Ricochet News

Buying and selling a property in South Africa if you are a foreigner

By Adriané Sarah Ludorf – (B Juris, LLB, LLM (Taxation)) - Jun 13, 2019
Buying and selling a property in South Africa if you are a foreigner

There are no restrictions on foreign ownership of immovable property in South Africa, but there are however certain procedures and additional requirements that must be complied with and we will discuss this in more detail below:

  1. Before buying

Non-residents who are intending to stay in their South African property for long periods will need to comply with the Immigration Act, and may need to apply for a residence permit.

Non-residents, who are purchasing property in the name of a company or other legal entity that is registered outside of South Africa, will first have to register that entity in South Africa and appoint a local public officer.

  1. Signature of documents

Should the non-resident purchaser not be in South Africa to sign transfer or bond documents, such purchaser will need to have the documents signed either before a Notary Public, who (depending on the country of signature) may have to have the documents Apostilled, alternatively the purchaser could also sign the necessary documents at a South African Embassy.

Please bear in mind that the spouse of a non-resident, whose marriage is governed by the laws of another country, will, regardless of the foreign marriage regime, have to co-sign the agreement of sale and the transfer and bond documents.

  1. Costs to be aware of

Non-residents are, as is the case with South African residents, liable for the payment of transfer duty, should the value of the property exceed R900 000.00. Properties purchased from developers on the other hand, will generally attract Value-Added Tax (VAT) as opposed to transfer duty and the VAT sum will be included in the purchase price.

Non-residents will also be liable for the ordinary costs of transfer (fees) that are payable by purchasers, to the transferring and/or bond registration attorneys, when purchasing property.

  1. Financing

Non-residents can borrow funds from South African banks to pay for the property, but South African Exchange Control Regulations will however determine the extent to which non-resident buyers can borrow money locally, to fund the purchase.

  1. How can foreign funds be brought into South Africa for a property acquisition

Foreign funds must come into South Africa via the Reserve Bank. Foreign funds can be paid into any nominated bank account in South Africa. This account will usually be the trust account of the estate agent or transferring attorneys into which the deposit for the property and the balance of the purchase price is paid.

These funds will be invested for the non-resident's benefit and the non-resident can rest assured that such a deposit is secure and guaranteed, as the operation of these trust accounts are regulated by the professional boards overseeing the operations of both attorneys and estate agents.

If the money is deposited into an attorney's trust account, the client will be required to sign a specific instruction form, directing the attorney to invest the money and requesting the interest thereon to accrue to the non-resident (less any administration fees and a legislated amount payable to the Legal Practice Council). Failing such an instruction, interest earned will accrue to the Legal Practice Council.

When a non-resident transfers funds from a foreign source into a South African bank account, a record known as a "deal receipt" is kept of the foreign funds received by the South African bank. This is an important document which must be retained for purposes of the repatriation of the funds, when the property is sold in future.

  1. On sale of the property, can the funds be repatriated abroad?

Money from a foreign source together with any profit, proportionate to that non-resident's shareholding in the property, may be repatriated in due course in terms of South African Exchange Control Regulations.

On transfer of the property to the non-resident purchaser, all deal receipts, a copy of the agreement of sale together with the conveyancer's final statement of all costs, must be retained by the non-resident purchaser for the duration of his ownership and will have to be presented to the Reserve Bank upon the sale of the property, when the proceeds are to be repatriated back abroad. This facilitates the repatriation of the funds and profit on sale of the property.

  1. Capital Gains Tax

South African residents are liable for the payment of Capital Gains Tax ("CGT") on the disposal of any capital asset, subject to certain limited exceptions. Non-residents are also liable to pay CGT on the disposal of immovable property situated in South Africa, including any right or interest in immovable property.

(This also includes an interest of at least 20% in a company where 80% or more of the value of the net assets of the company is attributable, directly or indirectly, to immovable property in South Africa).

The capital gain is calculated and disclosed in the individual's income tax return for the year in which it is sold. Thus, if a non-resident disposes of immovable property in any year of assessment and is not already registered as South African taxpayer, he will have to register as such and submit an income tax return reflecting the calculation of the capital gain and will be liable for the payment of CGT on that gain.

  1. Withholding Tax

An obligation relating to the withholding of a percentage of the sale proceeds from non-resident sellers was introduced into our tax laws in 2007.

This provision requires that, where a non-resident sells a property for more than R2 000 000.00, the purchaser/conveyancer must withhold provisional CGT from the proceeds and pay such funds to SARS.

The withholding tax that must be withheld is as follows:

  • 7.5% of the purchase price in the event of a natural non-resident seller;
  • 10% of the purchase price in the event of a foreign company; and
  • 15% of the purchase price in the event of a foreign trust,
  • unless a specific CGT directive is applied for, prior to transfer of the property being registered.
  1. Consult with legal experts before purchasing property as a foreigner

When purchasing property as a non-resident, it is important to partner with a team of experts you can trust.

For advice regarding Conveyancing and Property Law, contact Goldberg & de Villiers Inc.

Adri Ludorf -adri@goldlaw.co.za

Tracey Watson-Gill –twg@goldlaw.co.za

Bardine Hall –bardine@goldlaw.co.za

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