I have heard a lot of talk on the issue and it has become political (like everything else in Zambia)!
VAT is a consumption tax. It is charged on goods and services that are consumed in a country. The simplest aspect of VAT is that only the last consumer is supposed to pay for the VAT. Or, as wikipedia may add (not sure this is any simple)
So from this point, when goods and services are exported, they wont be consumed in that country but be consumed in the destination. This is sometimes called the destination principle of VAT. So when companies export, they get a refund of VAT so that the VAT on that good be charged in the destination country.
What is this Rule 18?
Rule 18 therefore exists to prove or provide a means to which we have proof that the goods were exported and therefore the company that exported should be refunded. However, this comes up in most cases due to the crookedness of some companies which use this for benefiting from this measure. Check here.
So what is the famous Rule 18? This is what the rule says (amendments) in GAZETTE NOTICE No. 27 OF 2013:
RULE 18 – PROOF OF EXPORT
(1) Unless the Commissioner-General shall otherwise allow, a taxable supplier
claiming that a supply is zero-rated under the Second Schedule to the Act on the grounds that the supply is an exportation of goods, shall produce to an authorized officer-
(a) copies of export documents for the goods, bearing a certificate of shipment
provided by the Authority;
(b) copies of import documents for the goods, bearing a certificate of importation
into the country of destination provided by the customs authority of that
country;
(c) tax invoices for the goods exported;
(d) proof of payment, made by the customer, for the goods;
(e) documentary evidence, proving that payment for the goods has been made
by the customer into the exporters bank account in Zambia; and
(f) such other documentary evidence as the authorized officer may reasonably
require.
The amendment requires taxable suppliers dealing in exports to provide documentary proof to prove that payment from the importer has been received for the exports in a bank account in Zambia for the purposes of zero-rating.
In conclusion, we need to ask why this has brought so much talk and drama in Zambia. If at all other countries deal with the same measure, do they have the same items and issues as we do? Should be amend it? Or do we need the companies to just go away and get a refund.
6.Proof of export
6.1 What does this section cover?
This section explains the evidence that is required for a supply of goods exported outside the EC to be zero-rated for VAT.
For VAT zero-rating purposes you must produce either official evidence as described in paragraph 6.2 or commercial evidence as described in paragraph 6.3. Equal weight is put on official and commercial transport evidence but both must be supported by supplementary evidence to show that a transaction has taken place, and that the transaction relates to the goods physically exported. If the evidence of export provided is found to be unsatisfactory, VAT zero-rating will not be allowed and the supplier of the goods will be liable to account for the VAT due (see paragraph 11.2).
6.2 Official evidence
Official evidence is produced by Customs systems, for example Goods Departed Messages (GDM) generated by NES. See section 5 for more detail on how official evidence of export is produced.
6.3 Commercial transport evidence
This describes the physical movement of the goods, for example:
- Authenticated sea-waybills.
- Authenticated air-waybills.
- PIM/PIEX International consignment notes.
- Master air-waybills or bills of lading.
- Certificates of shipment containing the full details of the consignment and how it left the EC, or
- International Consignment Note/Lettre de Voiture International (CMR) fully completed by the consignor, the haulier and the receiving consignee, or Freight Transport Association (FTA) own account transport documents fully completed and signed by the receiving customer.
Further details on the purpose of these documents can be found in Notice 275 Customs: export procedures.
Photocopy certificates of shipment are not normally acceptable as evidence of export, nor are photocopy bills of lading, sea-waybills or air-waybills (unless authenticated by the shipping or air line).
6.4 What supplementary evidence is available?
You are likely to hold, within your accounting system some or all of the following:
- customer’s order
- sales contract
- inter-company correspondence
- copy of export sales invoice
- advice note
- consignment note
- packing list
- insurance and freight charges documentation
- evidence of payment, and/or
- evidence of the receipt of the goods abroad.
You must hold sufficient evidence to prove that a transaction has taken place, though it will probably not be necessary for you to hold all of the items listed.
6.5 What must be shown on export evidence?
The text in this box has the force of law
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The evidence you obtain as proof of export, whether official or commercial, or supporting must clearly identify:
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Vague descriptions of goods, quantities or values are not acceptable. For instance, 'various electrical goods' must not be used when the correct description is '2000 mobile phones (Make ABC and Model Number XYZ2000)'. An accurate value, for example, £50,000 must be shown and not excluded or replaced by a lower or higher amount.
If the evidence is found to be unsatisfactory you as the supplier will become liable for the VAT due.
6.6 What evidence will I need to obtain to substantiate VAT zero-rating when I do not arrange shipment of the goods?
Typically this occurs when goods are supplied ex-works. If your overseas customer arranges for the goods to be collected from your premises and exported to a place outside the EC Member States it can be difficult for you, as the supplier, to obtain adequate proof of export as the carrier is contracted to your overseas customer. For this type of transaction the standard of evidence required to substantiate VAT zero-rating is high.
Before zero-rating the supply and releasing the goods to your customer, you must confirm what evidence of export is to be provided.
If the evidence of export:
- does not show that the goods have left the EC within the appropriate time limits, or
- is found, upon examination, to be unsatisfactory
you, the supplier, will become liable for payment of the VAT.
For these reasons you should consider whether to:
- include the requirement for the buyer to provide export evidence as part of the sales contract between you and your customer, and/or
- secure against the possibility that your buyer will fail to provide the proper export evidence by, for example, taking a deposit from your customer equal to the amount of VAT you will be liable to pay if the evidence is not sent to you.
The deposit can be refunded when you obtain evidence that proves the goods were exported.
