When transferring immovable property from one party to another either transfer duty or VAT is payable. VAT is payable when the seller is a VAT vendor for purposes of the transaction wherein immovable property is to be transferred. If the seller is not a VAT vendor or where the transaction is VAT exempt, transfer duty will be payable.
VAT is calculated at a rate of 14% of the purchase price. In certain cases VAT is calculated at a rate of 0% of the purchase price – these transactions are called zero rated transactions. This type of transaction (zero rated transactions) should be distinguished from transactions that are VAT exempt.
Transfer duty will still be payable if a transaction is VAT exempt but when the transaction is zero rated then the transaction is subject to VAT, even though it is charged at a rate of 0%.
The Value Added Tax Act 89 of 1991 and SARS have set out the requirements which will enable the transaction to qualify as being zero rated:
- The seller and the purchaser must be VAT vendors;
- Seller and the purchaser must agree that the property is sold as a going concern (agree in writing);
- The property must be an income earning activity and the parties must agree that the property will constitute an income earning activity on the date of registration of transfer (agree in writing);
- Sale of the property must include all the assets which are necessary for carrying on the income earning activity.
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