Value Added Tax (VAT) is often a major headache for Rental Agents and Tenants. VAT is charged on goods and services and paid for by the end user. Certain goods and services are exempt from VAT.
Residential rent is expressly excluded from VAT. This means that ordinary residences, occupied by families for residential purposes, are not expected to pay VAT. An agreed monthly rental amount of R10000.00 means exactly that, pay R10000.00. This makes it easy for Landlords and Tenants to settle rental accounts between them. Also, a separate invoice is not strictly necessary and an ordinary running statement showing all transactions and a balance is sufficient.
Commercial Rent
The situation with Commercial Rent is at once substantially different and complex.
First, the Agent managing the commercial property is responsible for issuing a VAT invoice, but the VAT-able goods does not come from the Agent’s “stock” – the Agent issues an invoice on behalf of the Landlord.
Second, the Landlord must be registered for VAT in order to be able to issue a valid VAT tax invoice. Only registered VAT vendors can issue VAT invoices. This constitutes standard Output VAT in the books for the Landlord. As a registered VAT vendor, the Landlord is compelled to issue regular VAT invoices, regardless of the status of the Tenant.
Third, in order for the Tenant to be able to claim VAT, the Tenant must also be a registered VAT vendor. Only registered VAT vendors can claim VAT. This is processed as standard Input VAT in the books of the Tenant.
The Invoice itself is a standard VAT Tax Invoice. The normal requirements apply. The invoice issued on behalf of the Landlord must contain the Landlord’s registered name, the VAT registration number and full address. In order for the the Tenant to be able to claim the VAT, the Tenant’s registered name, the VAT registration number and full address are also required. Full financial details must be revealed. The Agent issuing the VAT invoice is merely a facilitator. VAT invoices are required by law to be issued once a month, every 21 business days.
Checklist
Need a VAT invoice for your rent? Check these items:
- Is the Landlord a VAT vendor?
- Is the Tenant a VAT vendor?
- Does the Lease Agreement identify the property and agreement as commercial in nature?
In the event that the Landlord is not registered as a VAT vendor, no VAT invoice can be issued.
In the event that the Tenant is not registered as a VAT vendor, no VAT may be recovered.
Only in the event that the Landlord is a registered VAT vendor AND the Tenant is a registered VAT vendor, a valid VAT tax invoice may be issued and the VAT recovered by the Tenant.
A potentially very unsatisfactory situation arises where the Tenant is registered for VAT and the Landlord is not. The Tenant would prefer to recover input VAT on the monthly lease invoice, but as no such invoice can be issued, VAT is not recoverable. This makes it important to verify the status of the Landlord prior to signing a lease agreement.
The VAT registration status of the Agent is irrelevant to the issuing of Commercial Lease VAT invoices.
-Dynamic