ARTICLE · 06 FEBRUARY 2018

Potential VAT Cash Flow Problem For Residential Property Developers

ENS

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This position adversely affects the property developer's cash flow, as the VAT payable as a result of the change in use is likely to significantly exceed the temporary rental income.

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The recent end of the value-added tax ("VAT") relief period for property developers in South Africa, who temporarily let their residential units, may have a significant impact on their cash flow.

Background

Ordinarily, property developers acquire or develop fixed property (including residential properties) for the purpose of resale. In South Africa, the sale of developed units is a taxable supply and is subject to VAT at 14%, which the property developer must account for to the South African Revenue Service ("SARS") as each unit is sold. The property developer is entitled to claim an input tax deduction in respect of VAT on development costs (such as land, building costs and related expenses) as they are incurred and does not have to wait until the unit is sold to claim the input tax.

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