Both VAT and transfer duty are taxes imposed by the South African Revenue Services on immovable property transactions, governed by the VAT Act and Transfer Duty Act respectively.

There is sometimes confusion for sellers or buyers as to whether VAT or transfer duty will be applicable to a sale, and purchase price.   Below are some guidelines in this regard.

When determining a purchase price, it is important to ensure the price is either inclusive or exclusive of VAT.   The seller’s VAT status is the starting point in this regard.   If he/she is a VAT vendor, then VAT may be applicable.  A further question that needs to be answered is what the purpose of the transaction is?   If the transaction is in the seller’s ordinary course or furtherance of the seller’s business, VAT will definitely be applicable, and no transfer duty is payable.  

Certain transactions are, however, VAT exempt.    VAT exemption is applied only if a property that was previously leased for residential purposes is being sold.  If not – transfer duty is payable.

Sellers and Purchasers often agree to a zero-rating on VAT, but SARS will only accept this arrangement if the purchaser is also a VAT vendor.  Further criteria will also apply such as the enterprise (not merely a property) is sold as a going concern, it is agreed in writing between the parties, i.e. included in the agreement between the parties, that the property can be separated from the enterprise, but the property is necessary for the income earning activities of the enterprise.   It is important to note that in this circumstance it is not an exemption of VAT because VAT is applicable, but payable at 0%. 

Transfer duty on the other hand is not calculated at a flat 15%, as VAT is, but based on a sliding scale, which commences only on properties with purchase prices over R1 000 000.00.

Certain exemptions exist in terms of this Act, when transfer duty is not payable, which include transactions involving government institutions, municipalities and water service providers, public benefit organisations, public hospitals, heirs or legatees, joint owners upon partition arrangements, joint owners acquiring sole ownership, surviving/divorce spouse acquiring whole or portion of the already owned property, to correct errors in transactions, partnership property being taken over by individual partners, transfers to trustees, administrations or curators in insolvent estates, when a surety pays a consideration to take transfer, void transactions, where foreign companies are involved, re-acquisition of expropriated property, conversation of a share block to a sectional title property and of course no transfer duty will be payable when VAT is applicable, and payable.

Therefore, when formulating a purchase price, particularly if the seller is a VAT vendor consider the guidelines above, in conjunction with the purchaser’s VAT status and the use of the property.   If VAT is indeed payable and the purchaser is not a VAT vendor, the seller should make provision for the VAT component in the purchase price.   VAT is ultimately payable by the seller over to SARS, whilst transfer duty is paid by the purchaser, usually included in the transfer costs quoted by a conveyancing attorney.

For any clarity or more information relating to the above, please contact Tuckers attorneys on 011 897 1900, 076 777 1920 or info@tuckers.co.za.


Article contributed by Hayley Appel of Tuckers Attorneys.