04 VAT Article

When is VAT / Transfer duty / zero-rated VAT applicable on a property?

Transfer Duty: Usual tax levied on the sale of immovable property.

VAT: Tax levied on the supply of goods and services by a VAT vendor.

Zero-rated VAT: VAT is applicable, but it is charged at 0%.

Is it VAT or transfer duty?

1. Start by asking whether the seller registered for VAT purposes?

YES: only VAT is payable on the transaction and no transfer duty is payable by the purchaser on the transaction.

NO: only transfer duty is payable by the purchaser on the transaction.

2. Is VAT included in the purchase price or not?

The general rule is that any purchase price must be VAT inclusive.  If transaction is a VAT transaction, then the purchase price will be inclusive of VAT, unless the contract specifies that VAT is excluded.

Zero-rated VAT

If a commercial property is sold as a going concern and if the following requirements are met, then the sale can be zero-rated for VAT purposes:

  • 1. Sale must be a sale of a business as a going concern which includes the property.
  • 2. The seller’s business must be an income-generating enterprise at the time of sale, with a strong likelihood that this income will continue up to the date of transfer and beyond.
  • 3. All necessary information must be set out in offer to purchase and not in an addendum.
  • 4. Both the seller and the purchaser must be VAT registered.
  • 5. Both the seller and purchaser must confirm that the business is sold as a going concern in the conditions of the offer to purchase.
  • 6. Both the seller and purchaser must state that the VAT will be zero-rated.

Include a paragraph in the offer to purchase that covers that the purchase price will increase to cover the potential addition of VAT to the sale purchase price if SARS rejects an application for zero-rated VAT.

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