VAT or transfer duty — which one?
Even with income tax deferred under section 42, an entry tax still applies when the property moves. Which one bites turns on a single question: is the seller a VAT vendor supplying enterprise property? If so, the sale carries 15% VAT rather than transfer duty. If not — for instance a private seller, or a residential rental, which is an exempt supply — the acquisition attracts transfer duty instead.
VAT and transfer duty are generally mutually exclusive: where a supply of fixed property is subject to VAT, the Transfer Duty Act relieves it from duty (section 9(15)), so you do not usually pay both on the same acquisition. Say generally, not never both — the interaction can be more nuanced in edge cases, and the safe step is to establish the VAT status of the seller and the property before assuming which tax applies.
“No duty shall be payable in respect of the acquisition of any property under any transaction which for purposes of the Value-Added Tax Act, 1991, is a taxable supply of goods to the person acquiring such property if— (a) the transferor of the property under such transaction, in a declaration in such form as the Commissioner may prescribe, certifies that value-added tax payable under the said Act has been paid to him in respect of the said supply by the transferee and has been accounted for by him in a relevant return required to be furnished by him under the said Act or will be so accounted for in such return within the time allowed under that Act for the rendering of such return, or where such supply was subject to the said tax at the rate of zero per cent, such information regarding such supply as the Commissioner may require has been furnished to him; (b) any security required by the Commissioner for the payment of such tax has been lodged, if such tax has not yet been paid; and (c) the Commissioner has issued a certificate to the effect that the requirements of this subsection for the granting of the exemption have been met.”
Note — This is the statutory mechanism that keeps the two taxes apart: where a property transaction is a taxable supply for VAT, transfer duty is relieved — subject to the conditions in (a)–(c), principally the Commissioner’s exemption certificate under (c).
Establish the seller’s VAT status first
Before you can price the move, fix two facts: is the seller a registered VAT vendor, and is the property enterprise property (used to make taxable supplies) rather than a residential dwelling let to tenants? A VAT vendor selling enterprise fixed property charges 15% VAT; a non-vendor, or a vendor selling residential lettings, does not — that acquisition runs on the transfer-duty scale. Getting this wrong distorts the whole entry-tax budget.
| Tool | Transfer duty | STT (0.25%) | VAT |
|---|---|---|---|
| S 42 Asset-for-share | Exempt where company acquires property — s 9(1)(l)(i) of Transfer Duty Act. Public-officer declaration required.† | Exempt where security transferred under s 42 — STT Act s 8(1)(a)(i). Public-officer sworn affidavit/declaration required.‡ | Parties deemed one person under VAT Act s 8(25)§ — but only if supply is of an enterprise (or separately operable part) disposed of as going concern under written agreement, or fixed property supplied with leaseback arrangement. Election out available in writing (then s 11(1)(e) zero-rating may apply instead). No VAT if residential letting (exempt supply).§ |
| S 43 Substitutive share-for-share | Exempt — s 9(1)(l)(iA) of Transfer Duty Act. Public-officer declaration required.† (Rarely involves fixed property in practice.) | Exempt where security transferred under s 43 — STT Act s 8(1)(a). Public-officer sworn affidavit/declaration required.‡ | S 8(25) does not list s 43. A share-for-share exchange involves shares (financial services), not a supply of enterprise property — VAT generally not in play. |
| S 44 Amalgamation / merger | Exempt — s 9(1)(l)(iB) of Transfer Duty Act. Public-officer declaration required.† | Exempt where security transferred under s 44 — STT Act s 8(1)(a)(ii). Public-officer sworn affidavit/declaration required.‡ | Parties deemed one person under VAT Act s 8(25)§ — s 44 supplies covered without the going-concern/leaseback proviso that applies to ss 42/45. Parties cannot elect out for the ordinary VAT rules on this limb. |
| S 45 Intra-group transfer | Exempt — s 9(1)(l)(ii) of Transfer Duty Act. Public-officer declaration required.† | Exempt where security transferred under s 45 — STT Act s 8(1)(a)(iii). Public-officer sworn affidavit/declaration required.‡ | Parties deemed one person under VAT Act s 8(25)§ — but only if supply is of an enterprise (or separately operable part) disposed of as going concern under written agreement, or fixed property supplied with leaseback arrangement. Election out available in writing (then s 11(1)(e) zero-rating may apply instead).§ |
