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Tax implications of property transactions involving non-residents

There are no restrictions on tax non-residents acquiring and selling immovable property in South Africa. However, buyers and sellers should be aware of the tax requirements when property is sold to non-residents.

In terms of section 35A of the Income Tax Act, if the seller of the immovable property is not a tax resident of South Africa, the purchaser must withhold a percentage of the gross selling price if it is equal or more than R2 million.

The percentage of the amount withheld will be determined by the entity owning the property. For example, 7.5% of the proceeds must be withheld if a natural person is the registered owner, 10% of the proceeds must be withheld if a company is the registered owner, and 15 % if a trust is the registered owner.

The funds must be paid to Sars within 14 days after the amount was withheld if the purchaser is a resident, and 28 days where the purchaser is a non-tax resident. The purchaser may be held liable if the amount is not withheld, if they had a reasonable suspicion that the seller is a non-resident.

The withholding tax can be reduced or exempted in the following cases:

  • If the seller can provide security in terms of any tax obligation arising out of the disposal of the immovable property, they can apply for a directive from Sars to exempt them from the section 35A withholding tax.
  • If the seller is not subject to tax in terms of the disposal immovable property, they may also apply for such a directive.
  • The seller can also apply for a directive if the tax liability at the time of disposal is less than the amount derived at if the percentages would be applied.

A natural person who is a non-resident will also be exempted from the withholding tax if they can prove to Sars that they were in South Africa for more than 183 days in total during the 12 months before the date when the interest is paid, and if the obligation is in connection with a permanent establishment of a registered taxpayer who is a non-resident.

The amount withheld in terms of section 35A is not set in stone, and the withholding tax payable can be exempted or reduced and is only done to ensure that the tax obligations, such as capital gains tax (CGT), are met.

Transfer duty

Both the seller and the purchaser must be registered as taxpayers with the South African Revenue Service (Sars).

The seller and the purchaser must submit a transfer duty declaration to obtain a transfer duty receipt or an exemption certificate from Sars. This is a requirement for registering immovable property in the Deeds Office.

If transfer duty is due, it will be paid on the purchase price in terms of the following scale:

R2m CGT exemption?

CGT is payable on any capital gain made with the sale of a property. There is an annual R40 000 exclusion, as well as a R2m exemption if the property is a primary residence as defined in the Income Tax Act. However, the R2m exemption does not apply to non-residents.

Restriction on lending to non-residents

As a non-resident, both for exchange control and tax purposes, when buying the property in your personal name through a mortgage bond, the home loan will be approved at a 1:1 ratio (50% loan to value). For every R1 in cash or assets that you introduce or own, you may borrow an equivalent amount in the local market.

In simple terms, the banks will lend up to 50% of the property purchase price as a home loan to non-residents whether they emigrated under the old or the new regime.

The banks will first consider the value of your remaining South African assets and try to use those as a capital base to support the lend. If you do not have any remaining South African assets, or you have externalised all of them, the banks will revert to the 50% loan-to-value lending.

Those who cannot afford 50% of the purchase price as a deposit can consider using their South African private companies and/or trusts to purchase properties. South African private companies and trusts are seen as resident entities, so the lending restrictions do not apply to them.

Lovemore Ndlovu is a Sars and exchange control specialist and Martin Bezuidenhout is an expatriate tax attorney at Tax Consulting SA.

Disclaimer: The views expressed in this article are those of the writers and are not necessarily shared by Moonstone Information Refinery or its sister companies.

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