We may well know that non-citizens pay transfer duty at 30% whenever they acquire immovable property or shares in a company holding immovable property. But one aspect which is rarely spoken about is the fact that the transfer duty can be as low as 17.7% on non-citizens who are registered for VAT. The said 17.7% is after considering notional VAT or VAT on second-hand goods, as prescribed by the VAT Act. The rate can fall to the said level if the immovable property is second-hand and if it is used to generate normal business income which is subject to VAT. For the 17.7% to apply, the immovable property must have been acquired from someone who doesn’t charge VAT. In this article, words importing the masculine shall be deemed to import the feminine.
Transfer duty is basically a tax that is levied on the value of any immoveable property acquired by any person by way of purchase or in any other way that transfers ownership. The tax is imposed in the hands of the acquirer or purchaser meaning to say that if you purchase a building or you find yourself owning a building in any other way other than purchasing it, you may automatically qualify as a BURS’ debtor. The transfer duty rates apply categorically based on the citizenship status of an individual or a company. A citizen of Botswana is liable to transfer duty at 5% whereas a non-citizen is taxed at a whopping 30%.
Before we jump into the exciting details, we must state that a company controlled 51% and above by non-citizens is also regarded as an non-citizen subject to the tax at 30%. However, a non-citizen company or individual who is registered for VAT may actually pay transfer duty at 17.7%. They say knowledge is power and indeed knowledge can really save you some Pulas. Such a reduced tax rate is not limpidly stated in the Transfer Duty Act but it is derived from applying certain provisions of the VAT Act. In brief, the VAT Act contains provisions that allow taxpayers to claim VAT credit on second-hand goods. This credit is technically known as ‘notional input tax.’ The claimable credit is not physically paid to the seller but it is derived from the sale value of the property by applying what is called a tax fraction i.e., 14%/114% on the purchase price and the result is claimable from BURS as input VAT. This is a rather special concept where tax is claimed without a tax invoice.
If we put this aspect into practice, we can rightfully say without doubt that land or buildings previously owned by someone else are also considered as second-hand goods and are consequently eligible for notional input tax claims. However, the notional input tax can only be claimed to a maximum of the transfer duty paid.
Now, if we add the bits and pieces, we will understand why some non-citizens can effectively pay transfer duty at 17.7%. For instance, let’s assume that a VAT registered non-citizen company, XYZ (Pty) Ltd, purchased a commercial building worth P10m from a non-registered individual and paid transfer duty of P3m (P10m x 30%). XYZ (Pty) Ltd is allowed to claim notional input tax of P1.3m (14%/114% x P10m) on this transaction. Effectively XYZ would have paid tax of P1.77m (P3m transfer duty less P1.3m input tax). Consequently, XYZ (Pty) would have effectively paid transfer duty at 17.7% on such an acquisition (P1.77m/P10m).
To sum it up!
In essence, the differentiating factor in the transfer duty applicable to non-citizens would be the VAT registration status. A non-registrant suffers the transfer duty at the maximum rate of 30% whereas a registered non-citizen effectively enjoys a lower rate by virtue of claiming a notional input tax. It must be stated that the notional input tax is only claimable if the immovable property is used to advance the Vatable aspect of the business, i.e. no such claims may be made for acquisition of property for say residential rent or housing employees.
Well folks, I hope that was insightful. As Yours Truly says goodbye, remember to pay to Caesar what belongs to him. If you want to join our Tax WhatsApp group or to know about our 9 Tax e-books, send me a text on the cell number below.