Evidence must show the goods you supplied have left the EC. Copies of transport documents alone will not be sufficient. Information held must identify the date and route of the movement and the mode of transport involved. It should include the following:
- a written order from your customer which shows their name and address, and the address where the goods are to be delivered
- copy sales invoice showing the invoice number, customer’s name and a description of the goods
- delivery address for the goods
- date of departure of goods from your premises and from the EC
- name and address of the haulier collecting the goods; registration number of the vehicle collecting the goods and the name and signature of the driver
- where the goods are to be taken out of the EC by an alternative haulier or vehicle, the name and address of that haulier, the registration number of the vehicle and a signature for the goods
- route, for example, Channel Tunnel, port of exit
- copy of travel tickets, and
- name of ferry or shipping company and date of sailing or airway number and airport.
The information held should also include (if applicable):
- the trailer number
- full container number, and
- the name and address for consolidation, groupage or processing.
At the time when the goods leave the EC the above information could be obtained from your customer, the haulier, the freight forwarder or the documents listed in paragraph 6.4.
See paragraph 7.3 for goods that your customer intends to export in his baggage or his private motor vehicle.
6.7 How long must I retain export documentation?
- kept for six years, and
- made readily available to any visiting VAT Officer to substantiate the zero-rating of your exports.
6.8 What happens if I do not hold the correct export evidence?
If you do not hold the correct export evidence, within the appropriate time limits, then the goods supplied become subject to VAT at the appropriate UK rate. See paragraph 11.2 for details of procedures to follow in these circumstances.
6.9 If I am an overseas customer arranging my own export what do I need to do to make sure that I get the benefit of zero-rating?
Once you have collected the goods or arranged for the goods to be taken to the port or airport, for export, you should provide the supplier of the goods with all of the documentary evidence you hold to prove that the goods have been physically exported. You should make sure that the supplier is in possession of this evidence to allow them to meet the time limits for export.
6.10 What if I have lost or mislaid export evidence?
If you have lost or mislaid the official or commercial evidence of export supplied by the ship owner or carrier, duplicate evidence of export may be obtained. The replacement evidence of export must be clearly marked 'DUPLICATE EVIDENCE OF EXPORT' and be authenticated and dated by an official of the issuing company.
7.Proof of export for zero-rating in specific circumstances
This section covers the specific evidence of export that you must obtain according to the method of export used. In all cases the official or commercial transport evidence you obtain must be supported by the supplementary information set out in paragraph 6.4 to show that the transaction has taken place.
7.1 Air and sea freight
If you are using commercial transport documents as proof of export for goods exported outside the EC by:
- Air - you must obtain and keep an authenticated master or house air-waybill endorsed with the flight prefix and number, and the date and place of departure.
- Sea – you must keep one of the copies of the shipped bill of lading or sea-waybill (certifying actual shipment) or, where a shipping company does not issue these, a certificate of shipment given by a responsible official of that company.
7.2 Road freight
The International Consignment Note (CMR) provides evidence of the identity of the contracting parties when goods are transferred by road. It is in three parts and is completed and signed by the sender of the goods, the carrier and the person receiving the goods. Where the overseas customer arranges for the goods to be collected ex-works the CMR alone is not conclusive evidence that the goods in question have left the EC but, where the CMR is used as part of the evidence, it is important that the information is complete and all the details legible.
7.3 Merchandise in Baggage (MIB)
Commercial or business goods exported in accompanied baggage are known as MIB. Commercial evidence of export is normally only available where goods are shipped as manifested freight, as individual consignments or as part of groupage consignments. Currently MIB is outside the scope of the National Export System and you will need to complete a non-electronic paper Single Administrative Document (SAD) Form C88 and follow the procedures below.
Provided the goods and correctly completed SAD copies 2 and 3 are presented to the MIB officer, official certification of copy 3 of the SAD can be obtained for the following:
- Merchandise in Baggage.
- Re-export of temporarily imported goods
- Transfers of own goods (see paragraph 2.15).
- Purchases by overseas persons.
- Exports where commercial documents are not available (for example where an ATA carnet has been lost).
In all these cases the certified copy 3 of the SAD (Form C88) is your evidence of export.
If you export goods in baggage or in a private motor vehicle, you must:
- Include 'MIB' in box 44 of the export SAD (C88).
- Arrive well before your scheduled departure time and present copy 2 and copy 3 (marked 'for VAT purposes only') of the SAD, with the goods, to the MIB officer at the UK place of export from the EC for the reverse of copy 3 to be certified that goods have been shipped.
Copy 3 will be handed back to you as evidence of export for retention in your records.
Where your overseas customer collects the goods from your premises and arranges transportation in baggage or in a private motor vehicle you must:
Give your customer a completed SAD with your name and VAT number shown in box 2. (This will make sure that your overseas customer does not include your supplies on a single SAD covering goods purchased from a number of UK suppliers. If they did this, they would be unable to provide you with an original officially certified copy 3 for your records).
Your overseas customer must:
- Arrive well before their scheduled departure time and present copy 2 and copy 3 (marked 'for VAT purposes only') of the SAD (Form C88) with the goods, to the MIB officer at the UK place of export from the EC. The MIB officer will certify the reverse of copy 3 to show that goods have been shipped and hand it back to your overseas customer.
- Send you copy 3 as evidence of export for retention in your records.
(c) Leaving the EC via another Member State
If you or your customer depart the EC via another Member State copy 3 of the SAD (Form C88) will be certified by Customs at the place you leave the EC.
Full details of the MIB procedures are given in Notice 6 Merchandise in Baggage.
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