In recent years, the word ‘drop shipping’ has become increasingly prominent in business articles, especially in the retail sector and amongst online sellers. For those who are scratching their heads, wondering what it’s all about – this article is for you.
So, you’ve got an online business selling products or services to clients locally and, perhaps, abroad. Sales-savvy or new to e-commerce, this guide will outline the steps needed to expand your ecommerce business into South Africa.
1. Customs Duties, Taxes and other Financial Considerations
South Africa’s customs process can be complex, demanding specialist knowledge and financial investment - arguably the biggest hurdle you’ll face is actually getting the goods from A to B.
Duties & Taxes on Exports to South Africa
There are four kinds of indirect (consumption) taxes. These include (1) customs duties, (2) excise duties and levies, (3) anti-dumping, safeguards and countervailing duties, and (4) VAT. Duties are usually calculated as a percentage of the value of the goods.
- Customs duties are applied to imported goods, to raise revenue and protect the country’s local market.
- Excise duties and levies are generally applied to high-volume daily consumable products, as well as certain luxury items. Environmental levies and health promotion levies are imposed with the aim of promoting desirable socioeconomic outcomes.
- Anti-dumping, safeguarding and countervailing duties are applied to goods considered to have been ‘dumped’; those which have caused injury on multiple counts and those which have been subsidised.
- VAT is levied at a standard rate on goods imported into South Africa, although certain goods are exempt.
Tariffs classify items to determine the appropriate tax rate. They are categorised according to the Harmonized Tariff System (HS), which takes into account the normal customs duties, excise duties, ad valorem duties, anti-dumping duties and countervailing duties. Tariff classification also determines whether import control permits, rules of origin obligations, or customs rebate provisions apply.
The goods must also be valued. Items will receive a code according to criteria laid out in the General Agreement on Tariffs and Trade (GATT), which involves six valuation methods and is accepted by all major trading countries.
Goods imported into SA must also be categorised by origin. Rules of origin dictate the duties payable, and allow analysts to compile trading data.
Some countries have ‘Most Favoured Nation’ status, which means goods from those countries are subject to general rules. Other countries have Free Trade Agreements or preferential duty schemes, meaning import duties may be reduced or eliminated.
Carriage charges are incurred transporting your product. There are several ways to manage the journey, subject to when the goods need to arrive; their size, weight, perishability and security concerns.
Are you sending a one-off package, or a mass shipment? If you’re exporting smaller volumes, it may be cheaper and quicker to use a parcel courier. If you’re sending large orders of stock, you’ll need a freight forwarder – unless you’re delivering the goods yourself.
There’s not necessarily a legal obligation, but insurance can protect you against non-payment, sale termination, delays or misallocations.
Credit insurance specifically covers non-payment, while cargo insurance covers damage to goods in transit. Product liability insurance protects you against the cost of compensation for personal injuries or damage caused by a faulty product.
The British Exporters’ Association has a guide to credit insurers: you can also insure via gov.uk if you’re denied commercial insurance.
Fluctuating exchange rates can sap your profits, while banks charge transfer fees and mark ups. The solution? Open an account in South Africa to receive payments, then use a reliable foreign exchange provider to transfer money to your domestic account.
Exchange Rates and Moving Money
Currencies Direct not only offers competitive exchange rates, but a range of additional tools and services which can help you to get you a better deal on your transfer.
*You may want to engage the services of a reputable freight forwarding / customs clearance agent to manage the paperwork for you*
Customs South Africa (Customs SA) requires that importers register and obtain an importer’s code: they then uses a Single Administrative Document (SAD) to facilitate customs clearance.
The following are required from the exporter:
One negotiable and two non-negotiable copies of the Bill of Lading - a document that establishes the terms of a contract between a shipping company and the exporter (or freight forwarder).
A Declaration of Origin Form, DA59 (where a lower-than-general rate of duty is claimed, or for goods subject to antidumping or countervailing duty). One original signed copy of the form must be attached to the original commercial invoice.
Four copies and one original Commercial Invoice, containing a full description of goods’ nature and characteristics.
One copy of the insurance certificate (required for sea freight);
Three copies of the Packing List
Where restricted items are being imported, importers must possess an import permit.
3. Marketing and Customer Support
Top tip: citizens of different countries display different consumer preferences. South African consumers are generally brand conscious and price sensitive, appreciating online promotions and shopping around for the best deal: ideally, create marketing materials that address these priorities.
Ensure that navigation around your sales platform is intuitive: signpost international shipping information, including payment and delivery options and international charges. You may want to consider language options- South Africa has eleven official languages, although English is most used for advertising.
Finally- consider multi-channel e-commerce. Selling via eBay or Amazon, in addition to your own platform, will expand your reach: not only that, but it could take some of the headache out of transportation, as several platforms can handle shipping for you.
One Final Tip…
Make finances a priority- your budget must include customs charges, transportation and potentially insurance.
Remember that you’re likely to lose a cut of your income transferring a foreign currency, unless you take steps to minimise your exposure to risk.
For detailed information and personal business support, contact your local trade office; you may qualify for free support from the UK’s Department for International Trade, which runs an E-Exporting Programme.
Currencies Direct is one of Europe's leading non-bank providers of currency exchange and international payment services. Since we were formed in 1996, we've maintained our focus on providing innovative foreign exchange and international currency transfer services to corporations of all sizes, online sellers and private individuals. We have also expanded our services to provide dynamic and pioneering "business to business" solutions to help companies, tier 2/3 banks and other non-bank financial institutions to process their international payments. Our headquarters are in the City of London (United Kingdom) and we have operations in continental Europe, Africa, Asia, and the United States. Currencies Direct is jointly owned by private equity firms Palamon Capital Partners and Corsair Capital.