Thinking of Selling or Purchasing a Going Concern?

The term “going concern” refers to a business that is actively trading and expected to continue operating into the foreseeable future. When buying or selling a going concern, it is critical for both parties to understand the VAT implications involved.

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VAT Act Requirements for a Going Concern

The VAT Act treats the sale of a going concern as a supply of services that qualifies for a 0% VAT rate, provided the following conditions are met:

1. Both seller and purchaser must be VAT-registered vendors.
2. The parties must agree in writing that the business is being sold as a going concern.
3. The business must be income-generating on the date of transfer.
4. All assets necessary to continue the income-earning activity must be transferred to the purchaser.
5. The sale agreement must specify that the consideration includes VAT at 0%.

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Key Questions Around VAT Registration

A common area of uncertainty is when the purchaser must be VAT-registered for the transaction to qualify for 0% VAT. Some of the most frequent questions are:

• Must the purchaser be registered as a VAT vendor at the time of signing the agreement?
• Or must they be registered by the time the business is transferred?

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When Must the Purchaser Be Registered?

1. The sale of a going concern is regarded as a supply for VAT purposes.
2. The time of supply is generally the earlier of:
   • when an invoice is issued, or
   • when consideration (payment) is received.
     This also applies if fixed property forms part of the sale.
3. The purchaser must therefore be a registered VAT vendor at the time of supply.
4. It is not necessary for the purchaser to be VAT-registered when signing the agreement — unless that date also triggers the time of supply.
5. However, the purchaser must have applied for VAT registration before concluding the agreement. Failure to do so will result in the sale being subject to the standard VAT rate of 15%.
6. The “transfer date” or “effective date” — when ownership passes from seller to purchaser — is not automatically the relevant date for VAT registration purposes. It only applies if it coincides with the time of supply.

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Recommendations

1. If the purchaser is not VAT-registered when the agreement is signed, the agreement should be conditional upon the purchaser being registered at the time of supply.
2. The agreement must clearly state that the 0% VAT rate applies only if the purchaser is registered at the time of supply.
3. Where possible, parties should consider aligning the time of supply with the transfer date (for example, by ensuring invoicing and payment occur on the date of transfer) to avoid complications.

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Final Note

The VAT treatment of a going concern can be complex, and failure to meet the legislative requirements could result in unexpected VAT liabilities. If you are uncertain whether your transaction qualifies as the sale of a going concern under the VAT Act, contact us for expert guidance.