I’m starting an importing business, what are the importing terms and documents involved?

Tax Tariffs, Custom Duty & Certificates

How are tax tariffs and custom duty charges levied on goods imported to South Africa?

A tax tariff is the duty imposed by a government on imported goods. The duty changes from product to product and in order to pay the correct duty, importers must use the correct tax tariff. “In the case of the import of model cars, the best and correct tariff code to use is 9502.00.90. The VAT payment on this type of import is 14%”, explains SARS, Lester Millar.

All the tax tariff codes that are required when importing goods to South Africa are clearly listed on the SARS site which will take you directly to the tariff code guide which consists of 1023 useful pages of codes and information.

  • Schedule 1 Part 1: This schedule lists “Ordinary Custom Duty” codes
  • Schedule 1 Part 2A: Lists specific excise duties and specific customs duties on imported goods of the same class or kind.
  • Schedule 1 Part 2B: Explains Ad Valorem excise duties and Ad Valorem customs duties on imported goods of the same class or kind.

How is customs duty calculated?

Customs duty is levied on imported goods and is usually calculated as a percentage on the value of the goods (set in the schedules to the Customs and Excise Act). However meat, fish, tea, certain textile products and certain firearms attract rates of duty calculated either as a percentage of the value or as cents per unit (for example, per kilogram or metre).
The amount and type of duty imposed on a product is determined by:

  • The value of the goods (the customs value);
  • The volume or quantity of the goods; and
  • The tariff classification of the goods (the tariff heading).
  • Value-Added Tax at the rate of 14%

When to pay duty?

Many goods, especially industrial inputs, enter duty free. Where duties apply, the rates generally fall between five and 25%. Goods not exceeding a value of R400 are not liable for customs duty and do not have to be entered on a bill of entry.
To establish if goods imported into South Africa are free of duty refer to the South African Revenue Services. All the tax tariff codes that are required when importing goods to South Africa are clearly listed on the SARS site.

  • Schedule 1 Part 1: This schedule lists “Ordinary Custom Duty”
    Schedule 1 Part 2A: Lists specific excise duties and specific customs duties on imported goods of the same class or kind.
  • Schedule 1 Part 2B: Explains Ad Valorem excise duties and Ad Valorem customs duties on imported goods of the same class or kind.
  • Schedule 3: Specifies general industrial rebate

What are the ranges of tariffs levied on imported goods to South African and how are they categorised?

South African tariffs on imported goods are categorised as follows:

  • 0% on agricultural products and implements, capital and intermediate goods, manufacturing inputs, essential foods.
  • 15% on aircraft, vehicles, earthmoving equipment, computer software, appliances, etc.
  • 40% on luxury consumer goods, for example, televisions, tape recorders, video machines, antiques, jewellery, etc.

When is a Certificate of Origin required?

The South African Declaration (or certificate) of Origin, Form DA-59, certifying the country of origin, description of goods, weight, is required for:

  • Stainless steel tableware
  • Kitchen items
  • Household articles
  • Iron or steel except stainless steel
  • Motor vehicle air filters, motorcycle oil or petrol filters, and parts for motor vehicle filters
  • Reception apparatus for radio telephone or radio broadcasting apparatus

Other basic documents required for importation include:
A commercial invoice that shows the price charged to the importer in addition to the cost of placing goods on board ship for export

  • Bill of Lading
  • Insurance documents
  • Packing list
  • At least three copies of the invoice should go forward under separate cover to the consignee prior to the arrival of the goods
  • Other special documentation may be required by the importer

Payment Terms

As an importer how do you structure payment terms?

How you will be paid, when you will be paid and for what you will be paid are referred to as your ‘payment terms’. Payment term refers to the way payment will be made as well as the period over which the importer is allowed to pay for the goods. If you offer a period after which the importer can pay, you are extending credit to the importer and instead of using the phrase ‘payment term’, you should refer to a ‘credit term.’ Payment terms ranging from 30 to 90 days are quite common in export markets. Be careful when extending longer payment terms, as longer credit periods may increase the risk of default.

The most common payment methods in exporting are:

  • Payment in Advance

This is certainly the most preferred form of payment from the exporter’s point of view. However, it is the hardest to negotiate.

  • Letter of Credit

Other than Payment in Advance, this is the safest method of payment in exporting. The customer arranges a letter of credit with their bank – known as the issuing bank. The letter of credit contains the instructions that must be followed and documentary evidence that must be supplied to a correspondent bank in South Africa.

