Unpacking Value Added Tax (VAT) in South African Property Transactions

Newly Developed Properties

One of the primary scenarios in which VAT comes into play in the South African property industry is the sale of newly developed properties. Developers are required to charge VAT on the selling price of such properties. This includes residential, commercial, and industrial properties that are sold before they have been occupied or used.

VAT Inclusive Prices

Developers typically include VAT in the selling price of a newly developed property. This means that the buyer pays the total amount, including VAT, and the developer is responsible for remitting the VAT portion to the South African Revenue Service (SARS).

Exemptions and Zero-Rated Supplies

Certain properties and transactions may be exempt from VAT or qualify as zero-rated supplies. For example, the sale of a going concern, which includes a property and an existing business, may be zero-rated under specific conditions outlined in the VAT Act.

Second-Hand Residential Properties

In most cases, second-hand residential properties are not subject to VAT. Instead, these transactions typically fall under the realm of Transfer Duty, a separate tax imposed on the transfer of immovable property.

Commercial and Industrial Properties

While VAT is commonly applicable to commercial and industrial properties, it's crucial for buyers and sellers to verify the VAT status of a particular transaction. Not all commercial or industrial property transactions automatically include VAT, and the specifics can vary based on the circumstances.

VAT Registration for Developers

Developers who consistently engage in property development and sales may be required to register for VAT with SARS. VAT registration enables them to claim input tax credits on expenses related to the development process, which can help offset their VAT liability.