This is similar to (but not the same as) samples supplied free of charge discussed in a previous blog. The issues around commercial invoices versus pro-forma invoices also discussed in a previous blog apply here.
Replacement goods are goods supplied free of charge to replace previously imported defective goods, or goods which did not meet quality standards. The goods are in essence identical. These goods are intended purely for commercial purposes and cannot be treated quite the same as samples supplied free of charge.
As an importer you may argue that duty and Vat was previously paid on such goods and hence, a “zero” value should be acceptable. You may even argue that a nominal value may be produced. The answer quite simply is that SARS will not accept “zero” valued clearances even though duty and Vat was previously paid. If the commercial invoice contains a “zero” value, then it should be endorsed with… “Goods supplied free of charge as replacement stock for defective goods – value supplied for Customs purposes only”, followed by the value.
The Customs legislation requires that a fresh clearance for goods is required on a shipment basis. Off-setting against previous shipments is not allowed. So, what do you do with regards to duties and Vat previously paid. You may claim these back via a Refunds process. There are some strict adherences required when claiming such Refunds from SARS.
The same rules apply when importing short-shipped or short-landed goods.
The aspect of samples has to do with valuation, i.e. the value of the goods for Customs purposes. Again, this affects the rate of duty and Vat. Should one rate samples as “free” or “zero” on the commercial invoice, or should there be a value even though they are being supplied “free of charge”?
Also, should samples be specified on a pro-forma invoice rather than the commercial invoice? This really does not matter so long as samples are cleared correctly. Pro-forma invoicing was discussed in the blog titled… “Pro-forma Invoices for Customs Purposes”.
Samples supplied free of charge must be specified on the invoice. The value of samples (if supplied free) must be realistic, i.e. as if one was going to import them as “paid for” goods. One may insert a “zero” value on a commercial invoice however, the invoice should include an endorsement stating… “Goods supplied free of charge – value for Customs purposes only”, followed by the value.
There are a few occasions when samples may attract a nominal or negligible value. The one to note is when samples are mutilated, or destroyed. If for example, you import footwear with a whole drilled through the sole of the shoe (i.e. the size of a 50c coin at least) clearly marked as “Sample”, then a nominal value may be utilised. Another example is a motor vehicle component which contains un-intended holes or cuts in it, rendering the product useless, and marked as “Sample”.
If the samples are not mutilated, this will in any event fall outside of the scope of the transaction value for duty purposes. SARS will want to use alternative methods of valuation (i.e. the value of identical or similar goods) in order to determine a realistic value.
Therefore, the best advice I have is to truly assign a realistic value to samples. Samples are most often a negligible issue, unless you import samples in very large quantities. Starting a valuation investigation with SARS as a matter of principle will merely attract unnecessary administrative costs.
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.
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:
- The Rand price must be concluded in a Forward Exchange Contract
- The rate must be negotiated between un-related parties
According to the policy, Rand invoicing is not accepted when:
- The foreign currency was converted at a fixed rate of exchange
- 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.
Trade Agreements (to which Invoice Declarations relate) are a topic on their own. One agreement which may be specified on the commercial invoice (in lieu of using a Certificate as proof) for preferential duty purposes is the EU (European Union) Trade Agreement. This agreement was established between the EU and certain countries in the SADC (Southern African Development Community).
The EU Trade Agreement was changed on 10 October 2016. It was previously known as the TDCA (Trade Development and Co-Operation Agreement). Today it known as the SADC-EPA (Economic Partnership Agreement). This agreement now includes not only South Africa but also Botswana, Lesotho, Namibia, Swaziland and Mozambique on the SADC side, as participants.
Invoice Declarations also apply to the agreement between the EFTA (European Free Trade Area) countries and South Africa.
The use of Invoice Declarations is allowed by exporters who are approved by the Customs authority in the export country; to insert an Invoice Declaration on the commercial invoice. This may be applied in lieu of the EUR1 (EU) or EFTA Certificates respectively.
Approved exporters are issued with an Authorisation Number by Customs. This number must be inserted into the Invoice Declaration when used. It applies to invoices where the total value of originating products in the consignment is EUR 6,000 or more. Consignments with originating products valued at less than EUR 6,000 do not require the Authorisation Number although the invoice declaration may still be used, i.e. by exporters who are not approved.
An invoice declaration may only be used on a commercial document such as an invoice, packing list or indent order. SARS does not accept invoice declarations to be used on blanket supplier’s declarations covering multiple shipments or on correspondence of any sort.