The sale of an enterprise as a going concern can be zero-rated for VAT, but only where a specific set of conditions is satisfied — including that both parties are registered vendors, that the agreement is in writing, and that the parties agree in writing at the time of contracting that the enterprise is disposed of as a going concern. Fail any one of them and the supply is standard-rated at 15%, on a price that was almost certainly negotiated without it.
On a R6 million business sale, that is R900,000 nobody budgeted for. It is the most expensive VAT mistake a small business owner is likely to make.
What does zero-rating actually achieve?
Cash flow, principally — and it is enormous.
If the sale is standard-rated, the seller charges 15% on top of the price. The buyer has to fund that VAT at transfer and then claim it back on a later return. On a R6 million deal that is R900,000 the buyer must find, weeks or months before recovering it.
If the sale is zero-rated, nothing changes hands for VAT and there is no claim to make.
Which is why almost every business sale is structured to qualify — and why getting the conditions right is not a technicality but the deal.
The conditions, in broad terms
They must all be met. Missing one is fatal.
| Condition | What it means in practice |
|---|---|
| Both parties are registered VAT vendors | The buyer must be registered at the time of the supply, not shortly afterwards |
| The agreement is in writing | A verbal deal cannot be zero-rated |
| The parties agree in writing that it is disposed of as a going concern | An express statement in the agreement — not an inference |
| The enterprise is an income-earning activity at the time of transfer | A business that has stopped trading is a problem |
| The assets necessary for carrying on the enterprise are disposed of | You cannot keep back what the business needs to run |
| The consideration is agreed as inclusive of VAT at the zero rate | Stated in the agreement |
Confirm the current requirements with SARS or your practitioner before signing. The provisions are specific, they are applied strictly, and the amounts at stake justify getting a proper opinion rather than relying on an article — including this one.
Where deals actually fail
Four recurring problems, and all four are avoidable.
The buyer is not registered yet
The most common failure by a distance.
A buyer forming a new company to acquire the business applies for VAT registration and assumes it will be through by transfer. SARS registration timing is not something you control, and a buyer who is not a registered vendor at the time of supply cannot receive a zero-rated going concern.
Start the buyer's VAT registration long before the transfer date, and make the transfer conditional on it being in place. See the VAT registration threshold.
The agreement does not say the right things
The written agreement must record that the parties agree the enterprise is disposed of as a going concern, and that the price is inclusive of VAT at zero per cent.
An agreement drafted without those provisions does not qualify, however obviously the parties intended a going concern sale. This is why business sale agreements should be drafted by an attorney who does them regularly.
Assets are held back
"I am keeping the delivery vehicle" or "the property is being retained" can break it, where those assets are necessary for carrying on the enterprise.
Work out what the business genuinely needs to operate and be careful about carve-outs. A separate arrangement over a property is a common structure and it needs to be thought through, not improvised late in the negotiation.
The business has stopped trading
A business that closed three months ago and is being sold as a collection of assets is not a going concern. It is an asset sale, and asset sales are standard-rated.
What if it does not qualify?
Then it is a standard-rated supply of the assets and the VAT is real.
The seller must account for output VAT on the consideration. The buyer claims input VAT on a later return, provided they are registered and hold a valid tax invoice.
Two consequences worth planning for:
The cash gap. The buyer funds the VAT now and recovers it later. Whether the agreement makes the price VAT-inclusive or VAT-exclusive decides who carries that — and an agreement silent on the point is where litigation starts.
A refund of that size attracts attention. A large input claim on a business acquisition is exactly the kind of return SARS verifies. Keep the agreement, the tax invoice and the transfer documentation together. See why is SARS holding your VAT refund.
What about the rest of the tax on a business sale?
Zero-rating deals only with VAT. It says nothing about the rest, and the rest is where most of the tax actually sits.
Capital gains tax on the disposal, depending on what is sold and by whom.
Recoupments on assets sold above their tax value where allowances were previously claimed. This surprises sellers regularly — a fully depreciated asset sold for real money produces taxable income, not a capital gain.
The share sale versus business sale question, which changes the entire tax picture. Buyers usually prefer a business sale for the cost base and to leave historical liabilities behind. Sellers frequently prefer a share sale. That tension is a negotiation, not an accident.
Take advice early. The structure decides the tax, and by the time the agreement is signed the structure is fixed. See what is a share buyback and buying a business: the CIPC checks to run first.
A sequence that works
1. Decide share sale or business sale, on advice, before negotiating price. The answer changes the number.
2. Establish both parties' VAT status. If the buyer is not registered, start immediately.
3. Have the agreement drafted by an attorney, including the going concern and zero-rating provisions in the required terms.
4. Identify everything necessary to carry on the enterprise, and make the carve-outs deliberate.
5. Confirm the business is still trading at transfer.
6. Model the tax on both sides — VAT, CGT, recoupments — before signing.
7. Keep the documentation, because a verification is likely.
Frequently asked questions
Can the sale of a business be zero-rated for VAT in South Africa? Yes, where the enterprise is disposed of as a going concern and all the statutory conditions are met — including that both parties are registered vendors, the agreement is in writing, and the parties agree in writing at the time of contracting that it is a going concern disposal.
What happens if the going concern conditions are not met? The supply is standard-rated at 15%. On a R6 million sale that is R900,000 the buyer must fund at transfer and recover on a later return — on a price that was almost certainly negotiated without it.
Does the buyer have to be VAT registered? Yes, at the time of the supply. A buyer whose registration is still in process cannot receive a zero-rated going concern, and this is the most common reason deals fail the test.
Can I keep some assets out of the sale? Be careful. The assets necessary for carrying on the enterprise must be disposed of. Holding back something the business needs to operate can break the zero-rating.
Can a business that has stopped trading be sold as a going concern? Generally no. A business that has ceased operating is being sold as a collection of assets, and asset sales are standard-rated.
What must the sale agreement actually say? That the parties agree the enterprise is disposed of as a going concern, and that the consideration is inclusive of VAT at the zero rate. An agreement that does not say so does not qualify, however clear the intention.
Is zero-rating the only tax issue on a business sale? No, and it is not the largest. Capital gains tax and recoupments on assets sold above their tax value usually matter more, and the share sale versus business sale decision changes the whole picture.
When should I take advice? Before negotiating price. The structure decides the tax, and once the agreement is signed the structure is fixed.
The conditions have to be met before you sign, not afterwards
There is no way to retrofit a going concern zero-rating onto an agreement that did not contain the right provisions, or onto a buyer who was not registered on the day. It is one of the few tax outcomes in a business sale that is decided entirely by paperwork completed in advance.
Smartbook works alongside your attorney on business sales — confirming VAT status on both sides, modelling the VAT, CGT and recoupment position before the price is agreed, and keeping the documentation a verification will ask for.
See monthly accounting plans →
Last reviewed: 28 August 2026. Written by the Smartbook team — SAIPA and SAICA accredited, SARS registered tax practitioners. The going concern zero-rating conditions are specific and strictly applied, and the amounts at stake are usually significant — obtain a written opinion and have the agreement drafted by an attorney before signing. General guidance, not advice on your circumstances.
Primary sources: SARS — Value-Added Tax · Value-Added Tax Act 89 of 1991 · SARS — VAT 404 Guide for Vendors · Income Tax Act 58 of 1962