- The VAT rules for fixed property transactions in South Africa are complex and inconsistent, causing challenges for property developers.
- VAT applies to the sale of fixed property if the seller is a VAT vendor, while transfer duty applies if the seller is a non-registered person.
- Property developers face complexities when they construct or develop residential properties for sale but then let those properties for residential purposes, as letting is exempt from VAT.
- When a developer changes their intention from selling to letting a property, it triggers a deemed disposal for VAT purposes, requiring the developer to account for output tax at the open market value (OMV) of the property.
- Temporary relief was granted to developers letting out property from 2012 to 2018, suspending the obligation to declare output tax on the OMV.
- Permanent relief was introduced in 2022, deeming developers to be making a taxable supply when temporarily letting out residential property.
- Developers are required to account for VAT at the standard rate on the “adjusted cost” of the construction, extension, or improvement of the property.
- The meaning of “adjusted cost” and whether it includes the cost of land is uncertain, and clarification is needed for its application in the VAT Act.
Source: bizcommunity.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.
