Hi,
Is it correct that if you purchase a business as an ongoing\running concern that you do not pay the VAT?
Additionally, what happens in a transaction of this nature if there are assets also? E.g. fridges, desks, computers, etc...
Hi,
Is it correct that if you purchase a business as an ongoing\running concern that you do not pay the VAT?
Additionally, what happens in a transaction of this nature if there are assets also? E.g. fridges, desks, computers, etc...
I am not sure as to what you are going to pay VAT on or for? What you have in mind here.
Purchasing a business can take a few forms. Firstly though it would depend in what legal entity the business is held. Is it a company, cc, sole trader, agency etc. From there one would determine what is being purchased. One could fr example purchase the business as a whole or take parts out of the business.
From these decisions, one can then determine the tax implications from all sides.
I recall something about this being zero rated from discussion in a previous thread. But Morticia really seems to be the tax expert on this sort of thing. Hopefully she'll pop in with the definitive answer.
My understanding on the assets - Buy the concern for your purchase price to optimise on CGT if you sell again one day. By all means have a list of assets you're receiving in the agreement, but don't have values assigned to them.
Then go through a revaluation process on the assets that you have received as part of the business. It's handy to know the book value of those assets so that you can pick the higher value between book value and fair market value. It is tax efficient to apportion as much as you can of the purchase price to depreciable assets - the balance of the purchase price will be assigned to goodwill which is not depreciable for tax purposes.
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Alcocks Electrical Services | Alcocks Pest Control & Entomological Services | Alcocks Hygiene Services
Tx for the vote of confidence Dave!Hope this is helpful?
http://www.moneywebtax.co.za/moneywe...7569&sn=Detail
Dave A (16-Jul-09)
Your expertise has been pretty clear in your posts so far, Morticia, and you prove my faith in you yet again. Thanks indeed.
Participation is voluntary.
Alcocks Electrical Services | Alcocks Pest Control & Entomological Services | Alcocks Hygiene Services
OK - I'm still a few steps behind here.
Are we talking about selling the assets out of a company and the vat related to the valuation of those assets or are we talking about selling the company's shares or both? Does it make any difference? What valuation can be used that sars accepts?
Now should the company be liable for the vat. Would you expect the seller to leave enough cash resources behind to cover sars payment requirements? What happens if the 'business' does not have enough cash to cover the transaction? The buyer injects new cash and reduces the sale value.....How would the deal be structured?
Thanks Dave and Morticia, your help is appreciated.
When selling a company the non-payment of VAT are as forth:
The company or CC must be VAT registered.
In the purchase agreement, there must be a paragraph stating that the business is an operating concern and that the purchase of the business by between the buyer and seller will be a ZERO VAT transaction.
If one is purchasing the assets of the business into a new company, which is a prudent move in a buying of a business.
One can do the same process as long as the assets are the companies assets used in operation. Must be staed as so on the purchase agreement and that the business is a going concern and the transaction will be ZERO RATED.
If you do not put this in the purchase agreement, you will be in for a SARS induced shock.
Further, it may be prudent to also to advertise the sale of the business in the newspaper in both official languages as well as the Govt Gazette, 30 days before salecomes into effect. This is done in accordance with Section 34 of the Insolvency Act and protects you against those unseen creditors.
Remember that selling shares in a company/cc is not the same transaction as selling a business. Shares = capital assets = CGT, business/enterprise = trading vehicle = VAT.
And yes, the agreement MUST state the business is sold a "going concern", i.e. the buyer MUST be able to continue trading immediately after the sale.
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