Buying, selling a business as going concern

Audrey van Antwerpen – Many entrepreneurs at one stage or another consider buying or selling a business, especially in these challenging economic times.

Where a business is sold by a person registered for value-added tax (VAT), possible VAT implications should be considered to ensure compliance with the VAT Act and to minimise the impact of the potential VAT cost of 15% on the value of the transaction.

The disposal of any taxable activity, or part thereof which is capable of separate operation as a going concern, is deemed to be a supply of goods by the seller. This means that where a taxable activity, or part thereof, is disposed of and the seller is a registered person, the seller in principle must account for output tax on the disposal. It is however possible to structure the sale of a business to qualify for the zero rating (0%) of VAT on the transaction, provided certain requirements are met.

The disposal of a taxable activity must be distinguished from the disposal of shares in a company or membership in a close corporation and fixed assets or fixed property. The disposal of shares/membership is not a taxable supply and does not have VAT implications. The disposal of fixed assets or property constitutes a supply and has a VAT implication if the seller is a registered person.

TECHNICAL

In VAT language, the business subject to a sale is called a “going concern”. Going concern is met when all the goods necessary for the continued operation of the business are transferred to the buyer, and the seller carries on the business or part of the business being sold up to the time of transfer to the buyer.

This means that the seller must operate a business prior and up to the effective transfer to the buyer and all the goods that are necessary for the business to continue are transferred to the buyer at the date of sale.

Where the business being sold constitutes that of a going concern as referred to above, in order to qualify for VAT zero rating on the transaction, the buyer and the seller must be registered for VAT at the time the transaction between the parties is concluded. After which a written notice setting out the details of the transaction must be submitted to the Namibia Revenue Agency (NamRA) within 21 days after the transaction has been concluded.

The sale of a going concern could be very technical with all the conditions in the VAT Act to be observed especially where the business operates various divisions of which one is disposed of separately. It is also recommended that the approval from NamRA be obtained prior to applying the zero rating to avoid any penalties that may be levied should NamRA not agree with the going concern aspect.

It is strongly suggested that the services of an experienced tax professional be obtained when considering selling or buying a business as a going concern.

* Audrey van Antwerpen is the manager: indirect tax at PwC Namibia. Contact her at [email protected]