Terms of Sale on a Commercial Invoice

          Terms of Sale, or Terms of Delivery are most commonly referred to as Incoterms (International Commercial Terms) these days.  Terms of Sale simply must be reflected on the commercial invoice for Customs purposes. 

          Customs treat Delivery Terms somewhat differently from the conventional intention. 

          In South Africa, SARS Customs have retained the FOB (Free On Board) point for Customs duty purposes. This point affects the transaction value, which is the Customs value. 

          Therefore, all costs, charges and expenses incurred in the international sales transaction up to the FOB point (the point when the goods are laden on board the vessel or aircraft) must be included in the Customs value.  These are referred to as dutiable charges. Conversely, all costs, charges and expenses which occur beyond the FOB point, may be excluded from the Customs value. These are referred to as non-dutiable charges.

          In other words, if you have an EXW (Ex Works) invoice, then you must add all “dutiable” charges up to the FOB point in order to get to the Customs value. Likewise, if you have a CIF (Cost Insurance and Freight) invoice, then you may deduct all “non-dutiable” charges such as freight and insurance, up to the FOB point.

          A general rule of thumb is to take whatever the Incoterm is on the commercial invoice, and simply to work your way toward the FOB point (by adding or deducting), unless the Incoterm happens to be FOB. Even so, always be sure to check that all charges on FOB invoices are accounted for. 

          This issue is also impacted by the controversial subject of freight statements, which will be the topic of one of my next blogs. 

Rand Invoicing

          This seemingly complex subject is rarely understood. Getting it wrong can lead to un-necessary risk which is easy to avoid.

          While risk is normally of a financial nature, the administrative burdens of getting it wrong can also be overwhelming to importers.

          Using a foreign suppliers Rand invoice is generally acceptable for Customs clearance purposes. However, there are certain conditions according to the SARS Valuations Policy SC-CR-A-03 dated 24 January 2014 for using Rand invoicing namely:

  1. The Rand price must be concluded in a Forward Exchange Contract
  2. The rate must be negotiated between un-related parties

According to the policy, Rand invoicing is not accepted when:

  1. The foreign currency was converted at a fixed rate of exchange
  2. The conversion rate was negotiated between related importers and suppliers

The latter circumstances may however be accepted by Customs provided it is accepted in a VDN (Value Determination) issued by SARS. A VDN issued but where the Rand values were not accepted, will contain an alternative course of action which must be followed when clearing goods, i.e. a mark-up on the Customs value or set criteria for converting the currency.

          When applicable, the Forward Exchange Contract number, date and rate concluded must be specified on the commercial invoice.

          Now, here is the seemingly complex part.  Where no Forward Exchange contract or number exists but where the rate was fixed, the invoice must contain the concluded rate. Here are the steps which must be followed by the Customs Clearing Agent when fixed rates are used:

Step 1:  Convert the Rand amount back to the foreign currency using the fixed rate on the invoice;

Step 2:  Re-convert the foreign amount back to Rand using the official SARS rate of exchange, i.e. using the FOB (Free On Board) date.

          It is that simple, but evidence must always be available.  If the invoice contains both Rand and foreign amounts, then merely use the foreign amount.