# Our foreign buyer wants us to deliver their order to a local SA company on DAP terms. May we do this, and do we apply VAT?

**Client Question:** Our foreign buyer wants us to deliver their order to a local SA company on DAP terms. May we do this, and do we apply VAT? **Answer:** Regardless of whether you can structure the model correctly or not, and assuming that the goods are not an exempt item locally, you are always charging VAT. The question is really about what rate of VAT you apply if you can comply with the conditions that support the model. Provided that the buyer and/or the SA company receiving the goods do not intend to export the supply, there is a zero-rated model that allows for the local supply to a second vendor, on instructions from a foreign buyer. The scenario is in the VAT Act at Section 11 (1)(q), and the documents needed to support the zero-rated supply are as per Interpretation Note 31(4) in Tabel A, at item T. The overriding condition, however, is that the local supply you make must be part of a much larger supply that the overseas entity is exporting to the second vendor in South Africa. For example, consider a project imported into South Africa where it is possible for the overseas supplier to obtain a component locally; the model described here avoids the import of that part of the whole, stimulating local business. Two of the crucial documents you will need to support the supply are written confirmation from your buyer that they are not a resident of the Republic and not a vendor, and a statement from the second SA party (the non-resident’s customer) reflecting their VAT registration number and confirming that the goods are to be used wholly for the purpose of consumption, use or supply in SA in the course of making taxable supplies. The second condition then is that although the non-resident must not be a vendor, the second South African entity must. (The other two key documents you need to secure and keep are a copy of your zero-rated tax invoice and evidence of payment, discussed further, below). Although the Act and Interpretation Notes are silent, it may be reasonable to assume that both the foreign entity and the second vendor’s statements should be on their stationery, signed off by a senior office-bearer of the respective company. The next requirement is that the payment you receive must be “Exchange Control Compliant,” which, unless you have specific permission to accept a local settlement, would presumably require a non-resident payment. This inward payment is BoP reported under category 109, which represents a “local sale to a non-resident”, and as a local sale your reporting will not involve UCR details. You will need to use the appropriate sub-category – and in this, pay attention to the recent changes, effective from August 2026, as the list of possible subcategories, each describing specific industries or products, has been expanded. The second vendor also has an Exchange Control position to manage. At some point the second vendor will, presumably, need to pay the foreign entity, but they will have no import customs paperwork to support your part of the larger supply, which you are delivering ex-stock. They will need guidance from their bankers on the way forward in this regard, and while it is not your concern, if the topic comes up, I recommend that you encourage the second local party to speak with their banker before they continue. Should the model not meet the conditions supporting the zero-rate, then the standard-rate of VAT will apply, although the BoP reporting of the inward payment stays the same. (Of course, if the standard-rate applies, you may receive a local payment and avoid Exchange Controls altogether, as with any local sale.) Given that the stock and the supply are local, I recommend that you do not use an international commercial term like the Incoterms Rule DAP. Rather use ‘local’ contract language. Although the Rules are promoted by the ICC as suitable for ‘domestic’ sales, this application is best suited to transactions within the European Union. By supplying locally within the Republic on an Incoterms Rule, you risk compromising the protection your standard terms and conditions of trade would otherwise afford you. Domestically, within South Africa, you can only supply on a ‘collect’ or ‘delivered’ basis and I would suggest that you stick with those terms, and in the process bind the overseas buyer to your standard terms and conditions. These actions avoid misleading the foreign entity into thinking that you will cooperate with the subsequent international movement of the goods, if that was ever their intention, as well as avoiding taking on any additional risk or obligation built into the DAP term that is not addressed (or may indeed be contrary to) your local standard contract terms. In summary: ensure the model fits the description of a local supply made to a non-resident’s local client as part of a larger, imported supply. If it does, then you must apply the zero-rate of VAT, but be certain you can obtain the documents called for in the Interpretation Note; report your payment as a local sale to a non-resident (and avoid the export BoP categories); and like any local sale, avoid international terms to describe your delivery while bringing your local terms and conditions to bear on the contract.Source: Freight Training