VAT AND TRANSFER DUTY

B1We are often asked whether the sale or purchase of immovable property is subject to VAT or to transfer duty. Confusion appears to creep in especially in those cases where only either the seller or purchaser is a registered VAT vendor.

The answer to the question lies in the Transfer Duty Act,[1] and specifically in sections 2 and 3 of that Act which determine that the transfer duty is payable on the value of immovable property acquired by any person, and that the duty is payable by the acquirer. In other words, the transfer duty is a tax on the purchaser.

Section 8 of the Transfer Duty Act provides for instances where the purchaser of the property will be exempt from transfer duty being levied against it. The list of potential exemption includes instances where the sale is a “VATable” transaction.[2] In other words, where the sale of the immovable property concerned is therefore a taxable supply for VAT purposes, no transfer duty will be leviable. (This is however subject to certain compliance related requirements being met, including that the prescribed declarations are submitted, that security is tendered for the tax to the extent necessary and that the Commissioner issues a certificate that this transfer duty exemption’s requirements have all been met.[3])

By implication therefore, since the sale will have to be a taxable supply for VAT purposes for the transfer duty exemption to be met, the implication is that the sale must be made by a VAT vendor, and therefore subject to VAT. The status of the seller (i.e. whether it is VAT registered or not) determines whether the purchaser is liable for either VAT or the transfer duty.

To summarise therefore, whether transfer duty or VAT is payable by a purchaser of immovable property is determined with reference to the status of the seller: if VAT registered, VAT is levied and not transfer duty. If the seller is not VAT registered, transfer duty is payable as the default position (and unless any of the other exemptions in section 8 of the Transfer Duty Act applies). Therefore, the purchaser of immovable property will always as a default be required to pay transfer duty, unless the seller is a VAT vendor (and the property is sold as part of its enterprise). In such an instance, the sale will be subject to VAT at 14% and payable by the purchaser, rather than transfer duty which would otherwise have been payable and according to the applicable sliding scales.

[1] 40 of 1949

[2] Section 8(15) of the VAT Act

[3] Section 8(15)(a) to (c) of the Transfer Duty Act

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.  Errors and omissions excepted (E&OE)