Exchange Control / Withholding Tax
A “foreign buyer” is a:
• Non-resident (natural or legal entity) whose normal place of residence, domicile or registration is outside of SA;
• A SA resident who has lived abroad for more then 5 years, regardless of whether or not he/she has emigrated, is treated as non-resident (for purposes of obtaining finance to purchase property in SA);
• Illegal aliens are prohibited from buying immovable property in SA;
• All other non-residents are not restricted from owning property in SA, however, they are subject to certain restrictions in regard to obtaining finance to buy property in SA, in that a non-resident may borrow up to 50% of the purchase price on application to the SA Reserve Bank. However, if a non-resident has brought money in to the country over an extended period of time, this criterion may be waived subject to Reserve Bank approval.
Foreign Sellers / Withholding Tax
• All funds introduced from outside SA to acquire fixed property within SA may be repatriated together with any profit on resale of the property, provided that:
~ The non-resident can prove that funds for purchase were remitted from overseas;
~ The required CGT deduction is made; (non-residents will not qualify for the R2 million exemption if their primary residence is not in SA);
~ As from 1 September 2007 purchasers of property from non-resident sellers are obliged to retain a percentage of the selling price and pay it to SARS as a deposit for the Seller’s liability for CGT;
~ This law only applies where the purchase price of the property exceeds R2 million;
~ If the buyer is a SA resident, (s)he must pay within 14 days from the date on which the amount was so withheld, and if the buyer is a non-resident, within 28 days;
~ Aim: to ensure the efficient collection of CGT from non-residents who were often not registered as SA taxpayers and whose connection in the country is tenuous. The payment acts as an advance against the non-resident’s income tax liability for the year of assessment in which the property is sold;
~ The purchaser, estate agent and transferring attorney may not be guided by whether any CGT is payable – the 2 deciding issues are the price and the fact that the seller is a non-resident.
~ That the non-resident was not a former SA citizen who has failed to emigrate from SA in terms of the required regulations.
• The actual tax rate depends on whether the non-resident seller is:
A natural person - 5%
A company - 7,5%
A trust - 10%
• The tax is not charged on the full selling price all at once, but rather on each payment as and when it is paid from the buyer to the seller (if an installment sale is concluded)
(Note: payment of a deposit does not trigger the withholding tax);
• The foreign seller will be required to register as a South African taxpayer (and the withholding tax would then be set off against the final tax liability due to SARS);
• The law effectively holds the purchaser, estate agent and conveyancing attorney responsible for the withholding tax to be paid to SARS, as follows:
Duties of the Purchaser
• The obligation arises if the purchaser knew (or should reasonably have known) that the seller is a non-resident, to deduct the amount from each payment to the seller and pay it across to SARS within the required time period (interest will be levied for late or non-payment);
• The purchaser is personally liable to pay the amount to SARS irrespective of whether or not it was withheld from the Seller;
Duties of the Estate Agent or Conveyancer
• Where the agent or conveyancer knew (or should reasonably have known) that the seller was a non-resident, (s)he has the responsibility of notifying the purchaser in writing;
• Should the agent or conveyancer fail to give such notice, the withholding obligations will fall upon them with the purchaser for the amount that is required to be withheld and paid to SARS – although their liability will be limited to their fees or other payments due in respect of services rendered in relation to the transaction.
Who is a “Non-resident” Seller
• In practice it is often difficult to determine whether a seller is a non-resident or not for tax purposes, and it may become a feature of the sales process to require sellers to sign a formal declaration or affidavit on their residency status, in order to clear up any questions regarding residency for tax purposes.
• The obligation on the purchaser is to withhold the tax and the obligation on the estate agent/conveyancer is to notify the purchaser in writing of the non-resident status of the seller.
• The purchaser, estate agent or conveyancer may recover the amount paid in terms of this section from the seller.
SARS Directive for Seller
• The seller may apply to SARS for a directive to prevent or reduce the withholding tax payable, and where SARS is satisfied that the seller has sufficient other assets or security in SA, it may issue such a directive;
• Once the purchaser has the directive, (s)he need only withhold an amount equal to the amount set out in the directive.