The sale of assets from one vendor to another often raises questions as to the application or otherwise of section 11(1)(e) of the Value Added Tax Act, No. 89 of 1991 and which sees the sale taking place at the zero rat for Value Added Tax purposes. The contract of sale is therefore almost always drawn up with what is, in most cases, nothing more than a standard few clauses, inserted to the effect to that the sale is one of a going concern and that where the sale is not one of a going concern, the purchaser will be held liable for VAT on the selling price.
The provisions of section 11(1)(e) of the Value Added Tax Act should be very carefully considered as there are major risks associated with getting it wrong, not the least of which is liability for penalties and interest and which could be as high as 210% of the VAT not paid as a result of incorrect reliance on the zero rate. No matter how well the contract of sale is drawn up, the liability for penalties cannot be waived by contractual arrangement.