THE CONVEYANCING PROCESS FOR SOUTH AFRICAN PROPERTY PURCHASES CAN BE DAUNTING FOR NON-RESIDENTS. THE BELOW FREQUENTLY ASKED QUESTIONS MAY HELP WITH YOUR UNDERSTANDING OF THE PROCESS.
FOR ANY OTHER QUESTIONS REGARDING NON-RESIDENT OWNERSHIP OF PROPERTY IN SOUTH AFRICA, IT WOULD BE ADVISABLE TO CONTACT OUR TRANSFERRING ATTORNEYS SMITH TABATA BUCHANAN BOYES.
Foreign buyers may fund the property acquisition wholly with foreign funds introduced into the country by means of electronic fund transfer. Unfortunately, foreign-drawn cheques at a bank in South Africa and similarly, foreign-drawn guarantees, are usually not acceptable to secure the payment of the purchase price.
Foreign buyers may also apply for local mortgage bonds which are limited to 50% (or 75% in limited circumstances) of the purchase price if the non-resident obtained a permanent resident visa. In these circumstances, the balance of the purchase price must be paid with foreign funds.
For a property transaction to be processed, signatures are required by both the seller and the purchaser on various documents. It is not necessary for a foreigner to be physically present in South Africa to sign their transfer documents but in such instance, it is advisable to prepare and sign a General Power of Attorney enabling a third party in South Africa to sign the necessary documentation on the foreigner’s behalf.
Documents can be signed outside of South Africa provided they are duly authenticated. This means that they need to be signed at the offices of a South African embassy or before a Notary Public in that country.
The attorney appointed in the sale agreement to register the transfer of ownership will appear before the Registrar of deeds and sign the title deed whereby ownership is passed. It is not necessary for the non-resident purchaser to be present in South Africa at the time. He will be notified of the registration of the transaction by the attorney.
Foreign sellers may transfer the full proceeds from the sale of immovable property out of South Africa provided that the following conditions are complied with:
- Compliance with the Exchange Control Regulations as governed by the South African Reserve Bank;
- All sums still owing under a mortgage bond over the property having been settled immediately prior to or on transfer; and
- All Exchange Control regulations have been complied with.
Although South Africa’s exchange control provisions are quite strict, the standard rule of thumb is that if the foreign seller can prove that the funds used to acquire the property was either wholly introduced from a foreign source, or partially from a foreign source with the remainder of the funds secured by way of a local mortgage bond, the non-resident will be allowed to the transfer the full proceeds realised abroad, less a withholding tax ranging from 5% – 10%, which applies when the proceeds per person is in excess of R2million.
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. In addition, a non-resident is liable for payment of capital gains tax on the disposal of a South African property.
Finally, it is vital 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 period 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.
It is vitally important that the below documents are obtained when the property is acquired and are retained for the day when the repatriation application is to be submitted for exchange control approval:
- Deal Receipt – proof from the South African bank that purchase funds were received from a foreign source;
- The conveyancer’s final statement of account;
- A copy of the title deed.