VAT and Transfer Duties

To answer the question that many buyers of property have regarding “when is transfer duty payable on a transaction and when will VAT be payable?”

Answer

It is important to remember that VAT will only be levied by the Receiver on immovable property if the property can be defined as a ‘taxable concern.’

Therefore a private residential property will seldom be seen as a taxable concern’ unless it generates taxable income in the form of rental income or it conducts a business for example a guesthouse.

It is important to remember that only one form of tax will be applicable when immovable property is sold and transferred, either VAT or Transfer Duties. Both will never be payable simultaneously.

Although certain exceptions do exist the following guidelines are provided to determine whether VAT is applicable:

The question to be answered, to determine whether:

• VAT is applicable, whether the seller is a registered VAT vendor or not. If he is registered for VAT, VAT will be payable by the seller to the Receiver of Revenue and not Transfer Duties.
• The seller will then be liable to the Receiver of Revenue for 14% of the selling price payable to the Receiver with lodgement of his next VAT return. Normally the purchase price includes VAT in the absence of any other arrangement, and if the seller demands VAT to be paid by the purchaser over and above the purchase price, it will clearly have to be specified in the purchase agreement.
• In the event where the purchaser and the seller are both registered VAT vendors and the property is sold s a running concern VAT will be applicable but at a zero rating, meaning that no VAT will be payable.
• In the event where the seller is not a registered VAT vendor, but the purchaser is, Transfer Duties will be payable by the purchaser and not VAT and the purchaser will be entitled to reclaim the Transfer Duties from the Receiver in his capacity as a VAT vendor.

Transfer Duties

• Although the liability for payment of VAT vests with the seller the liability for payment for of Transfer Duties vests with the purchaser and if neither the seller nor the purchaser is registered for VAT or only the purchaser is registered for VAT, Transfer Duties will always be payable and not VAT
• The scale at which Transfer Duties are levied has been changed with effect from 23 February 2011so that transfer duty payable on transactions which are not subject to VAT will be the following for all persons (this will include natural persons, closed corporations, companies and trusts)

• In the event of the purchaser being a Company, Close Corporation or Trust, the old taxable rate of 10% is no more applicable.
• In terms of Section 9 of the Transfer Duties Act (Act4O of 1949) there are certain exemptions for payment of Transfer Duties which need to be taken into account.