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Do I Pay Vat or Transfer Duty on the purchase of a property?

The transfer of immovable property in South Africa is subject to either transfer duty of Vat. VAT takes preference over transfer duty and the sale will be subject to VAT if the seller is a registered VAT vendor, and the property forms part of the vendor's enterprise. In this case transfer duty falls away.Where these two conditions are not met, the sale is subject to transfer duty and not to VAT.

The rate of VAT is an even 14% and transfer duty, a maximum of 8%, the rate of transfer duty depending on the juristic nature of the purchaser.

Where the transfer is VAT payable, and is between registered VAT vendors, in order to avoid the inconvenience of having the seller pay VAT to the South African Revenue Service and the purchaser wait for a refund, the transaction may be zero-rated, meaning that it is VAT neutral for both parties.In order for the zero-rating to be effective, the VAT Act contains a number of requirements, all of which must be fulfilled.

These include:

the property transferred must constitute an "enterprise" that is a "going concern" ie, it must be capable of independent operation;

the agreement of sale must state that the enterprise is disposed of as a going concern;

the agreement of sale must state that such enterprise will be an income-earning activity on the date of transfer (this implies that if it is a tenanted property, a lease must cover the date of transfer);

the agreement of sale must state that the stated price is inclusive of VAT at the rate of zero percent;

All of the assets which are necessary for the running of the enterprise must be transferred from the seller to the buyer.

If any of these requirements is not fulfilled, the zero-rating falls away and, in order to cover this possibility, it is usual to insert a clause to the effect that should the transfer of the property turn out not to be zero-rated, the stated price is deemed to be exclusive of VAT.

For more information on purchasing, renting or investing in commercial and industrial property in Cape Town, please contact Robert Ryll | Cell Number: 082 374 2662 | Landline: 021 552 4100 or Email: rob@primeindustrial.co.za


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