Should output VAT be levied on the sale of a franchise?
15 January 2015
Posted by: Author: SAIT Technical
Author: SAIT Technical
Q: A client of mine is
a new franchisor and is in the process of selling his first franchise. Should
he charge output vat on the sale of franchises? Please could you assist me on
With regards to the query a franchise agreement was defined in U-drive
Franchise Systems (Pty) Ltd v Drive Yourself (Pty) Ltd 1976 (1) SA 137 (D) at
'those 'chain style' C operations in which the owner of a national
brand product or service sub-contracts to permit a local dealer or person to
use his brand name and agrees to provide advertising and know-how services,
equipment and other benefits to the franchisee for the purpose of running his
Such agreements therefore can entitle the purchasing franchisee to services
or incorporeal goods. Section 7(1)(a) imposes VAT on all goods and services
supplied by the vendor. "Services” in section 1 VAT Act include all things done
or to be done.
The sale of franchises by a franchisor to franchisees in the furtherance on
an enterprise would in our view constitute a taxable supply subject to VAT.
In SARS VAT News 13 (1999) it indicated that franchise fees would be
subject to VAT.
Nothing in this query and answer should be construed as constituting tax advice
or a tax opinion. An expert should be consulted for advice based on the facts
and circumstances of each transaction/case. Even though great care has been
taken to ensure the accuracy of the answer, SAIT do not accept any
responsibility for consequences of decisions taken based on this query and
answer. It remains your own responsibility to consult the relevant primary resources
when taking a decision.