HOW TO: Prepare for your first import in 7 steps
Importing goods to sell locally is a solid plan for starting your side hustle, or for expanding an existing business. Innovative products, often at an attractive price, evoke the promise of high profits. However, the gains you envisage are only attainable if you can also avoid costly pitfalls, like custom penalties, delays, and having your shipment confiscated.
Here’s how you can prepare for your first import to ensure your profits are not lost on avoidable setbacks.
1. Decide how you’re going to trade?
If you import in your own name, as a sole proprietorship, all the customs paperwork will show you as the importer, which means you also carry all the liability.
If you import via a registered company, trust or organisation, it will be the importer and therefore the party responsible for compliance requirements, like the appropriate registrations (which we’ll get to soon).
There is no right or wrong between importing as a sole proprietor or a registered entity. However, customs will do a documentary check and flag inconsistency if the importer is not the same person or entity on all the import paperwork.
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2. Register as an importer
South African Customs law mandates that all imports intended for re-sale are linked to a registered importer. To be a registered importer you must have an import export license, often referred to as a Customs code or CCN number.
This is a unique number (like an income tax number) that can belong to an individual or a business. It is illegal for the importer on record to use another entity’s import export license. Failing to register as an importer before your shipment reaches customs will lead to the shipment being seized, possible penalties and, if a registration is not obtained in time, state warehouse rent.
3. Know the tariff code for you import
Tariff codes, also called HS codes, are the classifications customs authorities use to assign import duties and regulations to imported goods. You can’t know what compliance requirements apply to your import, or calculate the import taxes you’re liable for, without knowing the tariff classification for your goods.
Every article of trade has its own code, so you’ll need to determine the tariff code for each product line you intend to import according to how it is listed in the South African tariff book. You can find the tariff code applicable to your import by consulting our tariff code directory.
Alternatively your supplier can help also you with this to a certain extent, but South African tariff codes are unique, so learning how to do your own tariff classifications is first prize.
4. Research your import and labelling requirements
If you are importing goods that are restricted by a department of government, you will need an import permit.
Examples of restricted goods are:
- Plants and plant products
- Bulk agricultural products
- Medical devices, medicines, and health supplements
- Veterinary devices and medicines
- Some cosmetic products
- Machinery and appliances that plug into a wall socket
- Cellular phones and other communications devices
- Most types of fuel
- Scrap metal
- All second-hand goods
You’ll also have to ensure your product meets South African labelling requirements. Products on the South African market are generally liable for compliance with the Foodstuffs, Cosmetics and Disinfectants Act, and the Consumer Protection Act.
5. Decide your freight and clearing terms
As a newcomer to import, you’re best-off working with a freight agent who is affiliated with a respected freight forwarding company. International carriage is expensive, so it’s worth shopping around for a freight forwarder you trust.
The first thing your freight agent will ask is what Incoterm you’re importing under. An Incoterm is a template contract stating who, between you and the supplier, is responsible for the cost and risk of shipping your goods at each point in the fulfilment chain. If the goods are lost or damaged in transit, the Incoterm will determine who is liable for the loss.
To learn about the responsibilities each Incoterm implies, refer to our guide on Incoterms.
6. Understand your import tax
Once your shipment arrives at South African Customs it will have to be cleared by you or an appointed clearing agent. Your freight forwarder may act as your clearing agent, unless they outsource this service.
To clear your goods, all import tax must first be paid. This includes the ordinary duty and various other import duties applicable to your tariff code, as well as import VAT.
To determine the import duties applicable to you import, refer to our import duty directory.
Import VAT is calculated as 15% on the added tax value (ATV) of your import. The ATV consists of the customs value of your goods, plus a 10% upliftment, plus all import duty payable on the import. Goods that incur VAT at the zero rate for local transactions, like vegetables, are also zero rated for imports.
If you are importing as a VAT registered entity, import VAT is deductible on your next VAT return. Import duty is non-refundable, so it plays a large role in determining whether the landed cost of your import allows for a profitable venture.
To calculate the import tax on your shipment, use our import duty and VAT calculator.
7. Do a landed cost comparison
In your search for a supplier, don’t assume the lowest quote you receive is your most cost-effective import.
The landed cost of an import comprises of various components, including the cost of the goods, non-redeemable tax, and your logistical outlay. Two major considerations for this step are:
a) The rate of import duty
South Africa has trade agreements in place with various partner countries. This may affect how much import duty is payable on your shipment.
For example, buying from a Chinese supplier may initially be cheaper than getting a similar product from a European source, but more expensive when you factor in the import tax.
Goods with qualifying European origin may incur significantly less (or zero) import duties thanks to the SADC-EU or SACU-EFTA trade agreements. All you must do to claim a preferential (reduced) duty rate is to ask the European supplier for a EUR.1 certificate of origin. There are currently no such benefits for imports from the East, so a shipment from China can only incur what SARS calls the general rate of import duty – an inevitably higher rate.
b) The cost of freight
Distance is only one determining factor to consider with freight. There is also the route taken, the method of freight, the urgency of receiving your shipment, and your freight forwarder’s fees. It is, for example, notoriously expensive to trade with countries that are landlocked, or have limited infrastructure, even when they are close-by.
Determine the landed cost of your import by using our landed cost calculator.
For more assistance with your first import, advise on compliance, and obtaining all the registrations you need to get started, contact the Trade Logistics team today.