We have seeing allot of controversy in the recent past created by the need for freight statements. Why has this become so important?
It has to do with the costs, charges and expenses reflected on the commercial invoice. Charges are often deducted from the Customs value as non-dutiable charges. As usual, this affects the Customs value and hence, the duties and Vat payable. This was also discussed in the blog titled… “Terms of Sale on a Commercial Invoice”.
SARS Customs simply do not trust that the dutiable and non-dutiable charges specified on a commercial invoice, is the price that was ‘actually’ paid.
We often see charges such as freight and insurance specified on an invoice verified differently on a freight statement. This is because charges quoted at time of export are often based on estimated amounts. When the cargo is physically freighted, the actual amounts (which are occasionally different from the estimated amounts) become due; hence the need for a freight statement.
But, what is a freight statement? Where would you obtain them?
The SARS Policy number SC-CR-A-05 dated 24 January 2014 covering Method 1 Valuation on Imports refers to freight statements as… “third party invoices”, or a “transport document”, or a “specific freight statement from the international freight carrier or freight forwarder.”.
The Freight Forwarding Agent will most often have access to the freight statement for example, in the form of a HBL (House Bill of Lading). But this will depend on the charge, who directly contracts for the charge, and the mode of transport. Freight statements can be hard to come by. This happens when the Freight Forwarding Agent in the export country is different from the Agent in the import country. Freight amounts are very confidential. Most companies do not want to divulge such statements to third parties even though it is lawfully required by SARS. There are ways to overcome this problem but this level of depth is best left for another blog. You may also contact me via this blog to find out more.
The global Customs community is becoming increasingly harmonised. But please be cautioned about the use of a tariff heading on an invoice.
[This will certainly get the attention of Customs officials who like to stop such consignments.]
As an importer or exporter of goods you may be tempted to insist that the tariff heading should be reflected on the commercial invoice. While there is nothing wrong with this, it is not a mandatory Customs requirement. Not in South Africa in any event.
The World Customs Organisation established the Harmonised System for the global classification of goods at a six digit level. Countries which work at an eight or ten digit level do so independently. Headings at eight (South Africa) or ten digit levels do so in order cater for domestic tariff and regulatory requirements.
While headings are globally harmonised at a six digit level, this does not mean that classification will always be identical from one country to another. A product recognised under one heading in South Africa, might be tariffed within a different tariff heading in Germany for example.
The simple reason for this is that different people see things differently. This is exasperated by classification in different countries in relation to culture, language, education, technological advancement in some countries (or a lack thereof in others), and so forth. Tariffing at an eight or ten digit level, (which adds to the complexity of the tariffing process) may in itself be the cause of differing opinions.
Because inconsistencies in the tariffing of goods from one country to another do exist, headings may occasionally be misaligned. This will certainly get the attention of Customs officials who like to stop such consignments. The status of your tariff headings will depend on how you manage the tariffing process with your supplier or consignee.
Again, there is nothing inherently wrong with having a tariff heading on a commercial invoice, so long as the classification process is managed well.
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 Customs Valuation, i.e. the value of the goods for Customs duty purposes. This affects the rate of Customs duties and VAT. We question whether a supplier may show “Samples” on a commercial invoice as FOC (Free of Charge). Moreover, we question whether the actual value of “Samples” must be shown on the invoice.
Pro-Forma Invoicing
Should samples be specified on a Pro-Forma invoice rather than the Commercial invoice? Before we move on, let me confirm that, it really does not matter. So long as samples are correctly cleared for Customs duty purposes. Pro-forma invoicing was discussed in the blog titled… “Pro-forma Invoices for Customs Purposes”.
Samples Supplied Free of Charge
Samples supplied FOC (Free of Charge) must be shown on the commercial invoice. This is mandatory.
The value of samples (if supplied free) must also be shown. The value must be realistic, i.e. as if one is going to import them as “paid” goods.
Not wishing to sound contradictory. One may show a “zero” value in the body of the invoice. Still, the invoice must be supplemented with certain endorsements lower down on the invoice.
There are three endorsements which are mandatory for a Commercial Invoice to be accepted by Customs.
These Endorsements Are:
“Goods Supplied Free of Charge – Value for Customs Duty Purposes Only”
The “actual” value of the samples must be specified, and
The reason or reasons why the goods are supplied Free of Charge.
The reasons for goods supplier Free of Charge might include, for example:
Samples for Testing Purposes
Samples for Demonstration Purposes
Samples for Promotional Purposes.
Samples with Nominal or Negligible Values
There are a few occasions where samples may attract a nominal or negligible value. Nominal values may be shown on the invoice under certain circumstances.
The major one to note is where samples are mutilated, or destroyed. For example. If you import footwear with a hole drilled through the sole of the shoe, a nominal value may be utilized. The shoe is rendered worthless. The hole should be the size of a 50c coin to prove mutilation. The shoe must clearly be marked as “Sample“.
The absence of “mutilation“, and the absence of a proper value may be problematic. SARS will want to use alternative methods to value the samples. These include for example, the value of identical goods, or the value of similar goods.
Under these circumstances Customs will request three quotations on the local market. The higher of the three will be used as a benchmark to value the goods for clearance purposes. If the values are proven to be under declared, duties, VAT and penalties may be called for.
So, the best advice is to simply assign a realistic value to samples and the commercial invoice
Unless you import samples in very large quantities, samples are most often a small and negligible issue. Starting a valuation investigation with SARS Customs will merely attract unnecessary costs and inspection fees.
Types of Goods with No Commercial Value
Again, negligible values may be shown on the invoice if the goods are of no commercial value.
Here are further examples:
Mutilated Goods: Items that have been damaged to the point that they can’t be sold
Raw Materials and Demonstration Items: Products like yarn, fabrics, paper, wood, metals, and stones. Also those that are either cut into small sizes or have dimensions making them suitable only for demonstration purposes
Small Accessories: Items like nails, buttons, and buckles that are made from non-precious materials. Also those that are presented as samples on cards, with no more than one of each type
Marked or Mutilated Raw Materials: Goods including wood, cork, paper, and various fabrics that are made useless for sale. These are due to permanent markings, damage, or being glued together for demonstration purposes
Non-Consumable and Consumable Goods: Products displayed as samples with a value not exceeding R 10.00 for non-consumables (e.g., lighters, pencils) and consumables (e.g., food and beverages) that are used up during demonstrations.
The Customs authorities may consider whether samples fall under the category of commercially negligible items.
Contact Us
Please Contact us for advice or a quotation for our Services.
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.