  • Bill of exchange

Documentary collections are probably the safest method. This is when an overseas bank, acting on your bank’s behalf, only releases the documents necessary for your customer (i.e. the importer) to take possession of the goods once they formally accept the terms of a bill of exchange. In accepting the bill of exchange, the customer essentially pays the overseas bank.

  • Open Account

This is an agreement you should only enter into with a very good client – one that you trust. This is because you agree with the buyer that they only need to pay 30 days after receiving your invoice. With an open account, the exporter carries all the risk.

Other issues to consider

As an importer or exporter, it is important to consider how you will get your export earnings paid, the various challenges of import/export, starting an import or export business, and import payment terms and exchange control.

Agents and Transport Options

When to use a clearing agent

The first time that you import goods into the country, there is nothing stopping you from clearing the goods yourself. However, if you repeat the process and import on a regular basis, you will have to use a clearing agent,” explains Margie Pedder of the South African Association of Freight Forwarders.

“The reason for this is that the import process has become a fully automated process, which means that as a small importer you don’t have the infrastructure to use Electronic Data Interchange systems (EDI) which is why you need the services of a clearing agent, says Pedder”.

In July 2009 in terms of Government Notice R814 SARS enforced the use of EDI for the submission of certain cargo and goods declarations and reports.

What is EDI?

EDI organises the flow of information from one end of the supply chain to the other. The EDI revolution benefits customs and trading partners because it offers a number of advantages and in this way, South Africa can  keep up-to-date with global import and export data requirements.

  • EDI is a fully automated process that needs little or no intervention by either party
  • Declarations that can be accepted round-the-clock
  • The quicker retrieval of cargo through the reduction of clearance times
  • A reduction in manual administrative processes resulting in fewer errors and no duplication

Harmonised business relationships with other bodies such as Transnet Port Terminals, Transnet Rail Terminals, airlines and container depots.

Drop shipping

Drop shipping’ is a technique used in supply chain management where the retailer transfers customer orders and shipment details directly to either the manufacturer or a wholesaler instead of physically keeping goods in stock. The manufacturer or wholesaler then ships the goods directly to the customer. As in the case of all retail businesses, the retailers make their profit on the difference between the retail price and the wholesale price. The upside of using drop shipping is that you the retailer avert the risk of capital outlay in purchasing or importing products. You also remove the risk of sitting with unpopular products that you may battle to sell.

As in all business ventures, you will have to have a detailed contract with the partners with whom you drop ship. This contract will contain details including when and how you obtain your payments and details on fulfilment on orders, product guarantees, etc.

How would using a clearing agent affect import costs?

“It is vital that a small import company conducts proper research to determine the most economical and cost effective method of importing products. Clearing agents have years of experience, keep up to date with legislation, exchange control and banking regulations. They want to save money for their clients,” says Pedder. “It’s wrong to think that using a clearing agent isn’t cost effective. They only make 2% on disbursement”, advises Pedder. According to the South African Revenue Services, (SARS), if you are importing goods frequently into South Africa you must have an import licence and if the value of the goods exceeds R400 you have to pay full duty.

Regulatory bodies for different imported products

Statutory regulations state that to import any product to South African you must register as an importer with the Department of Trade and Industry (DTI). If your shipment is customs-dutiable, it needs to be accompanied by an invoice especially if it is a commercial shipment with a commercial value. A commercial invoice must show the price you have been charged, the importers and exporters names and details. Other documents you may need include: ?

  • Bill of Lading
  • Insurance documents
  • Import permit number
  • Packing list

Check for import restrictions with SARS

However if you intend to import products to South Africa you will have to contact the South African Revenue Services (SARS) to establish whether or not the products you wish to import are restricted. You can check this information yourself by going to the SARS website:

  • On the right-hand side of the home page is a drop down menu. Select “All publications”
  • A list of all the publications will appear on the screen
  • Scroll down until you find “Customs – Operating Procedures – custom rulings
  • Click on “More”

If the products you intend to import do have restrictions, then it is best to contact SARS for more information.

  • New and second-hand cell phones

SARS

If you are importing new cell phone products to South Africa you have to register with the South African Revenue Services (SARS) as an importer and you also have to register separately to obtain an import code.
Timeframe: To register with SARS for an import permit and import code takes approximately 14 working days.

  • Cost: No cost to register
  • Contact: Visit the SARS website for more information.

