Verified for 2026 Tax Year

Buying or Selling a Business: GST

The "Going Concern" 0% rule. Learn why "Plus GST (if any)" is the most critical clause in your Sale and Purchase Agreement.

Buying a business is exciting, but the sale and purchase agreement needs careful GST wording. To avoid massive cashflow issues for purchasers, the IRD dictates that most business sales should be Zero-Rated (0%), meaning no GST actually changes hands between the buyer and seller.

The Going Concern Rule (Section 11(1)(m))

A business transaction must be zero-rated (0% GST) if it meets ALL of the following criteria:

1. Both the vendor and purchaser are GST registered.
2. They agree in writing that the supply is a going concern.
3. The supplier carries on the taxable activity up to the exact time of transfer.
4. The supply includes all things necessary for the purchaser to continue the activity (e.g., premises, equipment, goodwill).

What If You Get It Wrong?

This is a massive audit trap. If you treat the sale as 15% standard GST when it legally should be a 0% Going Concern, the consequences are severe.

Purchaser pays Vendor 15% extra by mistake

Vendor pays the 15% to the IRD

IRD REFUSES Purchaser's Refund Claim

The law says it MUST be 0%. The purchaser is now out of pocket 15% and has to sue the vendor to get their money back.

"Plus GST (If Any)"

This is the standard clause in most commercial agreements, and it exists to protect the vendor. If the IRD decides the transaction was NOT a going concern (e.g., because the premises lease wasn't actually transferred), the vendor can go back to the purchaser and demand the 15% GST to satisfy the IRD's assessment.

Asset Sales vs Share Sales

Asset Sale

Selling the physical equipment, goodwill, and stock of the business.

GST Rules Apply (Going Concern)

Share Sale

Selling the shares in the operating company itself.

Exempt Financial Service (No GST)

Warranty Claims

If you buy a business and later make a warranty claim against the vendor (e.g., the turnover was not what was promised in the financials), the payment you receive is generally taxable.

However, if the original sale was Zero-Rated as a Going Concern, the warranty payment may also be Zero-Rated. Always check with your accountant when negotiating settlement agreements.

Frequently Asked Questions

What is the Going Concern rule?

A business sale must be zero-rated (0% GST) if both parties are GST registered, they agree in writing it's a going concern, the seller operates it until transfer, and all necessary assets are included to continue operations.

What happens if we mistakenly charge 15% GST on a Going Concern?

If you treat it as 15% when it should be 0%, the IRD will refuse the purchaser's refund claim because the law dictates it MUST be zero-rated. The purchaser is left out of pocket and must recover the money from the vendor.

Why is 'Plus GST (if any)' important in a contract?

It protects the vendor. If the IRD later decides the transaction was NOT a going concern, the vendor can legally demand the 15% GST from the purchaser to pay the IRD.

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