The VAT treatment of joint venture interests

13 Mar 2015 2 min read Tax Alert Article

Substantial uncertainty has arisen over the last few months pursuant to the Value-added Tax (VAT) treatment of interests in unincorporated joint ventures. This has especially become relevant in the context of property owners owning an undivided interest in property and forming a joint venture so as to lease the property to third parties. From a strict legal perspective, the joint venture may have had to register as a separate vendor in terms of s51 of the Value-Added Tax Act, No 89 of 1991 (VAT Act), it being a body of persons. In this context the requirement is to register as a separate VAT vendor irrespective of the question whether a partnership is formed between the property owners.  

A specific problem arose pursuant to the disposal of the undivided interest in these properties by one of the owners. In itself this may not necessarily result in a sale of a going concern as it is not possible to lease the undivided interest in the property without the co-operation of the remaining owner of the undivided interest. It was thus not possible to make use of the corporate reorganisation rules in these circumstances. It was proposed as part of the 2015 Budget tax proposals to extend the relevant provisions of the VAT Act so as to recognise reorganisation in these circumstances. In other words, it may be possible to enter into reorganisation transactions in these circumstances without any additional VAT liability that will arise.

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