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If you sell and export goods, make sure you know Incoterms

by , 14 March 2014
Do you sell and export goods to foreign customers. If so, continue reading to find out about the Incoterms and how they can help you comply with Vat law.

If you want to understand Incoterms better, you have to know about direct and indirect exports first

The Practical Vat Loose Leaf Service says the basic question to ask to determine whether the export of goods will be regarded as an indirect or direct export is: 'Who's responsible for the delivery of the goods to the recipient in a foreign country?'

If you, the supplier, are in control of the export, it's a direct export. If the recipient of the goods is, it's an indirect export.

The Loose Leaf Service says SARS designed this so it can nail the supplying South African vendor/ exporter for the Vat, if the sale was zero-rated but the 'export' is suspect or doesn't comply with all the requirements.

Remember that if you sell and export goods to foreign customers, you're not allowed to automatically apply Vat at the zero-rate to the transactions.

So how do you ensure you get the zero-rating right when exporting goods?

This is where the Incoterms come in…

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Registering for Vat allows you to claim input tax back on Vat returns.

To register for Vat your business must meet four requirements.

Find out what these are here.
 

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What are Incoterms?

'Incoterm' is simply an acronym for 'International Commercial Terms'.

An Incoterm is essentially a term of the contract of sale which indicates the parties' agreement with respect to:

  • Carriage of the goods from the seller to the buyer; and
  • Export and import clearance.

You won't find any Incoterms in the Vat Act, nor in Interpretation Note 30 or the Export Incentive Scheme. That said, Incoterms are internationally used and are helpful in finding out about the nature, terms and consequences of an export.

This is especially important considering that SARS levies hefty penalties in you get the Vat treatment of exports wrong. Lookout for our next article on Incoterms, where we'll give you practical examples of Incoterms and their Vat implications.



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