| S 46 Unbundling | No property acquisition occurs — unbundling distributes shares, not fixed property. Transfer duty not applicable. | Exempt where security transferred under s 46 — STT Act s 8(1)(a)(iv). Public-officer sworn affidavit/declaration required.‡ | Distribution of shares is in the nature of an exempt financial service — s 8(25) normally unnecessary rather than unavailable. No fixed-property acquisition for transfer duty either. |
| S 47 Liquidation distribution | Exempt — s 9(1)(l)(iii) of Transfer Duty Act. Public-officer declaration required.† | Exempt where security transferred under s 47 — STT Act s 8(1)(a)(v). Public-officer sworn affidavit/declaration required.‡ | Parties deemed one person under VAT Act s 8(25)§ — s 47 supplies covered without the going-concern/leaseback proviso that applies to ss 42/45. Parties cannot elect out for the ordinary VAT rules on this limb. |
† Transfer Duty Act 40 of 1949, s 9(1)(l) — public officer of acquiring company must file a sworn affidavit or solemn declaration. Where both parties are registered VAT vendors deemed one person under VAT Act s 8(25), the parallel relief is s 9(15A). ‡ STT Act 25 of 2007, s 8(1)(a) — public officer sworn affidavit/solemn declaration required; exemption is for transfers (issues of new shares are outside STT entirely). § VAT Act 89 of 1991, s 8(25) — the deeming, going-concern/leaseback proviso and election-out are described in the Why residential letting is exempt section below. Electing out of a roll-over section in writing (e.g. s 42(8A)) also forfeits the transfer-duty and STT exemptions for that transaction.
Going-concern zero-rating
Where the property is enterprise property and the seller is a vendor, the default is 15% VAT at the standard rate. But if the whole enterprise is sold as a going concern — the business and all the assets necessary to carry it on, including the fixed property — the supply can be zero-rated (VAT at 0%):
“Fixed property which is sold by a vendor will usually attract VAT at the standard rate. However, it is also possible for the fixed property concerned to form part of the supply of a going concern where an entire enterprise and all the necessary assets (including the fixed property) are sold to the purchaser. In such cases, the supply of the whole business, including the fixed property, may qualify as a zero-rated supply. (See Interpretation Note 57 ‘Sale of an Enterprise or Part Thereof as a Going Concern’ which deals with this topic in more detail.)”
The conditions that VAT 409 refers to are set out in SARS Interpretation Note 57. To qualify for zero-rating under section 11(1)(e) of the VAT Act, all six requirements must be met:
“In order for the supply to qualify as being zero-rated in terms of section 11(1)(e), the following requirements must be met: The seller and purchaser must be registered vendors. The supply must consist of an enterprise or part of an enterprise which is capable of separate operation. The parties must agree in writing that the supply is a going concern. The seller and purchaser must, at the conclusion of the agreement, agree in writing that the enterprise will be an income-earning activity on the date of transfer thereof. The assets necessary for carrying on the enterprise must be disposed of to the purchaser. The parties must agree in writing that the consideration for the supply includes VAT at the zero rate.”
Note — This is SARS Interpretation Note 57 (“Sale of an Enterprise or Part Thereof as a Going Concern”, 31 March 2010), the note cross-referenced in VAT 409 para 2.8 above.
Zero-rating is not the same as exemption. A going-concern supply remains a taxable supply charged at a 0% rate, which preserves the parties’ input-tax positions; an exempt supply (like residential letting, below) is outside the VAT net altogether and carries no input-tax entitlement. The zero-rating route is mainly relevant to a commercial or enterprise property, not to the typical family rental.
Why residential letting is exempt — and pays transfer duty
Letting a dwelling to tenants is an exempt supply for VAT. A residential rental is therefore generally not an enterprise for VAT purposes: no input tax can be claimed on it, and no 15% VAT is charged when it is sold. Instead, the acquisition attracts transfer duty on the sliding scale.
This is why the classic family structure — a residential rental like the Nkosi property — runs on the transfer-duty rails, not the VAT rails. The relevant s 42 exemption route for that residential transferor is section 9(1)(l)(i) of the Transfer Duty Act, not the VAT-vendor going-concern route under section 9(15A) and section 8(25) of the VAT Act (which only operates where both parties are VAT vendors).
