How Will Changes To VAT Influence The South African Property Market?

How Will Changes To VAT Influence The South African Property Market?

Having consulted the latest SARS guide (here is the link: https://bit.ly/4kOs5bp) on how the latest Vat increase will be implemented, herewith answers to some questions we have already received – for a more detailed exposition please consult the guide:

1. How will the rate increase work generally for fixed property transactions? 
   
   a. When buying from a VAT vendor, and if the property is a COMMERCIAL property, the rate of VAT for fixed property transactions will be the rate that applies on the date of registration of transfer of the property in a Deeds Registry, or the date that any payment of the purchase price is made to the seller – whichever event occurs first. If a “deposit” is paid and held in trust by the transferring attorney, this payment will not trigger the time of supply as it is not regarded as payment of the purchase price at that point in time.  It also does not matter that a tax invoice was issued before the time of supply and before the VAT rate increased. The tax invoice may be corrected if need be.
    
2. Is there a “rate specific rule” which is applicable to me, if I signed the contract to buy RESIDENTIAL property before the rate of VAT increased, but payment of the purchase price and registration will only take place on or after 1 May 2025? 
   
   a. Yes. You will pay VAT based on the rate that applied before the increase on 1 May 2025 (that is 15% VAT and not 15.5% VAT). This rate specific rule overrides the rules as discussed above, which applies for non - residential fixed property. 
   
   b. This rate specific rule however applies, only if 
   
   i. you concluded a written agreement to buy the residential property before 1 May 2025; 
   
   ii. both the payment of the purchase price and the registration of the property in your name will only occur on or after 1 May 2025; and 
   
   iii. the VAT-inclusive purchase price was determined and stated as such in the agreement. 
   
   iv. NB - Concluded means that a legal and binding contract was entered into by the parties – regardless of whether that contract includes any suspensive or resolutive conditions.
   
   v. If the above requirements are not met, the VAT rate of 15.5% applies to the transaction. 
   
   c. For purposes of this rule, “residential property” includes: 
   
   i. an existing dwelling, together with the land on which it is erected or any other real rights associated with that property; 
   
   ii. so-called plot-and-plan deals where the land is bought together with a building package for a dwelling to be erected on the land; or 
   
   iii. the construction of a new dwelling by any vendor carrying on a construction business. 
   
   iv. If payment and registration in the deeds office occurs before 1 May 2025, the VAT rate of 15% also applies to the transaction. 
    
3. What is the position when fees or charges are calculated? 
   
   a. You must first establish if the base amount is expressed as a VAT inclusive or VAT exclusive amount. 
   
   i. VAT inclusive base amount – the calculated fee or charge will automatically include VAT at the increased rate of 15.5% if the supply took place on or after 1 May 2025. 
   
   ii. VAT exclusive base amount – VAT at the increased rate of 15.5% must be added to the calculated fee or charge to determine the final VAT-inclusive purchase price if the supply took place on or after 1 May 2025.  
   
   iii. Agencies need to pay attention to how the base amount is calculated, as well as the method upon which the formula is based that is applied to the base amount. This is especially important if you are using a VAT-inclusive base amount or a VAT-inclusive formula to calculate the fee or charges, as the calculated fees in that case may be based on the incorrect assumption that VAT is included at 15%. 
   
   iv. In order to avoid commercial disputes, agencies should be clear in their agreements regarding how the base amount is calculated as well as the methods that are used for calculating the fees or charges based thereon. The formulae used should clearly demonstrate how the new VAT rate of 15.5% features in those calculations. 
    
4. What happens if I have performed the services before 1 May 2025, but the invoicing or payment only occurs after that date? 
   
   a. The VAT Act provides that you must charge VAT at 15% even if the normal time of supply for those supplies (invoicing or payment) occurs after the increase in the VAT rate. This is explained by way of the example below. 
   
   b. If an agency (being a vendor) has actually supplied services to a seller before 1 May 2025, but the invoicing and payment only occurs after 1 May 2025, the agency must charge VAT at 15% for those services and not 15.5%. 
    
5. What happens if services are performed during a period starting before and ending on or after 1 May 2025, and the time of supply is triggered on or after 1 May 2025? 
   
   a. Those services provided before 1 May 2025 are taxed at 15% and those after, at 15.5%. If you are therefore managing a lease, you may charge the increased rate as for all rental collections after 1 May 2025 even if your agreement states 15%.