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4 criteria you HAVE to meet to sell your business at the zero rate

by , 07 March 2016
If you sell your business, your sale can potentially be regarded as a zero-rated transaction.

But this can only be the case you meet very specific criteria, of which failure to do so will result in harsh penalties from SARS.

So ensure that you meet the following 4 criteria to qualify for a zero-rated transaction when selling your business...

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Declaring zero-rated supplies on your Vat return is an immediate trigger for a SARS Vat audit
 
If you deal with:
  • Direct exports;
  • Petroleum, diesel or illuminating paraffin
  • Agriculture;
  • Mining;
  • Goods temporarily admitted into South Africa; and
  • Foreign goods or services…
 
Zero-rated Vat affects you and you 'will' trigger a Vat audit!
 
But you don't have to worry. Here's how to prove your zero rating is correct…
 
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Criterion#1:

Both the buyer and the seller MUST be registered VAT vendors.

You must put both VAT registration numbers onto the contract.

Criterion#2:

The business must be sold as a going concern, and all the assets which are relevant to the sale must go with the sale.

Also, the business must be involved in income-earning activities from the date of transfer of ownership.

Criterion#3:

The whole business must be sold.

Or, alternatively, the sale must involve a section of the business that is able to operate separately and independently.

Criterion#4:

Both the buyer and the seller must agree in writing that the business is being sold as a going concern and at the zero rate.

More specifically, the contract must state: 'The supply is of a going concern. VAT at the zero-rate will be levied.'
 
If you fail to meet all of the criteria listed above, your business's sale MUST be levied at the standard VAT rate of 14%, which can cause difficulties for the buyer who must now pay 14% extra for VAT, and wait for it to be refunded.

At the end of the day, the 4 criteria above HAVE TO be met in order for the sale of a business to qualify for VAT at the zero rate, and failure
to meet them while trying to get the zero rate can see you being heavily penalised by SARS.

So don't go making that mistake!

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