By Lovemore Ndlovu, SARS and Exchange Control Specialist, and Martin Bezuidenhout, Expatriate Tax Attorney at Tax Consulting SA
Tax Non-Residents can acquire and sell South African immovable property in South Africa as there are currently no restrictions prohibiting them from doing so. The only restriction is that illegal aliens may not own immovable property in South Africa. The various implications of acquiring and selling property in South Africa as a tax non-resident shall be discussed as well as the limitations of obtaining credit for the purpose of acquiring property.
Requirement of a tax reference number
It is important to note that both the seller and purchaser must be registered as taxpayers with SARS. The seller and purchaser need to submit a transfer duty declaration to obtain a Transfer Duty receipt or exemption certificate from SARS, which is a requirement for registration of the immovable property in the Deeds Office.
Witholding tax in terms of Section 35A of the Income Tax Act
With reference to Section 35A of the Income Tax Act, if the seller in respect of the sale/disposal of immovable property is not a tax resident of South Africa, the purchaser of the said immovable property must withhold a percentage of the said contribution. This ‘withholding tax’ is only withheld if the contribution by the purchaser is equal or more than R 2 000 000.00. 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 of the property.
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 instances:
- 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 a period 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.
It is important to note that 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 Gain Tax, are met.
Transfer duty will be payable in terms of the Transfer Duty Act on the purchase price on the following scaling:
Capital Gains Tax
Capital Gains Tax is payable on any capital gain made with the sale of a property. There is an annual R40 000.00 exclusion, as well as a R 2 000 000.00 Capital Gains Exemption if the property is a primary residence as defined in the Income Tax Act.
However, non-residents should be cognizant of the fact that the R 2 000 000.00 exemption will not be applicable to them.
It is worth noting that although the Treasury’s legislative changes brought some change to the ‘emigration’ process, as a non-resident both for Exchange Control and Tax purposes, when buying the property in your personal name through a bond, the home loan will still be approved at a 1:1 ratio, i.e., 50% loan to value. This means for every R1 in cash or assets that you introduce or own, you may borrow an equivalent amount in the local market.
In layman terms, the banks will lend up to 50% of the property purchase price as a home loan to non-residents whether emigrated under the old or new regime.
Banks would first consider the value of one’s remaining South African assets and try to use that as a capital base to support the lend. If one does not have any remaining South African assets or has externalised all of them, banks would then revert to the 50% loan to value lending.
An option one may want to consider
Those who may not afford availing 50% of the purchase price as a ‘home loan deposit’ may consider using their SA private companies and or trusts to purchase properties. South African private companies and trusts are seen as resident entities, which means that lending restrictions do not apply to them.