Section 8(25) of the VAT Act is a special continuity rule for corporate reorganisations between registered VAT vendors: where the requirements of s 42, 44, 45 or 47 of the Income Tax Act are complied with, the supplier and recipient are deemed to be one and the same person for that supply. Its extra conditions are targeted, not universal: for s 42 and s 45 supplies the deeming only applies if the supply is of an enterprise (or a separately operable part) disposed of as a going concern under a written agreement — or, alternatively, if fixed property is supplied under a written sale-and-leaseback arrangement. Section 44 and s 47 supplies are covered by the deeming without that going-concern proviso. And qualifying s 42/45 parties can elect in writing for the ordinary VAT rules — including the s 11(1)(e) going-concern zero-rating — to apply instead of the deeming. That deeming is also what unlocks the matching transfer-duty exemption in section 9(15A).
“For the purposes of this Act, where any goods or services are supplied by a vendor to another vendor, those vendors must for purposes of that supply or subsequent supplies of those goods or services, be deemed to be one and the same person provided the provisions of section 42, 44, 45 or 47 of the Income Tax Act are complied with: Provided that this subsection shall not apply to a supply contemplated in section 42 or 45 of the Income Tax Act, unless— (i) that supply is of an enterprise or part of an enterprise which is capable of separate operation, where the supplier and recipient have agreed in writing that such enterprise or part, as the case may be, is disposed of as a going concern; … or (iii) the supply is of fixed property and the supplier and the recipient have agreed in writing that, immediately after the supply, the supplier will lease the fixed property from the recipient: Provided further that this subsection shall not apply to a supply as contemplated in section 42 or 45 of the Income Tax Act, where such supplier and recipient have agreed in writing that the provisions of subsection (7) and section 11 (1) (e) of this Act shall apply.”
None of this reaches the classic family rental, for a simpler reason: letting a dwelling is an exempt supply, so the dwelling does not form part of anyone’s VAT enterprise — even where the owner happens to be registered as a vendor for some other activity, this transaction sits outside the VAT net, and s 8(25) has nothing to operate on. Confirm both parties’ VAT registrations, and what the supply actually consists of, before relying on the rule.
Securities transfer tax (0.25%)
The third entry tax bites at the second step — when Newco’s shares move to the trust. Securities transfer tax (STT) is a tax of 0.25% charged on the taxable amount of a security when it is transferred:
“… at the rate of 0,25 per cent of the taxable amount of that security determined in terms of this Act.”
The trigger is a transfer of an existing security. When Newco is first formed and issues new shares — whether to the founder under a section 42 transaction or to the trust on subscription — that is an issue, not a transfer, so no STT arises on formation. STT only becomes relevant once existing shares change hands.
STT roll-over exemptions and the issue point
Helpfully, transfers made under the Part III corporate roll-over rules are also exempt from STT — so a share move that itself qualifies as a section 42 (or section 45) transaction can escape the 0.25%:
“(1) The tax is not payable in respect of a transfer of a security— (a) if the security is transferred to a person— (i) in terms of an asset-for-share transaction referred to in section 42 of the Income Tax Act; … (ii) in terms of an amalgamation transaction referred to in section 44 of the Income Tax Act; (iii) in terms of an intra-group transaction referred to in section 45 of the Income Tax Act; (iv) in terms of an unbundling transaction referred to in section 46 of the Income Tax Act; (v) in terms of a liquidation distribution referred to in section 47 of the Income Tax Act; … where the public officer of the relevant company has made a sworn affidavit or solemn declaration that the acquisition of that security complies with the provisions of this paragraph;”
Two points on that exemption. First, it is not limited to section 42 — it also covers section 43, section 44 amalgamations, section 45 intra-group transfers, section 46 unbundlings and section 47 liquidation distributions, and the list above is not exhaustive of every STT relief. Second, it applies to a transfer; it is not needed for an issue, because an issue of new shares is not a transfer at all under the Act’s definitions — so subscribing for new Newco shares is outside STT from the start.
