Legal Talk – Buying Property in South Africa as a Resident or Non-Resident (Part IV)
Buying Property in SA as a Resident or Non-Resident
(PART 4 OF A 4 PART SERIES)
WHO CHOOSES WHICH ATTORNEYS WILL ATTEND TO THE TRANSFER AND WHOSE INTERESTS ARE THE ATTORNEYS PROTECTING?
It is customary in South Africa for the seller of immovable property to nominate the attorneys who will attend to the transfer. Such attorneys then act for the seller and on his or her instructions. Consequently, in the event of a dispute between the seller and purchaser, the purchaser would have to seek independent legal advice. Note that whilst the seller selects the attorneys, the purchaser pays the transfer costs.
CAN TRANSFER AND BOND DOCUMENTS BE SIGNED OVERSEAS AND IF SO, WHAT IS THE PROCEDURE?
Yes. However, there are certain formalities that must be complied with. Documents can either be signed before a Notary Public or at the South African Embassy in that country, but this can be costly and time consuming. If a seller or purchaser is in South Africa at the time of the transaction but returning overseas shortly thereafter, it is advisable if at all possible to sign a special or general power of attorney in favour of a local friend or family member who will then be able to act on their behalf.
OTHER THAN THE PURCHASE PRICE, ARE THERE ANY OTHER COSTS FOR WHICH THE PURCHASER WILL BE LIABLE?
Yes. The purchaser is usually liable for the following costs:
- transfer duty, which is a tax levied on property and based on the purchase price,
(this is not payable if the seller is VAT registered);
- transfer fees;
- Deeds Office levies, pro-rata rates and taxes / sectional title levies;
- the cost of obtaining a rates/levy clearance certificate.
Most of these costs are determined according to the purchase price of the property. Please consult our tariff guide, by clicking on our legal cost calculator, for a full list of costs.
Further costs, including the attorney’s fees and bank charges such as the initiation and valuation fee, will be incurred if the purchaser registers a mortgage bond.
Once the purchaser takes transfer of the property or assumes the risk therein, he or she will be liable for all costs and associated risks. If the property is not bonded, it is in the purchaser’s best interests to obtain insurance. This is compulsory if the property is bonded and is normally arranged by the bank concerned.
ON SALE OF THE PROPERTY, CAN THE MONEY BE TAKEN OUT THE COUNTRY?
Understandably, this is without doubt the number one concern of non-residents considering investing in South Africa. The answer to this question is simply, yes. Money from a foreign source together with any profit, proportionate to that non-residents share holding in the property, may be repatriated in due course in terms of SA Exchange Control Regulations. If the non-resident owns property together with a SA resident, only his portion may be repatriated.
On transfer of the property to the non-resident purchaser, the title deed will be endorsed “non-resident” and/or a deal receipt retained by the banking institution when the foreign funds were originally introduced into the country. This facilitates the repatriation of the funds and profit on sale of the property, provided the bankers are satisfied that such profit is reasonable and market related. Obviously if the purchase was partially financed by funds borrowed in South Africa, that portion of the purchase price cannot be repatriated unless the bond has been settled in full.
Furthermore, if a foreigner takes up permanent residency in South Africa and signs a Declaration and Undertaking at a South African bank (namely declaring whether they are in possession of foreign funds and undertaking not to place same at the disposal of anyone resident in the Republic), they will be considered a resident for Exchange Control purposes and accordingly will only be able to repatriate funds within five years of their immigration. Thereafter they will be considered to be a South African citizen and subject to the same regulations and limitations.
Finally, the repatriation of funds will be subject to capital gains tax.
IS A NON-RESIDENT, LIABLE FOR PAYMENT OF ANY SOUTH AFRICAN INCOME TAX?
While South Africans are taxed on their worldwide income, non-residents are liable for income tax only on income accruing from a South African source. For example, if the property is rented, the rental income will be subject to South African income tax.
On disposal of the property, the non-resident will be liable for payment of capital gains tax. For property registered in the name of an individual, 25% of the profit will be taxed at the individual’s marginal income tax rate. The maximum marginal rate is currently 40%, which translates to a maximum flat rate payable of 10% of the capital gain.
Until recently, non-resident sellers were obliged to register as taxpayers in the year of disposal of their immovable property in South Africa. However, this was not being done and the SARS were not able to collect tax that was due and payable. Accordingly, measures have been introduced which will tighten the tax collection net considerably. In terms of new proposals to the capital gains tax legislation, an obligation will be imposed on any purchaser of property from a non-resident for a price exceeding R2 million to retain a percentage of the purchase price and to pay it over to SARS within 14 days of the date of transfer of the property. The amounts that will have to be retained are:
- 5% if the seller is a non-resident individual
- 7.5% if the seller is a non-resident company
- 10% if the seller is a non-resident trust
This payment will form an advance collection against the non-resident’s income tax liability for the year of assessment in which the property is sold.
Finally, it is important to note that a non-resident who has not permanently immigrated to South Africa will be considered a resident for income tax purposes if he or she spends more than a certain length of time within the country. This is known as the “physical presence test” and is calculated in terms of days spent in the country over a three year period.
No tax is levied on foreign pensions.
WHAT ABOUT ESTATE DUTY IN THE EVENT OF DEATH?
Estate duty is presently calculated at 20% of the dutiable amount of an estate. However any inheritance bequeathed to a surviving spouse is not subject to estate duty. Nonresidents, like South Africans, are entitled to a rebate of R3.5 million on their dutiable assets; however, unlike South Africans, this rebate is limited to assets situated in South Africa.
Courtesy: STBB Smith Tabata Buchanan Boyes
STBB Smith Tabata Buchanan Boyes is a firm of business-minded lawyers which was established in 1900. At present, the firm consists of over 100 professionals practising from 15 offices throughout South Africa.
Visit their website: www.stbb.co.za or contact them on: +27 (0) 31 583 8060
Disclaimer: The material contained in this article is provided for general information purposes only and does not constitute legal or other professional advice. We accept no responsibility for any loss or damage which may arise from reliance on information contained in this article. © Copyright STBB Smith Tabata Buchanan Boyes 2007. All Rights reserved