This client was planning to buy a block of flats and rent them out as Air BnB.

The seller was not VAT registered.

The rule as I have always interpreted it, is that if the purchaser is VAT registered and the seller is not, then if it is a commercial property, the purchaser pays Transfer Duty but claims Input VAT of 15/115 x the purchase price. If it is a residential property, then the purchaser pays the Transfer Duty, but cannot claim the Input VAT.

The question arises as to what defines a commercial property.

In this case, the property is zoned “Residential” but the purpose to which it will be put is “Commercial”. See my blog on this conclusion.

First article

Concluding article

I suggested that the client phone SARS for their advice.

Apparently, SARS issues Internal Guidelines, presumably just for their Help Desk, and the lady read the entire chapter on this subject to my client.

No mention was made of zoning. The determination “Commercial” or “Residential” is base solely on the use to which the property is being put. And in this case the use is definitely commercial.

Great news for my client!

However, I had to point out that we would have two obstacles to overcome.

1. Getting SARS to register his company for VAT. The last one that we have just concluded for the transfer of a guest house took 3 months and guest houses are specifically subject to VAT registration, whereas Air BnB is not specifically mentioned in the legislation.
2. Getting SARS to actually pay the Input VAT out. No doubt there will be a long-winded audit with no guarantee of success.