Pro-forma Invoices for Customs Purposes

          Pro-forma invoices… the subject of much debate and contention. May you use them? Will Customs accept them? Under what circumstances may they be used for clearance purposes?

          It is not true that pro-forma invoices are always not acceptable for clearance purposes. One just cannot use them willy-nilly.

          I am sure that on occasion you have received samples free of charge, replacement stock for defective goods, or goods supplied for testing purposes. You will likely not be paying the supplier for these goods. Why then is it so important to produce a realistic value for them, if at all.

          This question was covered in the Blog “Customs Minimum Requirements on a Commercial Invoices”. In particular, we discussed the concepts of “true reflection” and “transaction value”. We concluded that a realistic value for such goods must be produced as if the goods were subject to a normal commercial transaction.

          While such goods may be cleared using a commercial invoice, a pro-forma invoice may also be used for this purpose.

          But how will Customs react when a pro-forma invoice is present? Customs does not condone the use of a pro-forma however; it is their reaction to its use which must be noted.

          The new Customs legislation defines a pro-forma invoice [Rule 1.1(1) of the Control Act] as… “an abridged, estimated or preliminary invoice issued by a supplier to a buyer in advance of a delivery of goods otherwise than for purposes of payment…”.

          The Customs operating procedures guide Customs Officials to stop consignments where pro-forma invoices are present. Such consignments become subject to inspection where-after the nature and value of the goods will be assessed. SARS Customs will look to see whether realistic values were supplied on the invoice, amongst other things.

          There is certain information (other than standard information) that must be supplied on the pro-forma invoice. This also applies when goods are supplied free of charge on a commercial invoice.

          If produced, this information will help to minimise negative consequences of a lack of understanding during an assessment by Customs Officials. On the invoice you should include:

  1. A realistic value for the goods.
  2. The reason for goods supplied at no charge.
  3. An endorsement that the goods are being supplied at no charge.

When using endorsements indicating no charge items (point c), it should typically read as… “Goods supplied free of charge – value for Customs purposes only”.

A discussion around ‘samples’ in particular will be made in a separate blog later on. Samples, the value, markings, reasons for their use and quantities too can be a bone of contention. These must be understood.

In the new Customs legislation, pro-forma invoices will also be allowed for incomplete or provisional clearances.

Customs: Lack of Information or No Invoice

          Occasionally things go wrong. An invoice was issued by the supplier but the invoice is illegible. The supplier is not available to explain or has closed down.

          How do you figure out what is in the consignment? What do you Customs clear?

          In another example the consignment was shipped with the wrong goods in the container. An invoice was not issued. A month later neither the supplier nor the importer knows what was packed.

          And in yet another example the goods were supplied to the wrong destination. The would-be importer has undertaken to clear the goods for import and re-exportation but does not know what is in the consignment. What do you do?

          The answer is a Sight Inspection. A Sight Inspection is a Customs inspection held under “non-prejudice”, i.e. no bias or prejudgment is held by Customs.

          The process involves making an application to SARS Customs on a DA 22 Sight Bill of Entry. A DA 22 Sight Entry is a simplified version of an import declaration. It is a manual process. The Customs Clearing Agent would complete the form and submit it to Customs. Customs will in turn “Stop” the Sight Entry.

          A booking for a Customs examination is made and the goods are inspected. Both parties (Customs and the importer or agent) must be present during the Sight Inspection. The Customs Officer will make-out an inventory of the goods on the reverse side of the Sight Entry.

          The importer or Clearing Agent will in turn make-out an independent inventory of the goods Sighted.

          With the knowledge gained of what is in the consignment, either an invoice must be produced or three quotations for the goods must be obtained. In the case of quotations, the highest of the three must be used for clearance purposes.

          Once the goods are cleared using a proper clearance declaration, Customs will assess the declaration and compare it to their own inventory of the goods. If in order, the shipment will finally be released.

          If Customs is not satisfied with the valuation of the goods, they may launch a further investigation into the nature of the goods and value thereof. This may result in a VDN (Valuation Determination) being issued. VDN will be covered in another Blog later on.

          If any of the goods Sighted are subject to anti-dumping duties, then a VDN will almost certainly be considered.

