The value-added tax implications of a foreign-take-over of a South African resident VAT vendor with specific reference to patents registered in the name of the South African vendor

Abstract

This study focuses, in the main, on the Value-Added Tax (“VAT”) consequences of a foreign takeover of a South African resident VAT vendor. One of the requirements for registration as a VAT vendor is that the vendor must carry on an enterprise. (Section 7(1)(a) of the Value-Added Tax Act 89 of 1991). This study considers whether the foreign takeover results in the local company ceasing its business activities in South Africa and no longer meeting the requirements for conducting an ‘enterprise’ for purposes of VAT. The effective date of the foreign takeover plays a key role in determining the local company’s output VAT liability upon deregistering for VAT.

This study further focuses on the accessibility and VAT implications of a patent registered in the local company. Patents are protected only in the country in which they are registered (Dean Introduction to Intellectual Property Law 239). If a South African patentee seeks protection for a patent outside South Africa, the patent must be registered in that country (Dean Introduction to Intellectual Property Law 239). When a foreign takeover happens it must be established whether the foreign entity automatically has access to the patent. The question then arises as to the VAT implications of the foreign take-over on the patent rights and whether an output VAT liability rests on the local VAT vendor in respect of the patent rights upon ceasing to be a VAT vendor as a result of the foreign take over.