On the property leg, the parallel transfer-duty relief for the non-vendor residential transferor is the Transfer Duty Act’s own section 42 exemption. It exempts “any company” acquiring property under a section 42 asset-for-share transaction, provided the company’s public officer files a sworn affidavit or solemn declaration:
“(1) No duty shall be payable in respect of the acquisition of property by— … (l) any company in terms of— (i) an asset-for-share transaction as defined in section 42 of the Income Tax Act, 1962 (Act 58 of 1962); … where the public officer of that company has made a sworn affidavit or solemn declaration that such acquisition of property complies with the provisions of this paragraph;”
Note — The em-dash ellipses mark genuine omissions — the s 9(1) chapeau lists many exemptions and s 9(1)(l) covers the corporate rules in limbs (i) (s 42 asset-for-share), (iA) (s 43 substitutive share-for-share), (iB) (s 44 amalgamation), (ii) (s 45 intra-group) and (iii) (s 47 liquidation distribution); only the section 42 limb and the common closing public-officer words are kept above. This is the non-VAT-vendor route; where both parties are VAT vendors deemed one person under VAT Act s 8(25), the parallel relief is s 9(15A).
Note — the exemptions ride on the Income Tax Act section actually applying. Most of the roll-over sections let the parties elect out in writing (for example s 42(8A), s 45(6)(g), s 47(6)(b)) — and an election out takes the STT and transfer-duty exemptions down with it, because there is then no “asset-for-share transaction” or “intra-group transaction” for the exempting provisions to refer to. If you opt out for base-cost or loss reasons, re-do the entry-tax arithmetic before signing.
Where the other roll-over tools fit
Three separate statutes, three separate exemptions, each with its own conditions and paperwork — they are related, but none of them “travels automatically” with the income-tax relief. Transfer duty: s 9(1)(l) exempts property acquired under a s 42 asset-for-share transaction, a s 43 substitutive share-for-share transaction, a s 44 amalgamation, a s 45 intra-group transaction or a s 47 liquidation distribution (public-officer declaration required each time; the s 43 limb will rarely involve fixed property in practice). VAT: s 8(25) deems the parties one person for qualifying s 42, 44, 45 and 47 supplies between vendors — with the going-concern/leaseback proviso applying to the s 42 and s 45 limbs only, and an election out for those limbs (see above). STT: s 8(1)(a) spans ss 42 to 47, subject to the public officer’s sworn declaration and the Act’s timing requirements. Section 46 is the deliberate absentee from the property-tax lists: an unbundling distributes shares — for VAT that distribution is in the nature of an exempt financial service (so s 8(25) is normally unnecessary rather than unavailable), and there is no property acquisition for transfer duty; on the STT side, the s 8(1)(a)(iv) exemption covers the unbundled shares’ movement. Each spoke guide flags its own entry-tax position: s 44, s 45, s 46, s 47.
Worked example · the Nkosi family
Before signing
Roll-over relief and the entry-tax exemptions depend on the exact parties, VAT registrations, the nature of the supply, values, declarations filed and the order of steps. Obtain transaction-specific tax and legal advice before agreements or resolutions are signed — a later correction may not restore an exemption.
Frequently asked questions
It depends on whether the seller is a VAT vendor and whether the property is enterprise (commercial) property. A vendor selling enterprise fixed property charges 15% VAT instead of transfer duty; a non-vendor seller or a residential rental (an exempt supply) attracts transfer duty instead. The two are generally mutually exclusive — usually one, not both.
Where an entire enterprise and all the assets needed to run it (including the fixed property) are sold by one VAT vendor to another as a going concern, the supply can be zero-rated — VAT at 0% instead of 15%. It is still a taxable supply (a 0% rate, not an exemption), which preserves input-tax positions. SARS VAT 409 sets out the conditions.
No. Letting a dwelling to tenants is an exempt supply, so a residential rental is generally not enterprise property. No input tax can be claimed and no 15% VAT is charged on its sale — instead the sale attracts transfer duty on the sliding scale. The classic family rental therefore pays transfer duty, not VAT.
STT is a tax of 0.25% of the taxable amount of a security, charged when a security such as a company share is transferred (Securities Transfer Tax Act 25 of 2007). An issue of new shares is not a transfer, so subscribing for newly issued Newco shares does not attract STT — only moving existing shares does.
Generally yes — moving existing shares to the trust is a transfer, so STT of 0.25% applies unless a roll-over exemption is available. The Act exempts transfers under the Part III roll-over rules — including a section 42 asset-for-share transaction and a section 45 intra-group transaction. If the move does not fit one of those, budget for the 0.25%.