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The Requirements for a Transaction to Qualify as a Going Concern

There is a common misconception among Purchasers, Sellers and commercial agents that if the Seller and Purchaser party to a property transaction are VAT vendors, the transaction qualifies as a going concern. This is not always the case.

The purchase and sale of property attracts either Transfer Duty or VAT; not both. If the Seller is a VAT Vendor, VAT is applicable. If VAT is applicable, the transaction can either attract VAT- i.e. the Purchaser must pay the asking price plus VAT at 15%, or it can be a going concern. If the Seller is a VAT vendor and no mention is made in the agreement of VAT, the price is deemed to include VAT at 15%.  This could be extremely detrimental to the Seller and great care must be taken in preparing the sale agreement.

Most Sellers of commercial and industrial property are registered for VAT. There are distinct advantages for these property owners to be registered for VAT. If a VAT registered entity purchases property from a non-vendor, transfer Duty is payable, and the Purchaser can claim a notional VAT input of 15% of the purchase price. This is always substantially more than the Transfer Duty payable, and the input is not limited to the Transfer Duty payable, which could be financially beneficial for the Purchaser.

The transaction for the sale of property by a VAT Vendor will only qualify as a going concern if:

  1. The Purchaser and Seller are VAT Vendors as at date of registration of transfer;
  2. The property is let out to a third party (specifically not the Purchaser); and
  3. The Tenant remains on as a Tenant after transfer takes place.

The following specific wording must appear in the sales agreement:


  • The Seller warrants that it is and will be at the Effective Date a duly registered vendor in terms of the Act.
  • The Purchaser warrants that it will on the Effective Date be a duly registered vendor in terms of the Act.
  • The parties agree that they are of the opinion that:
    • the enterprise constitutes an enterprise as defined in the Act;
    • the supply of the enterprise in terms of this Agreement is that of a going concern and will constitute a zero rated transaction in terms of Section 11(1)(e) of the Act
  • In the event of VAT being levied in respect of this transaction at a rate other than 0% (zero percent), the Seller shall be entitled to recover such VAT from the Purchaser.
  • The VAT payable by the Purchaser in terms of 5.4 shall be paid by the Purchaser to the Seller by not later than the third business day following delivery by the Seller to the Purchaser of a tax invoice in respect of the VAT thus payable.
  • The parties agree that the enterprise will be an income-earning activity on the date of transfer thereof.

It follows that if the Seller is a Vendor, but occupies the property itself, the transaction cannot be a going concern. At least 50% of the lettable area must be let to a third party tenant. If the Seller occupies say 55% of the lettable area and leases out the balance, it will not qualify as a going concern. SARS regularly calls for copies of leases to verify this.

It also follows that if the Purchaser occupies the property on registration of transfer, and does not keep the tenant on, it will also not qualify as a going concern. The Purchaser must be buying the Seller’s letting enterprise and continue with this after transfer. There is no minimum time requirement for the tenant to be in occupation after transfer. If the Purchaser gives the tenant notice after a month or two, it will still qualify as long as the tenant was in occupation, and paying rental plus VAT thereon to the Seller, on registration of transfer.

 The Seller must be charging VAT on the rental for it to qualify as a going concern. Residential property (other than a Guest House), is exempt from VAT. Even if both parties are VAT vendors, it could never qualify as a going concern.

If you are unsure as to whether the proposed transaction will qualify as a going concern, ask us for advice before signing the agreement. Agreements can only be changed after signature if both parties thereto agree, and it is advisable to obtain the correct advice up front.


This article is not intended to provide legal advice; it is for general information purposes only and to provide a general understanding of the law.  It is advisable that advice relating to the specific circumstances of your matter be sought from an attorney before acting upon the content of this article.  This article is written at a particular point in time and accordingly may not always reflect the most current legal developments, legislation and/or judgments which may be applicable from time to time. The author and/or Rushmere Noach Incorporated are not responsible for any errors or omissions in the content.