ICASA

When registering with ICASA a variety of documents including a test report from the manufacturer of the product will be required.

Documents are:

  • Two identifying colour photographs of at least postcard size of the equipment to be type approved.
  • A functional description of the equipment, at least at block diagram level.
  • Operating instructions.
  • The original or a certified copy of the test report (both RF and EMC), issued by an accredited communication testing facility.
  • Detailed circuit diagrams, approved and stamped by the test facility and highlighting any modifications which have been incorporated.
  • The originals or certified copies of the test report and certificate of compliance – issued by an approved test facility.
  • The original or a certified copy of the test report for Safety Regulations issued by an approved safety test facility.
  • Timeframe: To register with ICASA takes 2 weeks

Cost: ±R4 000
Contact: www.icasa.org.za

SABS

In the case where an importer is unable to supply a test report, they must contact the South African Bureau of Standards SABS to perform product testing so that the product conforms to national and international standards. The tests undertaken by the SABS are Electronic Magnetic Compatibility (EMC) and safety testing (RF).

  • Timeframe: 4-6 weeks
  • Cost: R10 000 – R20 000
  • Contact: To apply to the SABS for a test report
  • Call +27 012 428 7911 or visit the SABS website
  • Importing Second Hand Cellular Goods

If you import second cellular products to South Africa, you need to register with SARS, ICASA and the International Trade Administration Commission of South Africa, ITAC.

ITAC

Not all goods or products are subject to import and/or export control measures. All used goods and second-hand goods, are subject to import control measures. This is why you have to register with ITAC when importing second hand goods. A list of goods subject to import control and export control measures is available and can on submission of your contact details be mailed, faxed, or e-mailed to you by ITAC

  • Timeframe: To register with ITAC to import second hand goods is immediate
  • Cost: No cost

Contact: http://www.itac.org.za

SARS

If you are importing new cell phone products to South Africa you have to register with the South African Revenue Services (SARS) as an importer and you also have to register separately to obtain an import code.
Timeframe – To register with SARS for an import permit and import code takes approximately 14 working days.

  • Tinned, bottled and dried food

The right route would be to obtain samples of the products you wish to import and request that the SABS test and check them. If the products do not fall under their umbrella, they will refer you to the correct organisation in order to meet with South African compliance regulations.

  • Hair products

Register with the Cosmetic, Toiletry & Fragrance Association of South Africa (CTFA). This organisation regulates the hair and cosmetic industry in South Africa and works hand-in-hand with the South African Bureau of Standards, the Department of Health and other important international bodies to set up responsible self-regulation for cosmetics in South Africa.

Regulations

All the regulations from the ingredients of what may or may not be used, to labelling are found in CTFA Cosmetic Compendium, which lays out all the guidelines, Codes of Practice and Standards for the industry. The hair and beauty industry in South Africa abides by the requirements which appear in the CTFA Compendium which you can obtain from them. These requirements have been developed by industry, government, the CTFA and South African Bureau of Standards (SABS) and are based on the EU Directive.

Labels on Imported Products

Labels on imported products must be printed in English. The law requires that the information and ingredients must appear in one or more of the official languages. The SABS publish a book which can be obtained directly from them which includes all the regulations that must be adhered to with regard to labelling. You can order it online or it can be posted to you.

Contact

  • Nicotine-based products

According to the South African Revenue Services (SARS) nicotine falls under restricted goods. It is only allowed to be imported under certain conditions. Restricted goods can be imported to South Africa under certain conditions i.e. on production of a permit, certificate, or authority from the relevant authority. For example, medicine (excluding sufficient quantities for one month for own personal treatment accompanied by a letter or certified prescription from a registered physician) can only be imported if there is  a permit/licence issued by the Director-General: National Health and Population Development.

  • Products containing Peroxide

Whether or not restrictions apply depends on how much peroxide the product contains. The best thing to do is to contact the South African Revenue Services (SARS) and explain more about the product to Customs and Excise. They will be able to provide more information based on the amount of peroxide contained in the product.

  • Solar panels

A permit is required to import solar panels

  • Soft drinks

Approval from the Department of Health is necessary. Before you attempt to start an import business that imports any kind of food product, even soft drinks, you need approval by the Department of Health.  It monitors the source of food for consumption at ports, airports, on vessels and on aircraft. Food is detained by Customs and Excise for clearance. Entry into the country can be denied if the food does not comply with the requirements of the Act. (Foodstuffs, Cosmetics and Disinfectants Act, 1972 (Act No 54 of 1972).

