Selling, buying a business as going concern
VAT implications
Many entrepreneurs at one stage consider buying or selling a business, especially in these challenging economic times.
One should consider the VAT implications when deciding on such a step to ensure compliance with the VAT Act and to minimise the impact of the potential substantial VAT cost of 15% on the value of the transaction.
It is however possible to structure the sale of a business to qualify for the zero rating of VAT on the transaction, provided certain requirements are met.
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 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.
Very technical
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 a transaction between the parties is concluded and a written notice setting out the details of the transaction must be submitted to Inland Revenue 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.
It is also recommended that the approval from Inland Revenue is obtained prior to applying for zero rating to avoid any penalties that may be levied should Inland Revenue not agree with the going concern aspect.
We strongly suggested to obtain the services of an experienced tax professional before considering selling or buying a business as a going concern.
Memory Mbai is the senior manager in VAT at PwC Namibia. This series on tax is published bi-monthly on a Monday in Market Watch.
One should consider the VAT implications when deciding on such a step to ensure compliance with the VAT Act and to minimise the impact of the potential substantial VAT cost of 15% on the value of the transaction.
It is however possible to structure the sale of a business to qualify for the zero rating of VAT on the transaction, provided certain requirements are met.
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 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.
Very technical
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 a transaction between the parties is concluded and a written notice setting out the details of the transaction must be submitted to Inland Revenue 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.
It is also recommended that the approval from Inland Revenue is obtained prior to applying for zero rating to avoid any penalties that may be levied should Inland Revenue not agree with the going concern aspect.
We strongly suggested to obtain the services of an experienced tax professional before considering selling or buying a business as a going concern.
Memory Mbai is the senior manager in VAT at PwC Namibia. This series on tax is published bi-monthly on a Monday in Market Watch.
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