[Question] 0% VAT rated business sale

[AmithS]

Hello All,

What are the conditions for a business sale to be 0% VAT rated where the buyer and seller do not pay VAT on the sale.

Additionally, is this only possible when the actual cc\pty is sold to the new owner or can it also be done by selling the business out of the cc\pty?

Thanks,

[Justloadit]

I could be wrong and stand to be corrected, It depends on whether the business being sold, is VAT registered, and is sold as an ongoing concern.

[BusNavig8]

Both parties need to be vat vendors and there must be assets that are included in the sale - i.e you cannot sell your clients/ goodwill you will have to sell them with a computer (asset) for the transaction to be regarded as Vat neutral.The new company does not have to buy the existing corporate structure of the pty/cc but just the going concern (assets) of the said pty/cc.

[AmithS]

So if the business to be sold is a CC & VAT registered, the assets can be sold to the buyer. Does the buyer have to be another CC\PTY that is VAT registered or can it be an individual?

[bammer]

Interpretation Note 57

So if the business to be sold is a CC & VAT registered, the assets can be sold to the buyer. Does the buyer have to be another CC\PTY that is VAT registered or can it be an individual?

I recommend that you review IN 57 in detail prior to zero-rating the supply. Generally, the sale of assets do not consitute an income earning activity and therefore same does not constitute a going concern.

An extract from IN 57:

"A vendor making a taxable supply of goods or services in the course or furtherance of its enterprise, is required in terms of section 7(1)(a) to levy VAT at the standard rate on the supply.
The taxable supply of goods by a vendor includes the supply of its enterprise or a part thereof. This supply would be subject to VAT at the standard rate in terms of section 7(1)(a), however, section 11(1)(e) allows this supply to be zero-rated.

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."

[BusNavig8]

In order to Qualify in terms of this section of the act, The ASSETS necessary for carrying on the enterprise MUST be disposed of to the purchaser. There for essentially, both the seller and the buyer MUST be VAT vendors (and an individual can also be a VAT vendor as in a sole prop) and assets must form part of the income earning activity for the sale to be zero rated.Going Concern be definition means income earning activity so this section should always be fulfilled. And goodwill is also construed as an assets albeit intangible. SARS intention that tangible assets as part of the interpretation note be sold.