Further to our Newsflash last week after the budget speech regarding the changes to VAT, we have received several enquiries as to how the change in the VAT rate will actually impact agreements of sale.
The typical questions we have received and the answers thereto are based on information which we have gathered from SARS’ VAT 404 GUIDE FOR VENDORS, which was issued by SARS’ website, on 21 February 2018 (for those who have access to it we refer to questions 8; 14; 15 and 19 referred to in the guide) can be summarized as follows:
- If I enter into a sale agreement with a VAT vendor (developer for example or property speculator who is VAT registered) before 1 April 2018 but transfer only takes place after 1 April 2018, is VAT 14% or 15%?
- For NON RESIDENTIAL PROPERTIES – the VAT rate on the earlier transfer of the property or payment of the purchase price to the seller will be applicable. If the contract was thus signed before 1 April 2018, but transfer of the property and payment thereof to the seller occurs after that date, VAT will be charged at 15%. Agents and sellers would be well advised to put in a clause drawing this to the buyer’s attention, or simply now make the purchase price VAT inclusive and provide for 15%.
- FOR RESIDENTIAL PROPERTIES – If the sale agreement is entered into prior to 1 April 2018 it will be 14% regardless of the fact that the transfer only goes through after 1 April. It is instructive to note that the guide refers to when an agreement was “entered into”. This means when the offer was accepted, regardless of any suspensive conditions.
- What about agent commission?
- In terms of the VAT guide, if a service is provided prior to 1 April 2018 but the fee is only payable after 1 April 2018, then VAT will remain at 14%. The guide does not distinguish between sale agreements that are subject to suspensive conditions and those that are not. As such we interpret this to mean that the date of sale determines agents’ VAT rate.
- In order to avoid confusion we suggest you make commission (X% inclusive of VAT but then make provision for VAT at 15%. For example 5.75% instead of 5.7% as in the past). Should SARS assess your deal at 14% you can refund the difference to the seller, and if assessed at 15%, you are safe. We are in a transitional phase and no doubt issues are likely to arise when interpreting the question if and when an agent’s service is said to have been supplied and if suspensive conditions are to be met.