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South Africa Issues VAT Guide To Share Block Schemes

by Lorys Charalambous, Tax-News.com, Cyprus

01 April 2016


The South African Revenue Service has issued a general guide concerning the application of value-added tax (VAT) to "share block" schemes, and to the various types of supplies related to these schemes, in South Africa.

Share block schemes were set up to give flat-dwellers some legal rights to their properties. They grant shareholders in a company set up to possess the freehold title to the land/building the right to use a specific section of the building.

As shareholders living in the flats do not take ownership of the part of the building they occupy under the share block schemes, but only have equivalent shares in a company, such arrangements are now not as prevalent as "sectional title" ownership, under which flat-dwellers can now own a section of a building, together with joint ownership of the land.

The guide points out that, although the form of ownership under a share block scheme is different from sectional title, shareholders in a share block scheme are regarded, for all intents and purposes, as the "owners" of the underlying property to which their right of use relates. South Africa's VAT Act and Transfer Duty Act are therefore structured to take a similar approach. Irrespective of whether they concern a sectional title unit or share block company, supplies are taxed in a similar manner under both acts.

The guide deals with how VAT should be accounted for in respect of the different types of supplies made by share block schemes. It sets out the general rules with regard to classifying supplies, record-keeping, invoicing, and the documentation required.

It also provides a brief overview, with subsequent VAT implications, of the formation, conversion, termination, or deregistration of a share block scheme. This is considered important since the termination, conversion, or deregistration of a share block scheme may create a liability for VAT.

TAGS: South Africa | tax | value added tax (VAT) | revenue guidance | law | real-estate | tax authority | legislation | Africa

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