Guide to buying Property as a Non-Resident

 

GUIDE TO BUYING PROPERTY AS A NON-RESIDENT

Guide to Capital Gains Tax

Guide to Mortage Bonds

Guide to Property Vehicles and Tax

Guide to buying Property as a Non-Resident

Guide to Conveyancing

Nothing prohibits a non-resident from buying or selling immovable property in South Africa. In the event of a non-resident selling his property, he will be permitted to repatriate his original capital plus profit at any time. At the time of repatriation of funds, the fact that the funds were imported into the Republic, will have to be proved. Non-residents are furthermore permitted to obtain mortgage bond financing up to a maximum of 50% of the purchase price of the immovable property.

 

Immovable property is mostly registered in the name of the purchaser as an individual. There may be specific reasons for taking transfer in the name of a specific entity and for a brief overview of these, kindly consult our GUIDE TO PROPERTY VEHICLES AND TAX.

 

You will have to finalise your choice of property vehicle for purchasing a property prior to signing any Deed of Sale, as no changes can be made at a later date without the possibility of penalties being imposed and resultant delays in the transaction.
 

 

WHO IS A NON-RESIDENT?

 

A non-resident is a person who is not a resident of South Africa. A natural person can be a resident due to one of the following reasons:

 

If his/her permanent home to which he/she will normally return, is in South Africa.
 

If he/she complies with the physical presence test. This test consists of three requirements: i.e. the person must be physically present in South Africa for a period exceeding-
    (i) 91 days in aggregate during the year of assessment under consideration
    (ii) 91 days in aggregate during each of the five years of assessment preceding the year of assessment under consideration; and
(iii)

915 days in aggregate during the five years of assessment.

 

A natural person has to meet all three requirements before that person will be resident. The year of assessment starts on 1 March and ends on the last day of           February in the following year:

In terms of the physical presence test, a person who is not ordinarily a resident in South Africa becomes a South African resident with effect from the first day of the sixth year of assessment if he/she is physically present in South Africa for the periods as set out above. The purpose of the presence is irrelevant. A day is therefore counted even if the presence is, for example, for the purposes of a holiday, visiting friends or a funeral.

Legal entities like Companies, Close Corporations and Trusts, are considered resident in SA if the entity was incorporated, established or formed in SA, or if the effective place of management is in SA.

In certain instances the SA government may deem a legal entity to be exclusively a resident of another country in terms of an agreement concluded with that other country with the purpose of avoidance of double taxation.

FORMALITIES

The South African property registration system is of a very high standard and ensures that ownership after registration is secure. Transfer of properties is handled by a specialist attorney known as a conveyancer. Such conveyancer is appointed by the Seller, but open to negotiation.

The conveyancer will require both purchaser and seller to sign certain documentation, pay transfer duties and local government taxes, and draft final documents for registration purposes. The above, together with mortgage bonds to be cancelled and new mortgage bonds to be registered, will then be lodged in the Deeds Office, who will subject all documents to an intense examination process whereafter they will be transferred. This whole process ensures that the new owner’s title deed of ownership is valid and that any liabilities in respect of the property incurred by the previous owner, remain with him.

COST

The cost of procuring an electrical compliance certificate in respect of the property, is customarily payable by the Seller.

The Purchaser is customarily responsible for the following cost:

 
 

Professional fees of the conveyancer, calculated in accordance with recommended guidelines of the Law Society;
 

A pro-rata portion of local authority rates and taxes, calculated for a maximum of one year ahead;
 

Transfer duty, calculated as follows, based on the purchase price and which is also available on our website:

 
   
VALUE OF PROPERTY (R) RATE
R0 – R1 000 000 0%
R1 000 001 - R1 375 000 3 % on the value above R1 000 000 but not exceeding R1 375 000
R1 375 001 - R1 925 000 R11 250 plus 6 % on the value above R1 375 000 but not exceeding R1 925 000
R1 925 001 – R2 475 000 R44 250 plus 8% on the value above R1 925 000 but not exceeding R2 475 000
R2 475 001 – R11 000 000 R88 250 plus 11% on the value above R2 475 000 but not exceeding R11 000 000
R11 000 001 and above R1 026 000 + 13% of the value exceeding R11 000 000
   
 

A pro-rata portion of local authority rates and taxes, calculated for a maximum of one year ahead;
       

 
 

CAPITAL GAINS TAX (CGT) ON DISPOSAL OF PROPERTY

CGT is not a separate tax, but forms part of the income tax system and is a tax on capital gains. CGT is only applicable to the disposal or deemed disposal of an asset on or after 1 October 2001.
 

Currently, non-residents are liable to CGT on the taxable gain made on the disposal of the following assets:
 
 

Immovable property situated in South Africa (e.g. land and buildings);
 

Any right or interest in immovable property in South Africa (e.g. long term lease)
 
Assets of a permanent establishment (e.g. a branch of a foreign company) situated in South Africa.
 

Shares in a company where 80% or more of the market value of its net assets comprises immovable property in South Africa, and the non-resident holds directly or indirectly 20% or more of the shares in the company;
       

A capital gain in respect of the disposal of an asset during a year of assessment equals an amount by which the proceeds received or accrued in respect of such disposal exceeds the original cost of that asset.

In the case of natural persons, only 40% of the net capital gain, is included when calculating the tax payable. For companies, close corporations and trusts, 80% of the net capital gain on the disposal of an asset is included in taxable income.

Natural Persons

2020

 

Taxable income (R)

Rates of tax (R)
R1 – R205 900 18% of taxable income

R205 901 – R321 600

R37 062 +26% of taxable income above  R205 900

R321 601 – R445 100

R67 144 +31% of taxable income above  R321 600

R445 101 – R584 200

R105 429 +36% of taxable income above R445 100

R584 201 – R744 800

R155 505 +39% of taxable income above R584 200

R744 801 – R1 577 300

R218 139 +41% of taxable income above R744 800

R1 577 301 and above

R559 464 +45% of taxable income above R1 577 301

 

TRUSTS OTHER THAN SPECIAL TRUSTS:
RATE OF TAX  45 %  
   
REBATES  
Primary  R14 958
Secondary   (Person 65 and older) R8 199
Tertiary (Person 75 and older) R2 736
   
TAX THRESHOLD  
Below age 65  R83 100
Age 65 and over R128 650
Age 75 and over R143 850

 
 

If the fixed property is held as trading stock the proceeds fall into gross income if they are from a South African source.
Generally the originating cause of income received or accrued from the sale of immovable property is the immovable property itself and the source is therefore located in the country in which the property is situated
 
In terms of the double tax treaties income of this nature would fall to be dealt with in terms of the business profits article. Article 7 of the OECD model convention provides that the profits of an enterprise of a contracting state shall be taxable only in that state unless the enterprise carries on business in the other state through a permanent establishment.
 
So for example if a Swiss resident sells fixed property situated in South Africa as trading stock, the profit will be taxable only in Switzerland unless such person carries on his business through a permanent establishment in South Africa in which case South Africa may also tax the profit.
 
The information contained in this Guide provides a brief summary of the principles applicable to the purchase of immovable property by non-residents. It is highly recommended that any non-resident purchaser consult one of our expert property and tax attorneys prior to making any Offer to Purchase. This will enable us to assist you, having due regard to your individual circumstances.
 
There are certain restrictions on loans by South African banks to non-residents. For a brief overview of this, kindly contact our GUIDE TO MORTGAGE BONDS.
 
 
 

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