Purchasing immovable property in South Africa as non - resident
There are various issues involved in purchasing immovable property in a foreign country which extend beyond the mere signing of contracts and documents and paying of money of which the aver-age non-resident interested in purchasing property is unaware, or would like to know, but is perhaps unsure who to ask.
To this end, we have put together a selection of questions frequently asked by non-residents that we trust will assist in clarifying these issues. In order to obtain a comprehensive idea of the processes involved in buying and selling property in South Africa, this brochure should be read in conjunction with our brochures Buying Property in South Africa and The Complete Guide to Buying and Selling Property in South Africa.
Are there any restrictions on non-residents buying property in South Africa?
The answer to this is a resounding NO, save for a prohibition on illegal aliens owning immovable propÂ¬erty in South Africa. Non-residents will of course be subject to the same laws and regulations as South Africans and it is compliance with these that ensure the efficiency of the S.A. land registration system and security of tenure.
Should the non-resident not wish to purchase the property in his or her own name but rather in the name of an entity, such an entity must be locally registered and meet the requirements inherent in registration of the chosen entity, such as those con-tained in the Companies Act.
For example, the non-resident may decide to own the property through share ownership in a company, membership in a close corporation (unique to South Africa) or as a beneficiary in a trust. In the event of a non-resident acquiring property in the name of an entity, funds brought into the country will represent a loan to the local entity and will require Exchange Control approval.
For the most part however, property is registered in the name of the purchaser as an individual. There may be specific reasons for taking transfer in the name of an entity and for a brief overview of these, kindly consult our Purchasers.
Guide to Alternate Entities for Acquiring Ownership Of Immovable Property.
Note that purchasers, will have to finalise their choice of vehicle for purchasing the property prior to signing any Offer to Purchase or Agreement 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.
Finally, a non-resident can purchase South African property over the internet without entering the coun-try. However, should the prospective purchaser intend residing in the property for any length of time, he or she will need to comply with the requirements of the Immigration Act and either have a valid permit to temporarily remain in the country or be in posses-sion of a permanent residency permit.
How can foreign funds be brought into SA for a property acquisition?
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-residentâ€™s benefit and the non-resident can rest assured that such a transfer is secure and guaranteed, as the operation of these trust accounts is regulated by the profes-sional boards overseeing the operations of both attorneys and estate agents.
When a non-resident transfers funds from a foreign source into a South African bank account, a record known as a ordeal 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 repatriation of the funds.
Can a non-resident open a bank account at a South African banking institution?
In order for a non-resident to service repayments on a mortgage bond, he or she will need to open a non-resident banking account which can either be done from abroad or from within the country. Again, certain documentation relating to the applicant identity will be required, ie. application form detailing name, passport number and address, certified copies of the relevant pages of the passport, and proof of source of income, such as a salary slip or pension statement. All copies will have to be originally certified. Once the bank account has been opened, foreign funds will have to be deposited immediately.
In certain circumstances, local currency can be deposited into the account, for example, rental income acquired from property belonging to the non-resident. This is dependent on the bank being in possession of a certified copy of the rental agreement. Obviously the rand value received on the sale of immovable property in South Africa can also be receipted into the non-resident account provided the necessary documentation is lodged prior to the deposit being made.
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 attor-ney 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:
1. 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);
2. Transfer fees;
3. Deeds Office levies, pro-rata rates and taxes/ sectional title levies;
4. The cost of obtaining a rates/levy clearance certificate.
Most of these costs are determined according to the purchase price of the property.
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 S.A. Exchange Control Regulations. If the non-resident owns property together with a S.A. resident, only his portion may be repatriated.
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 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 and this will be discussed more fully in due course.
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 individuals 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 10 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-residents 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 inheri-tance bequeathed to a surviving spouse is not sub-ject to estate duty. Non-residents, like South Africans, are entitled to a rebate of R2.5 million on their dutiable assets; however, unlike South Africans, this rebate is limited to assets situated in South Africa.
We trust that the aforegoing has addressed at least some of the questions and concerns that non-resi-dents interested in purchasing property in South Africa might have. However, should you wish to disÂ¬cuss any of these or other issues further, we urge you to contact one of our conveyancing attorneys on our 24 hour hotline service.
Disclaimer: The material contained in this article is provided for general information purposes only and does not constitute legal or other professional advice.
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