          Sight Entries occur very seldom. Many traders do not know about the opportunity that this process presents to solve such problems. This is the reason for including this topic into a blog.

Customs Invoice Language and Translations

          All commercial invoices and supporting documents must be in one of the official languages of South Africa. SARS will only accept English as the official language for business purposes. This is also confirmed in the Rules to the Customs Control Act when referring to translations, i.e. Rule 41.29 (1).

          If any invoices, supporting documents or literature is in a foreign language and you are not able to have these changed, then translations may be used.

          However, you should evaluate the merits of any translation required before you proceed. For example, Dutch or German languages may be easily read and understood by an Afrikaans speaking person. Provided there are only a few words or there is only a sentence or two, then you should submit it to SARS and request permission from them to utilise it. In your submission you must state the purpose for which the document will be used (i.e. Clearance purposes). You must request whether SARS will accept the foreign language document without translation. Such applications must be made before attempting to use them for official purposes.

          If SARS does not accept it or if the language is not legible then you will need to have it translated. According to the various SARS guides on this matter, translations must be undertaken by a “sworn translator” certified by the South African Translators Institute. Again, before you use the translated material for official purposes, you must make an application to SARS to request permission from them to utilise it.

          This may become a costly and time- consuming exercise. Another alternative and one that is often accepted by SARS is to have it translated by an independent third party. Such a third party can be any South African registered business which has a foreign language speaker in its employ. The translation must be on a company letterhead, signed by the person doing the translation and stamped with an official company stamp. Once again, do take care to make an application to SARS to request acceptance of the translation prior to using it for official purposes. In some instances SARS may request such translation to be certified by a Commissioner of Oaths.

          Finally, any e-mail correspondence whether from a South African registered company or foreign supplier will not be accepted as a form of translation material.

Customs: Minimum Requirements on a Commercial Invoice

          Quite simply, one may not clear goods moving in to or out of South Africa through Customs without the existence of a commercial invoice.

          The new Customs legislation states that the contents of an invoice must be a “true reflection” of the goods being imported or exported.

          This concept is important especially when dealing with samples of no commercial value, goods being supplied free of charge or replacement stock. Customs still wants to know what the goods are and what value such goods would be – as if in a commercial undertaking. The purpose obviously is to establish the correct duties and taxes which must be paid. Some of these issues will be discussed in the blogs which follow.

          The concept a “true reflection” introduces another concept covered in the legislation namely, “the amount paid or payable” for the goods. The amount paid is the actual amount paid in the commercial transaction. The amount payable is the amount that would have being paid if any goods that were supplied at no charge were charged. The meaning of the concept “transaction value” is inclusive of the latter explanation; again, for duty purposes.

          When it comes to duties, Customs wants its pound of flesh so to speak.

          In a nutshell, whether the goods are charged for or supplied free of charge, or even discounted, a true reflection of the goods and their values must be present on the commercial invoice at all times.

          Minimum requirements on a commercial invoice in terms of the Customs Control Act number 31 of 2014 and the SARS Valuations on Imports Guide (SC-CR-A-03) generally include:

a.       Nature of the Transaction.

b.      Goods to which it relates.

c.       Amount (price) paid or payable.

d.      Currency.

e.       Goods marks and numbers, i.e. part numbers.

f.       Description of the goods.

g.      Any propriety or trade name of goods.

h.      Invoice number and date of issue.

i.        Name and address of issuer.

j.        Name and address of the buyer (and the consignee if different from the buyer).

k.      Any commission, discount, cost, charge, expense, royalty, freight, tax, drawback, refund, rebate, remission or other information which affects the value of the goods.

l.        Freight and insurance where applicable.

m.    Must be in the official language.

n.      Country of origin.

o.      Weights and quantities.

p.      Forward exchange contract particulars (for Rand invoicing).

The last invoice issued in respect of the goods must be supplied and used for clearance purposes, i.e. if there is more than one invoice issued for the goods. This would generally apply where buying and selling agents are involved.

          Any change in invoice particulars must be accompanied by an amended invoice, debit or credit note. Such changes must be communicated to Customs with the use of a VOC (Voucher of Correction) if the goods have already being cleared.

          Interestingly, the Customs Control Act makes mention of a “secret discount” in any form, a term not officially used before. These must also be reflected on the invoice.