When immovable property is sold, transfer duty or VAT is always payable.  Either one or the other is applicable.

The Overriding Rule:

The question of whether VAT or Transfer Duty is payable is a complex one and is one in respect of which there is not always a simple answer.  The determination of this issue must be left to the Seller and their legal, tax or financial advisors.  The answer must never be guessed at and certainty is critical.

 

General Rule No 1:                                               Seller not registered for VAT (Purchaser not registered)

Where the Seller is not registered for VAT the Purchaser must pay transfer duty. (this is the usual case in most residential re-sales).

 

General Rule No 2:                                               Seller not registered for VAT (Purchaser registered for VAT)

Where the Seller is not registered for VAT the Purchaser must pay transfer duty as above in Rule No 1.

The Purchaser can under certain circumstances claim the Transfer Duty back from SARS as a “Notional VAT Input Credit”.

Whether this is possible or not is a fact to be determined by the Purchasers’ advisors.

The Conveyancer will give the Purchaser a copy of the Transfer Duty Receipt for this purpose.

 

General Rule No 3:                                               Seller registered for VAT (Purchaser not registered)

Where the Seller is registered for VAT the Purchaser does not pay transfer duty and the Seller must deal with VAT in the purchase price (normally included as in most developer sales).

NB NOTE:  Where the Seller is registered for VAT but does not deal with VAT in the purchase price, i.e. the Purchase Price does not refer to whether it includes or excludes VAT, the Purchase Price is deemed to include VAT.

(a)           The Purchase Price is the sum of R1 000 000.00 including VAT

-in this example the Purchaser price due to the Seller is R877 192.98

-the VAT portion of the purchase price is                    R122 807.02

-total purchase price                                                         R1 000 000.00

The Seller will receive R1 000 000.00 and will have to account to SARS for the VAT portion of R122 807.02

(b)           The Purchase Price is the sum of R1 000 000.00 excluding VAT

-in this example the Purchase price due to the Seller is excluding VAT and we thus add VAT at 14% to the purchase price as follows:

Purchase Price excluding VAT:                                          R1 000 000.00

To VAT thereon at 14 %                                                        R114 000.00

Total Purchase Price including VAT                                 R1 114 000.00

The Seller will receive R1 114 000.00 and will have to account to SARS for the VAT portion of R114 000.00

 

General Rule No 4:                                               Seller and Purchaser registered for VAT

In this case the Seller must deal with VAT in his purchase price as above.  The Purchaser has the option under certain circumstances to claim back the VAT from SARS.  The Conveyancer will give the Purchaser a copy of the Transfer Duty Exemption Certificate and the Seller must provide a VAT Invoice.

 

General Rule No 5                                                Zero Rated Transactions

The legislative basis for these transactions is found in Section 11(1)(e) of the VAT Act.  A zero rated transaction is one where VAT is applicable but is charged at the rate of 0 %.  For Zero Rating to apply a clause which complies with Section 11(1)(e) of the VAT Act must be inserted into the agreement of sale.  A typical such clause is set out below.

In order for a transaction to be zero rated the criteria set out in the precedent clause below must apply:  (this is an example and must not be used without further advice)

ZERO RATING OF TRANSACTION FOR VAT PURPOSES

The parties record that:

(a)     Both the Seller and Purchaser are registered as vendors in terms of the Value Added Tax Act on the date of Registration of transfer.

(b)     The Property, being let on a commercial basis, is and will, on the date of registration date, be a going concern and the Seller’s Property is disposed of on that basis;

(c)      The Property is now, and will on the date of Registration of transfer, still be an income earning activity;

(d)     The sale of the Sellers interest in the Property is accordingly Zero Rated for VAT purposes.

(e)      The parties record that in the event of the Receiver of Revenue not permitting the zero rating of the transaction for any reason whatsoever, the Purchaser shall pay to the Seller VAT upon the Purchase Price within 7 (Seven) days of demand for such payment and upon presentation of a valid VAT invoice.

 

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