Invoice Declarations

          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. 

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Third Party Invoicing

          The golden rule when third party invoicing is involved in international trade consignments is to “use the last invoice”.  Third party invoicing refers to invoices issued by a third party, i.e. a buying or selling agent.

          But why is it important and what are the implications of not taking the most recent invoice into account?

          It has to do with commissions.  Commissions according to the SARS policy on Valuations (SC-CR-A-03 dated 24 January 2014) is when an intermediary acts on behalf of either the supplier of the goods (selling commission) or the importer of the goods (buying commission). Third party invoicing may also include other costs, charges and expenses as a condition of the sale.

Commissions and other expenses influence the Customs value of goods imported and hence, the amount of duty and Vat payable to SARS.

          The last invoice issued in the trade transaction would (or should), in addition to the original price paid or payable, include all commissions, costs, charges and expenses on the invoice. This does not mean that such commissions must always be included when calculating the Customs value for duty purposes. Buying Commissions are often accepted by Customs (and hence deductible) provided these are “bona fide” buying commissions. 

          Occasionally when multiple invoices are involved, confusion may exist over which invoice should be used for Customs clearance purposes.

A personal piece of advice is to obtain copies of all invoices involved in the transaction. Analyse the value of each and explore the invoice with the highest value. If Commissions or other expenses are reflected on a separate invoice altogether, then these too must be considered for inclusion. 

Invoice Part Payments

          This is a classical error I’ve seeing made in the past.

          Some suppliers have an uncanny way of making reference to advance payments on an invoice inconspicuous and hard to find. One would typically read that the total value on the invoice resembles a 30% advance payment found at the lower end of the invoice in very fine print.

          In such an example the balance of the payment would be followed up with a supplementary invoice for say 70% of the payment. If this is overlooked it will result into an under payment in Customs duties and taxes. Any Customs clearance must reflect the full transaction value of the goods, i.e. inclusive of all part payments per shipment.

          My advice is that payment terms which have being split into two or three lots must be clearly specified and defined on one invoice. If they are split over more than one invoice then this must be clearly indicated.

          I further advise that the sum of all part payments on the invoice must be reflected on the bottom line.

          At the other end of the spectrum I’ve seeing invoices which cover numerous shipments in one transaction. There is nothing wrong with this so long as the quantities and values on the invoice can be apportioned per shipment. Such instances must be backed up with a packing list per shipment.

          Staged Consignments, i.e. large plant or machinery shipped over several consignments should be invoiced appropriately. More about Staged Consignments will be covered in another blog.

Blank Invoices

          The penal provisions for importing or producing blank invoices going forward will be much different to the past.

          About 18 years ago I was participating in practical Customs training for passenger baggage searches. The training was based at JIA (Johannesburg International Airport), now ORTIA (OR Tambo International Airport).

          My training partner and I were being monitored by the instructor when opening passenger baggage one morning. My partner came across an original BOL (Bill of Lading) in one gentleman’s baggage. Because I was based at a coastal region I was familiar with reading BOL. As a result, we uncovered several containers of fake goods at a nearby premises. In addition, we found a booklet of blank invoices.

          It is illegal to import or to produce blank invoices which are capable of being completed. Blank or incomplete invoices are seeing to be utilised for fraudulent activities.

          At JIA that morning, we proceeded to issue a penalty of R 100 for every page of blank invoice found. There were 38 pages in total. The blank invoices were seized and later destroyed.

          There is a lot more to this story, but you get the point.

          The penal provisions for importing or producing blank invoices is a Category 1 offence in terms of the Customs Control Act.

          In particular, the new penal provisions are imprisonment or a fine not exceeding R 1 million. The new legislation also provides for an ‘additional’ penalty not exceeding three times the monetary benefit gained or to be gained from using them.

          Would you believe, the gentleman who we had penalised at JIA that morning attempted to bribe another Customs Officer to get the blank pages back. This all after being penalised R 3,800 and with several containers being seized. This was a lot of money 18 years ago.

          The penalties going forward appear to be more in line with the level of criminal activity, if engaged in. 

Amended Invoices for Customs Purposes

          This seemingly boring subject contains a few cautioning aspects worth noting.

          Customs requires any change to invoice particulars (especially a change in the transaction value) to be accompanied by an amended invoice. Reasons for amended invoices may include for example:

a.       Amounts debited or credited.

b.      Any amount refunded.

c.       Any additional amounts paid or payable whether in money or in kind.

d.      Any information to be corrected.

e.       If SARS Customs request the invoice to be amended.

f.       If the invoice needs to be split for any reason.

An invoice replacing a previous invoice may only replace one invoice, not multiple invoices. Supplementary invoices may also be produced.

          Amended invoices must contain a statement setting out the reasons for the amendment. It should, where applicable, also be accompanied by documentary evidence of such amendment.

          Customs may refuse to accept an amended invoice if they believe that the amendment is not a true reflection of the change.

          You should be cautioned about Customs requesting an invoice to be amended (point e). Any such request should be based on an investigation of sorts. The outcome of such an investigation must be in writing. It may even be in the form of a Determination issued. If you are not satisfied with a decision made by Customs you should follow the dispute resolution process discussed in previous blogs.

          An amended invoice must be communicated to Customs by means of passing a VOC (Voucher of Correction). This is relevant if the amendment results into any change on the Customs clearance declaration.

          Another area of caution is that any VOC passed for an amended invoice must be done within one month of “receipt” of the amended invoice. While the emphasis is placed on the time of “receipt”, the date when the amended invoice was issued is important.

          One should realistically have received the amended invoice soon after its issue. Taking longer than one month may result in interest being demanded from SARS, i.e. for additional duties and taxes on debit notes.

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: 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.

Customs: Introduction to the Commercial Invoice

I like the commercial invoice. It is the one document which touches on nearly every party involved in the international trade process in one way or another. It also provides allot of information without being overly technical.

          A single commercial invoice is used and/or viewed by the exporter and importer, at least two commercial banks, the SA Reserve Bank and its equivalent overseas, two Customs authorities, the insurance broker, the transporter, and at least one Customs Clearing and Forwarding Agent. They all act as major role players in relation to the invoice.

          A commercial invoice is somewhat different from a tax invoice. Tax on international trade is zero rated. No tax is reflected on it. A commercial invoice is used for international trade transactions. It contains Customs related information such as international commercial terms, origin criteria and currency codes.

          Documents which either support or depend on the commercial invoice include the packing list, indent order, insurance document, bank payment documents, exchange control documents, forward exchange risk cover, Customs declarations and its supporting documents on each side of the border, the contract of sale, regional trade agreements, and international sales and delivery terms such as Incoterms (International Commercial Terms).

          While the invoice is central to the commercial transaction between the buyer and the seller, it must meet with a number of Customs requirements. These are legislated in the Customs Acts and documented in numerous SARS Customs SOP’ (Standard Operating Procedures). Go to www.sars.gov.za and search under “Find a Publication”.

          Importing or producing blank or incomplete invoices which are capable of being completed is an offence.

          The Customs authorities recognise the following types of invoices namely the pro-forma invoice, the commercial invoice, and consular invoices (i.e. for diplomats and ambassadors). The former two will be covered in subsequent blogs.

          Some of the larger and more complex issues which also relate to the invoice will be discussed independently from the Blogs which specifically cover invoices. However, some (i.e. tariff, valuation and rules of origin) may be covered briefly in this section from time to time.

          Minimum Customs requirements pertaining to the commercial invoice will be discussed here. It will include issues such as language, when there is a lack of information on the invoice, amended invoices such as debit and credit notes, and the like.