  • Medical supplies

As a once-off situation, you would probably be allowed to enter the country with medical supplies providing you have the correct paperwork and a commercial invoice. As it is not clear what type of products you intend to import, you would have to contact the Medicines Control Council of South Africa (MCC) and establish if you are permitted to import these products.

  • Complementary medicine

Complementary medicine in South Africa includes a wide range of therapies ranging from traditional practices that have only recently been regulated, to widely accepted alternative therapies that are recognised by some medical aids in South Africa.

Professional councils regulate the industry

Professional councils regulate and monitor complementary health products in South Africa. This is to ensure that the public is protected against dangerous products and scams. Therefore, the import of most medical products requires permission from the Department of Health. However, as it is not clear what type of complementary products you intend to import, you would have to contact the Medicines Control Council of South-Africa (MCC) for more information: www.mccza.com

Most complementary health systems focus on a natural approach. Some of the common complementary health practices in South Africa that are recognised by the South African Department of Health include:

  • Acupuncture
  • Ayurveda
  • Aromatherapy
  • Homeopathy
  • Western herbal medicine
  • Naturopathy
  • Chiropractic treatment
  • Osteopathy
  • Traditional Chinese Medicine
  • Reflexology
  • Traditional African medicine
  • Personal care products

These are regulated by the South African cosmetic industry which is a powerful self-regulation system and this industry abides by the requirements as set out in the CTFA. Some of the products are classified as “Free Sale.” This mean that a document issued for certain commodities (such as pharmaceuticals), certifying that the specified imported goods are normally and freely sold in the exporting country’s open markets and are approved for export. You need to establish if South Africa is an open market for the product that you intend to import. Contact the South African National Consumer Union for confirmation.

Cigarettes and Alcohol

The import of ‘Sin Products’ (i.e. liquor and tobacco) are subject to specific Customs Duties based on either weight or litreage (measurement of liquid capacity). Providing regulations are followed to the letter you can import these products into South Africa. On cigarettes you have to pay duty at source, meaning that you pay duty before you can sell the product. Because of this you need to have enough start-up capital for it to work,” says spokesperson, Una van Zyl, The Tobacco Institute of South Africa.

All the customs regulations that apply can be found on the SARS Website, under ‘Legal & Policy’, ‘Legislation’, ‘Harmonised Tariff System’, ‘Schedule 1 Part 1 – Ordinary Customs Duty’, p. 456 of 1023.

Duties on tobacco products

Excise duties are also available on website of National Treasury under these headings, ‘Budget Information’, ‘National Budget’, ‘2010’, ‘Chapter 5’ p.80.

Health Warnings

Tobacco control legislation (health warnings, tar and nicotine readings etc) must be adhered to. This information is available on The Tobacco Institute of South Africa’s website under ‘Legislation’. “If there are particular issues you would like to check contact the Department of Health who are the custodians of the tobacco control legislation,” advises van Zyl. Contact the Health Promotion section by clicking on www.tobaccosa.co.za.

Draft regulations

Late last year draft regulations were published on Reduced Ignition Propensity (RIP) Cigarettes. The introduction of reduced ignition propensity cigarettes means that the cigarette paper has to be changed to a slow burning paper. This will reduce the pleasure from smoking since cigarettes won’t burn as easily. See draft regulations on www.gov.za, ‘Documents’, ‘Notices’, ‘2009’, ‘Dec’, 4 December 2009. The final regulations on RIP have not been published yet.

Trademark Registration

If you are intending to import a brand into South Africa, it is advisable that you register the trademark in South Africa through trademark lawyers if this has not been done. For more information contact the Tobacco Institute of South Africa offices on +27 21 421 0011

Importing Liquor

You will require a permit to import liquor into South Africa. You will also need an import certificate. An import certificate is required in order to import a liquor product (excluding beer) to South Africa. The import certificate or a copy will be required before a consignment can be released from the port of entry. An importer applies for an import certificate only once in the lifetime of a product. After that, the same import certificate number can be used if the composition, content, bottle size and label of that product do not change.

Importing Diesel

You have to have a license to import petroleum products from oil producing nations such as Russia and Saudi Arabia to South Africa. The term “petroleum products” refers to aviation gasoline, bio-fuels, diesel, jet fuel, liquefied petroleum gas, paraffin and petrol.

