Timing is everything!

If on a sale of property the option is elected for, VAT is payable on the sales price (less the value of the land) at the normal rate of 8%. As in most cases the amount involved runs into millions, the VAT payable can easily exceed a million. It is therefore important to consider also the due date of the VAT and when entitlement to the input tax deduction accrues.

If reporting on the agreed consideration basis – the reporting method chosen by most taxpayers – the VAT liability accrues on invoicing. On a sale of property the official notarisation takes the place of the invoicing. The date the contract is signed before the notary is therefore crucial. When the transaction is entered in the Land Register and when benefit and risk pass are not relevant.

From the seller’s viewpoint the date of notarisation and the due date of the purchase price should ideally be so fixed that the seller has already paid the VAT before the seller has to pay it to the FTA. From the purchaser’s viewpoint the purchase price – and with it the VAT – should ideally not be due until he has received reimbursement of the VAT from the FTA.

If one wants to combine the interests of both parties as ideally as possible, the notarisation date should be fixed for the end of the quarter. The seller must deliver the VAT to the FTA 60 days after the end of the quarter. The purchaser can claim the input tax immediately and receives payment of the resulting input tax deduction surplus from the FTA 60 days after submitting the declaration. If the due date of the VAT on the purchase price is fixed at 60 days after notarisation, the VAT remains with the FTA only a few days before the purchaser can re-claim it as input tax. Always on the assumption that he files the declaration immediately after the end of the quarter.

It is of course possible to use these considerations to represent the interests of one party unilaterally. For example from the seller’s viewpoint it would be ideal, if the sale is notarised at the beginning of the quarter and the purchase price (incl. VAT) is due immediately. Then the seller holds the VAT for 150 days, before he has to deliver it to the FTA.   In this case the purchaser can claim the VAT as input tax deduction, but does not receive the money from the FTA until 60 days after submitting the quarterly return.

For property gains tax it is not the date of notarisation, but entry in the Land Register that is the relevant date. The right timing must therefore be chosen taking into account all taxes and other non-tax aspects.