March 01, 2024
Non-residents purchasing property in South Africa: Exchange control and tax
South Africa has it all, beautiful rolling hills, undisturbed coastlines nestled next to the warm Agulhas current, winelands, game reserves and even a small snow ski in the middle of the country during winter.
Especially with the work from anywhere revolution that was fuelled by the covid-19 pandemic, foreigners are increasingly seeing the value of purchasing property in South Africa as either a second home, a holiday home, or an investment property.
Foreigners are referred to as non-residents, whether they be natural persons or legal entities whose normal place of residence, domicile or registration is outside the common monetary area of South Africa.
Property can be owned individually, jointly in undivided shares or by an entity such as a company, close corporation or trust or a similar entity registered outside South Africa.
There are certain procedures and requirements which must be complied with and this article provides some insight into Exchange Control and Tax for foreigners purchasing property in South Africa.
All funds introduced from outside South Africa to acquire fixed property within South Africa may be repatriated together with any profit on resale of the property, after deduction of any Capital Gains Tax payable, and provided the non-resident is able to provide proof of introduction of funds from offshore when the property was originally purchased. Similarly, funds introduced to acquire shares in a company/member’s interest in a close corporation may be repatriated together with any profit on resale, provided the relevant securities/share certificates have been endorsed “non-resident”. Funds introduced into South Africa from a non-resident in the form of foreign loan to fund acquisitions of corporate entities which own property in South Africa, may be repatriated in terms of the original loan approval by the South African Reserve Bank.
South Africa follows a revenue-based income tax system meaning that income earned from a South African source will be subject to ordinary income tax. Accordingly, any rental earned by non-resident in respect of South African properties will be subject to income tax and it is the responsibility of the non-resident to register as a South African taxpayer.
Capital Gains Tax (CGT)
Non-residents are only liable to pay CGT on the disposal of the following:
– Immovable property situated in South Africa, including any right or interest in immovable property.
– Assets of a permanent establishment of a non-resident through which trade is carried on in South Africa.
CGT is payable in the year in which the asset is disposed of and is calculated by adding 40% of the capital gain or profit to the individual’s income for that year. 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 an immovable property in any year of assessment and is not already registered as a South African taxpayer, he or she 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.
The maximum effective rate of CGT is 18% of individuals, 22.4% for companies and 36% for trusts.
Although not a tax in and of itself, a withholding tax applies to non-resident sellers of immovable property. When foreigners sell their property an amount of the sales price is withheld by the buyer/conveyancer which serves as an advance payment towards the foreign seller’s final South African income tax liability. This is only applicable where the amount payable by the purchaser is R2million and up. The balance after the tax liability is refunded to the foreign seller. This legislation was created to avoid tax evasion. The withholding tax amounts are: 7,5% of the amount payable if the seller is a natural person; 10% if the seller is a company; and 15% if the seller is a trust.
As Exchange control is a complex subject, non-residents are advised to consult with our expert FX team to assist with this process.
Whether you’re thinking of buying your dream home in South Africa or abroad, or simply need to make a foreign currency transfer, Currency Partners gives you access to the best pricing and service available in the market so you can make significant savings and enjoy the experience.
To speak to an expert in our specialist team, email email@example.com or call us on +27 21 203 0081.
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