Diesel is classified as 1D, 2D and 4D. Key differences between these are the pour point, the lowest temperature a liquid will flow; and differences in viscosity, or the resistance of a liquid to flowing. 1D diesel fuel has lower viscosity and a lower pour point than 2D, so is preferred for use in cold weather areas.  4D fuels are only used in very low-speed engines such as stationary units.

Who issues Petroleum licences?

Wholesale, retail, import and export petroleum licenses are issued through the Department of Energy. Call the Controller of Petroleum Products +27 12 317 8982 or visit http://www.energy.gov.za/ or www.dem.gov.za

The application process is complicated

It is easier to deal through a consulting firm who has the necessary expertise in dealing with complicated petroleum licensing requirements in South Africa. Tour Media is a consultancy that helps individuals apply for new wholesale and retail petroleum licences.

Duty and surcharges may apply

If you are importing in “bulk” (1 500 litres or more), per transaction you require a wholesale licence. Duties, excise taxes and import surcharges levied on goods can be obtained from the International Trade Admission Commission of South Africa by clicking on: http://www.itac.org.za/guidelinesofpetrolium.asp

Other regulations

Register the business as an importer with the South African Revenue Services, and with the Department of Trade and Industry.

Products that require import permits are:

  • Used equipment
  • Food products
  • Clothing
  • Fabrics
  • Footwear
  • Books
  • Wood
  • Paper products
  • Motor and aviation fuels
  • Refined petroleum products
  • Industrial products
  • Materials imported as original equipment for the manufacture of motor vehicles.

Importing from China to South Africa

Dealing with imports from China means that you have to face the issue of quality control. Ensure that the company you are dealing with doesn’t take shortcuts, and when the consignment arrives, it meets the original specifications,” explains Duncan Bonnett, director of Whitehouse & Associates, a research and consulting company in Johannesburg.

Quality Control

Quality control can be difficult. Try to cover yourself when arranging the commercial terms of the consignment agreement with your supplier. Hold back payment or part payments until you are satisfied that the goods are the genuine article that you ordered. If there is a specification which has been agreed to, make sure that the supplier truly understands the specification. Global companies such as SGS offer global inspection, verification, testing and certification services.

SGS is recognised for setting a global benchmark for quality and integrity. The company has 48 000 employees and a network of over 1 000 offices and laboratories around the world. This kind of testing agency will ensure that the exporter meets the specifications that have been agreed to. On the Internet there are many scams and dubious traders. “Dealing over the Internet is the worst way to do business with China,” says Bonnett.

Price Negotiations

Negotiating the price is a skill which Westerners are not experienced at. The Chinese are renowned for their practice of cutting corners on materials and quality to regain any lost margin or simply to make more money. “Often small companies are at the mercy of those they are dealing with. Avoid dealing with Internet companies as it is even harder to check if they are reputable. There is no easy fix – I can only recommend that you put your hand in your pocket and spend on proper research,” advises Bonnett.

Language & Cultural Barrier

Another big issue in dealing with Chinese business is communication. It can be very frustrating negotiating complex business issues when the thinking processes, ethics, morals, expectations, culture, politics, laws and government involvement in everyday business life are very different to those of South Africa. Learn as much as you can about how Chinese business operates. A must-read for anyone wanting to do business with China is Where Underpants Come From? by Joe Bennett. It’s a fun but very informative guide to the do’s and don’ts of doing business with China.

Getting Through Customs

Every importer needs to understand the customs procedure for clearing imported goods. Determining which customs duty applies can be complex and when starting out rather get expert advice. You could make use of clearing agents or a distributor to take over the customs clearing side of the business. If you go this route, be careful – you must find an agent that is experienced in customs regulations. If you don’t, this could lead to problems which could have negative financial implications.

Exchange Rate

To cover your business against fluctuating exchange rates, it’s wise to take out forward cover (an agreement to buy or sell currency at a specific price). This guarantees an exchange rate on a given date. Forward Cover (FEC) will help if the rand slides against the dollar. Banks are able to arrange forward cover for dollars against the Rand.

More information

SAAFF:
For more information, contact the South African Association of Freight Forwarders (SAAFF) for more advice with regard to clearing agents.
Call +27 11 455 1726, email: saaff@saaff.org.za or visit www.saaff.org.za/contact/default.aspx

SA Customs:
You can contact SA Customs in Cape Town for more information by calling +27 21 413 6733

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