Founded in South Africa
in 1976, Pam Golding International is today respected as South
Africa's leading residential real estate company. Over the
past 10 years the company has sold in excess of R1.169 billion
in property to non-South African residents and is internationally
recognised as having the most specialised resources as far
as providing a professional property service to foreign buyers
is concerned.
This success is as a result of the company's principles of
integrity and discretion, and the constant efforts, together
with entrenched alliances with independent legal and financial
professionals, towards keeping clients informed of the most
recent laws affecting non-resident investors. |
| Non-Residents |
| There are no
restrictions on property ownership by non-residents, save
for a prohibition on illegal aliens owning immovable property
within South Africa. There are, however, procedures and requirements
which must be complied with in certain circumstances, such
as, the local registration of entities registered outside
of South Africa where it purchases property in South Africa
and the appointment of a South African resident public officer
for a local company whose shares are owned by a non-resident.
In the event of a non-resident purchasing property in the
country with the intention of residing here for longer periods,
permanent residency will have to be applied for in accordance
with the given requirements and procedures of South African
law.
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| Purchasing Property In South Africa As A Foreigner |
| Property of
any kind in South Africa is normally purchased through a broker
or real estate agent who should be registered as a member
of the Estate Agents Board.
The South African Reserve Bank refers to foreigners 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.
Should the non-resident be paying cash for the property, the
transaction can be processed without intervention from the
South African Reserve Bank.
Non-residents purchasing a property in South Africa may borrow
up to a maximum of 50% of the purchase price in South Africa;
the other 50% of the funds must be brought into the country
by the purchaser and transferred from a recognised foreign
bank to a bank in South Africa. The total amount that may
be borrowed is at the discretion of the commercial bank offering
the loan and Pam Golding International can assist in this
regard using our in-house Mortgage consultants.
Non-residents who are in possession of a valid South African
work permit are considered to be residents for the duration
of their work permit and are therefore not subject to borrowing
restrictions placed on non-residents without work permits.
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| Legal Documentation |
| All contracts
to acquire land must be in writing, contain certain prescribed
information and be signed by both buyer and seller to be valid
and legally binding. Contracts most commonly take the form
of an Agreement of Sale or Offer to Purchase.
Once an Agreement of Sale has been signed by both parties
it represents a valid and binding document from which neither
party can withdraw without legal consequences, save for certain
instances where:
• the agreement is subject to certain conditions which
are either fulfilled/not fulfilled;
• the purchase price is less than R250 000 and certain
additional criteria in terms of the
Alienation of Land Amendment Act are present entitling
the Purchaser to "cool off".
A non-resident must open a ‘non-resident’ account
at a South African commercial bank, to facilitate loan repayments.
This account would normally be funded from abroad or from
rentals received on the property purchased, subject to the
bank holding the account being provided with a copy of any
rental agreement.
However, the Exchange Control Authority allows a non-resident
desirous of obtaining permanent residence status in South
Africa, to be dealt with as a South African ‘resident’
for exchange control purposes. This takes place upon completion
of a so-called Immigrant’s Declaration & Undertaking
issued by South African banks.
Once such Declaration has been completed, such applicant will
be eligible to borrow 100% of the purchase price of the property.
However, it will then be incumbent upon such person to actually
apply for and obtain permanent residence within a reasonable
period.
Exchange Control is currently going through a process of deregulation
in South Africa, to make it progressively easier for foreigners
to invest in this country, and for South Africans to do business
abroad. However, it remains a complex subject and non-residents
investing in South Africa are strongly advised to consult
a reputable lawyer or accountant for advice. The Reserve Bank
retains considerable control, and while notes and guidelines
have been set, allowances will be made for exceptional circumstances.
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| Land Registration |
| South Africa
is reputed to have one of the best deeds registration systems
worldwide, with an exceptional degree of accuracy and of tenure
being guaranteed. South Africa offers an unusual degree of
certainty with regard to property ownership and 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.
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| Frequently Asked Questions |
1. Is my
investment secure?
