in a foreign country (even though the customer is in South Africa at the time the sale has occurs)?

Answer

The VAT Act

Section 7(1)(a) of the VAT Act imposes VAT on the supply of goods or services made by a vendor in the course or furtherance of the VAT enterprise carried on by the vendor. VAT is imposed at the standard rate of (currently 15%), unless the supply qualifies to be supplied at the zero-rate in terms of section 11 of the VAT Act or is exempt from VAT in terms of section 12 of the VAT Act.

Section 11 of the VAT Act varies the standard rate of VAT to nil percent in respect of certain categories of supplies.

Section 11(1)(a) of the VAT Act zero-rates the export of goods supplied in terms of a sale or instalment credit agreement, if the goods are exported as envisaged in, amongst others, paragraph (a) of the definition of “exported” in section 1(1) of the VAT Act.

Paragraph (a) of the definition of “exported” in section 1(1) of the VAT Act defines as an export moveable goods consigned or delivered by the vendor to the recipient at an address in an export country (generally referred to as direct exports).

Interpretation Note 30 contains the documentation that a vendor must obtain and retain as support to zero-rate exports of moveable goods.

The term “consigned or delivered” is defined in the preamble to VAT Interpretation Note 30 as:

“(a) The delivery of moveable goods by a cartage contractor contracted by the vendor to deliver the moveable goods on the vendor’s behalf to the recipient at an address in an export country, where the cartage contractor –

- is engaged by and contractually liable to the vendor to affect delivery of the moveable goods; and

-  invoices the vendor and the vendor is liable for the full cost relating to the delivery; or …”

VAT Interpretation Note 30 (Issue 3) (“the IN”)

Paragraph 8.3.2 of the IN deals with the rules applicable to goods supplied that are physically outside South Africa. The paragraph reads as follows:

“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, for example the applicable customs documentation proving the export.”

Application of the principles

Based on the information supplied and subject to compliance with the relevant documentary requirements, the arrangement will constitute a zero-rated direct export of goods as envisaged in section 11(1)(a) of the VAT Act.

The above conclusion is based on the assumption that the person responsible for the physical delivery of the goods at the address in an export country is contractually liable to the South African client (supplier) to deliver the goods at the address in an export country. The fact that the delivery costs may be recovered from the purchaser by the seller does not impact on the zero-rating of the supplies.

Webinar Commentary

Further webinar commentary on 2020 VAT Refresher can be accessed here.

0 COMMENTS

LEAVE A COMMENT