Explained: the differences between transfer fees and VAT


When purchasing a commercial property from a legal entity, there is a common misconception that no transfer fees, or alternatively, any costs linked to transfer are applicable. “Buyers often confuse transfer fees as a whole with VAT when they are in the process of conducting a commercial property purchase,” says Jason Gregoriades, a member of the Rawson Property Group’s Commercial Business Development Team in Cape Town.

Although it is possible to own commercial property in one’s personal capacity, it is more common that a commercial property is owned by a legal entity. This being so, one must always keep in mind the difference between the actual transfer fee payable and the other costs linked to the transfer process of a commercial property, collectively known as the transfer costs.

It is, at all times, necessary for the purchasing party to pay the usual set costs, such as the conveyancers' fee, the administration fee and the Deeds Office fee, all of which are required as part of the transfer of a commercial property. Therefore, one must not assume that when purchasing a commercial property from a legal entity there will be no costs linked to the transfer. There is the likely possibility that along with the collective costs linked to the transfer, the individual transfer fee or VAT may also be applicable.

Transfer fees versus VAT   

By illustrating three possible scenarios, Gregoriades offers clarification of whether the transfer fee or VAT is payable on the sale of a commercial property. “A transfer fee is applicable to a commercial property sale when the selling entity is not VAT registered and the purchase price is greater than the stipulated threshold of R750,000,” he explains.

“Transfer fees are not applicable to a commercial property sale when the selling entity is VAT registered, in this case, VAT is applicable”, says Gregoriades “However, neither a transfer fee nor VAT is applicable when the entity is not VAT registered and the purchase price is R750,000 and below.”  

Calculating the fees                                                                                                           

“The transfer fees are calculated according to a tiered scale which begins at 3% of the purchase price,” says Gregoriades. “At no stage will the transfer fee equal or exceed 14% of the purchase price,” he adds. VAT, when applicable, requires no minimum price to be in effect and is calculated as 14% of the selling price.

It is necessary for  both the purchaser and seller to familiarise themselves with the various transfer costs applicable to the sale of a commercial property, in order to avoid presumptions, incorrect calculations or potential delays.
 

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