Invoices for Postal Clearances

          I have seeing countless private individuals on the short end of the stick when it comes to postal clearances. Just stand at the receiving counter of any post office where foreign parcels are received. You will hear the horror expressed by mostly elderly people who have to pay excessive duties and Vat for parcels sent as gifts from abroad.  

The same often applies to companies (small companies especially) who do not anticipate the rates of duty and Vat payable for postal clearances.

          The consignor is responsible for completing the small declaration which is affixed to the outside of the parcel upon dispatch. If the value of the goods are not declared on it or if no invoice accompanies the parcel, then Customs need to improvise. And yes, they often get this wrong. Declaring inflated values for insurance purposes may also sway Customs toward higher values, leaving you at the short end of the stick when it comes to valuation.

          The Customs Officers at international postal centres are also responsible for tariffing the articles. They are responsible for determining the rates of duty and Vat applicable. If the product descriptions are insufficient, then Customs Officers will most likely use a tariff with higher rates of duty. Twenty percent is a good default rate.

          In addition, most people do not understand how the rates of duty and especially Vat are calculated. They are not aware of the hidden 10% inflation on the Customs value when calculating Vat. Ignorance will leave one with surprise.

          Anyone wishing to appeal the amounts payable must first pay for the parcel to be sent back to the Customs Assessment Centre where the decision was made. This too is a financially counterproductive exercise.

          The best advice I have for sending postal articles is to ensure that the sender includes the commercial invoice with adequate descriptions on the parcel, and to mark the declaration accordingly. Better yet, don’t bother with parcel post if it can be avoided.


Invoice as a Certificate of Origin

          There have being allot of rumors regarding the applicability of a COO (Certificate of Origin) form over the past few years. Some say that SARS have done away with the need to produce a DA 59 (the form traditionally used to as a COO).  

          But first, a generic COO form is different from an “origin certificate” related to trade agreements, i.e. EUR1 Form, SADC Certificate, and so forth. I have often seeing people confuse a COO form for a EUR1 certificate, thereby using it to benefit from a preferential rate of duty when not entitled to such. This is a classical mistake because the COO forms issued by some foreign Chambers of Commerce look similar to those used in trade agreements. The secret is to read what the respective form actually stands for, i.e. EUR1 versus Certificate of Origin. Do not take the look of the form for granted.

          The SARS DA 59 or COO does in fact still exist and is still in use. My understanding of what happened which led to the confusion regarding the use of the DA 59 came when SARS published a SOP (Standard Operating Procedure) containing minimum Invoice Requirements (the most recent revision is number SC-CF-30 dated 31 March 2011). The SARS SOP states that the “country of origin” must be reflected on the commercial invoice as a minimum requirement. Therefore, in industry circles it became generally accepted that the origin of goods may be specified on the invoice in lieu of a DA 59.

          In some ways, the invoice can be regarded as a certificate of origin, although SARS do still reserve the right to verify the authenticity of origins.

          In specific instances, the DA 59 Form may still be requested by SARS in order to verify such things as anti-dumping, safeguarding and countervailing duties, and import restrictions.

Invoice Discounts

          Most small discounts of a few percentage points may be acceptable to SARS when clearing goods through Customs. The problem arises when the discounted amount is excessive.

          Naturally, the Customs legislation requires that any / all discounts must be reflected on the commercial invoice. The nature or type of discount must also be reflected on the invoice, i.e. 5% discount for advance payment.

          Determining whether the percentage of discount is excessive or not, requires knowledge of one’s industry. Anything outside of industry norms will be regarded as excessive. In any event, any discount of more than 2 – 5% will likely result in a Customs valuation investigation of some sort. The Customs intervention of discounts is important for:

·         Determining if duty and Vat is being avoided

·         Anti-competitive behavior affecting the domestic economy

·         Generally protecting the domestic economy

Unfair competition normally arises when the buyer and seller are related to one another, and if such a relationship is restrictive in any way or form. In other words, if the relationship restricts other parties in the importing country from benefiting from the same discount.

          The type of discount being offered, and when the discount was offered will also affect the applicability of the discount in the Customs valuation. Generally, discounts must have being offered and applied prior to the shipment being dispatched. In other words, the discount must have being an element in fixing the price. Also, the consignee must have earned the discount legitimately.

          The SARS Policy SC-CR-A-05 dated 24 January 2014 titled Method 1 Valuation on Imports provides an array of important information regarding discounts. If in doubt, this policy should be consulted in depth.

          In the same vein, any commissions, royalties, kickbacks and the like must also be reflected on the commercial invoice.

Invoice Proof of Payment

          Proof of payment is often required by SARS Customs in order to verify the correctness of invoice amounts.

          [The SARS requirement for proof of payment is no longer aligned to the way that banks operate…]

          Occasionally proof of payment from a bank can be hard to come by. I have seen companies work very hard, sweating in fact to obtain proof of payment from a bank thinking that this is the only option available.

          The SARS Policy SC-DT-C-13 dated 27 November 2015 covering Refunds and Drawbacks offers the best description of what is required as proof of payment, namely… “from financial institution clearly indicating the beneficiary and the applicant, method of payment, currency transfer and invoice related to the transferred currency”. Most requests from SARS require this to be bank stamped and signed.

          The SARS requirement for proof of payment is no longer aligned to the way that banks operate in this technologically advanced environment. Many banks do not print, stamp and sign the payment advice. Today, special arrangements must be made for this to happen. In addition, most companies today make bulk payments with long annexures of invoice amounts consolidated into one amount. This can get tricky as a method of proof.

          Many companies make term payments, i.e. 60 x days or 90 x days from shipment date. I have seen companies make early payment in order to obtain some form of proof in order to expedite live shipments or refund applications with SARS. While there is nothing wrong with doing this, it does defeat the objective of the term payment in the first instance.

          But, the objective of proof of payment has less to do with the payment advice and more to do with proving the value of the goods, namely the price paid or payable. There are other ways of proving the value of the goods namely:

  • Proof of payment from a previous Customs clearance of identical goods (if already paid)
  • Putting up a PP (Provisional Payment) as surety to SARS pending proof of payment
  • Suppliers price lists proving the price of the goods to be paid

These can often be negotiated or discussed with SARS Officials, although the prerogative to accept these remain in the hands of SARS.

Invoice Charges and the Freight Statement

          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.

Tariff Heading on an Invoice

          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.

Replacement Goods and the Commercial Invoice

          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.

Samples and the Commercial Invoice

          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 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.