When it comes to property sales in South Africa, the conversation too often circles around transfer duty or VAT as unavoidable costs of doing business. Yet, the Value-Added Tax Act 89 of 1991 (“the VAT Act”) provides a far more efficient path in certain transactions, one that is still underutilised in today’s market.
Under Section 11(1)(e) of the VAT Act, a sale between two VAT-registered vendors may qualify as a zero-rated transaction when the property forms part of a business that can operate as a going concern. In plain language, if both seller and purchaser are VAT registered, and the deal is correctly structured, the transaction can proceed at 0% VAT, a win-win for both parties.
The Power of Zero-Rating
Why does this matter? Quite simply, it eliminates unnecessary cash flow strain. In a standard VAT deal, the purchaser must finance VAT upfront at 15%, only to later claim it back as input tax. That’s a costly and often prohibitive exercise. By contrast, a zero-rated transaction removes the upfront financing burden altogether, ensuring smoother, more efficient transfers.
The Requirements Are Clear
For a transaction to qualify:
· Both parties must be VAT registered at the time of sale.
· The property must form part of an enterprise (or part thereof) that can operate independently.
· The written sale agreement must state explicitly that the transaction is a going concern.
· All assets necessary to continue that enterprise—including the property—must transfer to the purchaser.
Where these boxes are ticked, the sale is VAT neutral, legally compliant, and financially advantageous.
The Risks of Getting It Wrong
Of course, not every sale qualifies. If the criteria aren’t met, VAT is levied at the full rate. While the purchaser can still claim input VAT, the cash flow implications are vastly different. This is where the expertise of seasoned property professionals and advisors becomes invaluable. A poorly drafted agreement could turn what should have been a cost-neutral transaction into an expensive mistake.
Should SARS, after transfer, determine that the transaction was incorrectly treated as VAT Neutral, the purchaser shall be liable for the VAT. The purchaser may then apply this VAT as an input tax credit on their next VAT return.
It is also important to highlight that, where VAT is applicable and the buyer is a registered VAT vendor, the contract must specifically state the purchase price plus VAT. This wording is essential to ensure the purchaser can claim the VAT portion as input tax from SARS in the form of a credit.
A Smarter Way Forward
In a property market where margins are tight and financing is under pressure, sellers and buyers alike should be looking for ways to transact smarter. Leveraging VAT-neutral provisions is not a loophole, it’s a legislated efficiency that ensures deals are financially sustainable for all parties involved.
At Acutts Real Estate, we see the use of VAT-neutral structuring not just as good practice, but as responsible practice. It allows buyers to acquire properties without unnecessary financial hurdles, while giving sellers confidence that their assets can change hands seamlessly.
In today’s market, overlooking the VAT-neutral route is leaving money, and opportunity, on the table. It’s time more stakeholders recognised the power of structuring property transactions correctly, not just legally.
Media Contact:
Ashleigh Perry-Steenkamp
Head Office Manager – Acutts Real Estate
marketing@acutts.co.za | +27 (0)31 396 2969
