In order to know whether you will be paying VAT or transfer duty in South Africa when purchasing a property, you first need to know how the property is currently registered.
When buying property in South Africa, many people often get confused between transfer duty and VAT; some may think they are the same while others assume that both are payable.
This article serves to explain the difference between VAT and transfer duty and under what circumstances you will be required to pay each one.
Transfer duty is the normal tax payable to the South African Revenue Service (SARS) which is levied on the sale of immovable property.
This is not to be confused with transfer fees which are the fees paid to the conveyancing attorney for the legal services rendered to successfully transfer to property from the seller to the buyer.
Value added tax (VAT) is a form of consumption tax levied on a product or service whenever value is added to it.
Value is added to a product or service at each stage of the supply chain, starting from the raw material to the final consumer or retail purchase.
If the seller of goods or provider of services is a registered VAT vendor, then VAT is payable on the transaction.
In such cases, it’s not necessary for the purchaser to pay transfer duty. Conversely, if the seller is not registered as a VAT vendor, then it’s necessary for the purchaser to pay transfer duty.
In other words, and terms of immovable property, if the property is registered in the name of a company, the purchaser will be required to pay VAT on the transaction, rather than transfer duty.
The current VAT rate in South Africa is 20%, whereas transfer duty varies according to the purchase price and is calculated accordingly.
However, the rate of transfer duty can be anything between 6% and 13%, depending on the purchasing price of the property.
With the major difference in rates, it’s important to know whether you will be required to pay VAT or transfer duty, before signing an offer to purchase any immovable property in South Africa.
If the seller of the property is a VAT vendor, then the property will form part of his taxable supply and can be claimed back at the time of selling the property.
However, it’s important to keep in mind that 15% must be kept aside for SARS, and this should be taken into account by the estate agent and the purchaser.
Additionally, the agent must be made aware of the fact that the property is VAT registered as the agent’s commission will be calculated on the nett sales amount.
Paying transfer duty in South Africa is only required if the seller of the property is not a VAT registered vendor.
For further information about this matter, or to find out more about our conveyancing services, please don’t hesitate to contact us.
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