The recipe for profit is universal: Buy low, sell high.
Naturally the same goes for trading in imported goods. But the pitfalls and bureaucratic challenges of moving a consignment across borders quickly add to the costs.
Here’s our list of the top 5 ways to avoid unforeseen expenses, cut costs and increase your profits on imports.
1. Use trade agreements
Depending on where your goods were produced, the import duties levied when it reaches South Africa may be far less than the general SARS rate – or even zero – if you can claim a preferential rate.
To claim a preferential rate the import must adhere to the following criteria:
- It must be from a country with which South Africa has a standing trade agreement.
- A preferential rate of duty must be granted on its tariff code in the South African tariff book.
- The import must be accompanied with a certificate of origin relevant to the trade agreement.
Looking at the example below: Under normal circumstances importing garments of these tariff classifications would incur 45% import duty. Should the import be from an EU country or the UK, the importer may ask their supplier for a EUR.1 certificate of origin. By including this certificate in the shipment documents, the import duty drops to 27% – a significant saving.
Table 1: Excerpt from Chapter 6 of Schedule 1 Part 1 of the South African Tariff Book
2. Pay via a foreign exchange broker
International transactions are expensive. However, the more foreign exchange is traded at a time, the better the exchange rate is that you can get. Most importers don’t have the buying power to make optimal use of this benefit, but foreign exchange brokers do.
Opening a dedicated foreign exchange account with a forex broker means you gets the benefit of their bulk trading rates. On average, this means savings of between 0.5% and 2% on the exchange rate, as well as a 75% saving on the transaction fee. Plus, you benefit from their market knowledge and Reserve Bank compliance expertise.
Most foreign exchange accounts don’t charge monthly fees or service fees and are forthcoming about commissions on your transactions. They don’t even require there to be funds in the account except for the sake of making your international payment.
3. Pick an Incoterm that makes financial sense
Incoterms are an international shorthand for who (between the buyer and seller) is responsible for paying the domestic transport, international carriage, loading and unloading, insurance, and clearance of an international shipment. Although it is tempting to have your supplier carry as much of the cost and risk as possible, it may not be the most cost-effective solution.
As a practical example: The FCA Incoterms rule requires the seller to take the goods to the export carrier (e.g. the ship), but the importer pays the freight costs and cargo insurance. The CIF Incoterms rule requires the seller to pay the shipping costs and insurance up until the goods are unloaded at the at the port of import. Between these two scenarios, the Incoterm best suited to your pocket depends on the rates your freight provider and insurance company quote compared to the what your supplier will charge for these services.
4. Get Customs compliant
Consignments that are seized by SARS Customs incur high State Warehouse storage fees until the importer can provide the documentation required to clear their goods. In addition, penalties are levied when imports are found to be non-compliant with our import laws.
To make sure your imports are cleared without a hitch:
- Register for an importer before ordering your goods.
- Find out whether the goods require a permit and get it before the shipment lands.
- Submit a Customs declaration and SARS compliant commercial invoice before the goods land – this allows for time to address queries Customs may have.
- Keep organized records of orders, pre-shipment inspection documents and international payments in case the goods get stopped.
- Budget for all duties and import VAT levied on the goods so you can pay Customs as soon as it is ready for clearance. Click here to access an import VAT and duty calculator.
- Invest in import export training to learn compliance and avoid costly surprises.
5. Use rebates, drawbacks and refunds
Rebates are circumstances by which SARS allows for non-payment of import duties. Broadly speaking, rebates apply to imports of industrial materials for manufacturing, imports for the purpose of export, or when goods left the country on a temporary basis.
Drawbacks and refunds are both ways you may claim back import duty paid to SARS Customs. In the case of a drawback the imported goods must have either been used in manufacturing, or exported in accordance with the requirements of the drawback. To make use of a drawback, you must be registered as a drawback user.
Need help getting started as an importer?
Click here for a guide to building your import business or get in touch with experts who can assist with the advice and service you need.