- The VAT rules for fixed property transactions in South Africa have inconsistencies that make it challenging for property developers to meet their VAT obligations.
- The sale of fixed property is subject to VAT if the seller is a VAT vendor, while non-registered sellers generally attract transfer duty.
- Property developers face complexities when they construct or develop residential properties for sale but then let those properties for residential purposes, which is exempt from VAT.
- When a developer changes their intention from selling to letting a property, it triggers a deemed disposal for VAT purposes, resulting in an obligation to account for output tax at the open market value (OMV) of the property.
- Temporary relief measures were introduced for developers letting out property on a temporary basis, but a more permanent solution was needed.
- Section 18D of the VAT Act provides permanent relief for developers temporarily letting out residential property, requiring them to account for VAT on the adjusted cost of construction, extension, or improvement of the property.
- The meaning of “adjusted cost” needs clarification, particularly regarding whether the cost of land should be included.
- The South African Revenue Service (SARS) recognizes the need for certainty in the interpretation of these provisions.
Source: insightplus.bakermckenzie.com
Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.