The banking system in South Africa is dependable, established
and highly advanced. Transfer of funds through any registered
South African Bank is secure and guaranteed. Once the money
transfer has taken place, it is usually held in trust by an
attorney or real estate company, either on behalf of the purchaser
or the seller until registration of transfer. The holding
of the funds in trust by an attorney is a cornerstone of the
attorneys' practice and is regulated by the relevant Law Societies
and secured by the Attorney¹s Fidelity Insurance.
2. Will I be able to get my money out of South Africa?
The Exchange Control Rulings stipulate that funds brought
into the country by a non-resident may be repatriated at any
time, as well as any capital gain thereon after deduction
of any Capital Gains Tax payable.
A new immigrant (that is, someone who has completed the Immigrant’s
Declaration & Undertaking) may only repatriate funds introduced
from abroad, and capital gains accruing thereon, within the
first five years of the date of signature of such Declaration.
Thereafter, such person will be bound by Exchange Control
restrictions imposed on residents with respect to the repatriation
of funds.
3. Can property be owned by a non-resident?
Non-residents can own property partially or wholly, in
their own names or through ownership of an interest in one
or other forms of legal entity, as discussed below.
4. What forms of ownership are available?
Freehold is the most common form of property ownership.
Other forms of ownership include Leasehold, Sectional Title
and Share Block.
5. Which is the best form of ownership?
The most common form of ownership is that of individual
title. However, property may also be held through share ownership
in companies, through holding membership in Close Corporations
or as a beneficiary in a Trust. This choice will be dependent
on decisions in relation to tax or transfer duty issues, or
relating to the protection of assets.
Companies and Trusts in South Africa are based on English
Law and are very similar in nature to those in England. A
Close Corporation is a type of company, which is flexible
and cheaper to form and administer than a normal incorporated
company. A Close Corporation or a Trust can usually be formed
in less than a month. A Proprietary Limited Company may take
a few weeks longer. Pam Golding International will refer you
to specialists who provide advice in each case as to the method
of holding property best suited to particular needs.
6. Can property be leased to others?
Non-resident owners of South African property have all
the normal rights of ownership including the right to recover
rental income from lessees. Rental income is normally taxable
in South Africa.
7. What is the procedure for transfer of ownership?
The registration of a property transaction is handled
by a specially qualified legal practitioner known as a conveyancer.
It is customary for the seller to appoint the conveyancer
to attend to the registration of transfer of a property sold,
whilst the costs attendant on same are for the account of
the purchaser, unless contractually agreed to otherwise.
The conveyancer prepares the requisite transfer documentation
that, after signature by the purchaser and the seller, is
lodged in a regionally located Deeds Registry, together with
the cancellation of any existing mortgage bonds and new mortgage
bonds to be registered. The deeds are subject to an intense
examination process whereafter they are made available for
registration.
On date of registration of transfer all existing mortgage
bonds registered over the property are cancelled simultaneously
with the registration of any new mortgage bonds by the purchaser
in favour of the bank granting financial assistance. The purchaser
is recorded as the new owner of the property and the purchase
price is paid to the seller.
The above procedure does not apply in an instance where the
shares/members interest and loans are acquired in a property-owning
company/Close Corporation where no change in ownership is
recorded.
It is important to note that upon transfer to the new owner,
any liabilities in respect of the property incurred by the
previous owner, remain with the previous owner and do not
necessarily pass to the new owner, unless otherwise agreed
to.
8. Are there costs in addition to the purchase price?
There are various costs involved in the transfer of property
in South Africa. The following are costs borne by the purchaser:
-
A. Transfer Duty
Transfer duty is a tax levied by the government on transfer
of ownership of fixed property.
Where the purchaser is a natural person, the duty is calculated
on the following scale:
No duty up to R500 000 of the purchase price
R500 001 - R1 000 000 5% (R25 000)
R1 000 001 and above plus 8%.
Where the purchaser is a legal entity, transfer duty is
levied at a flatrate of 8% of the
purchase price.
B. Transfer Costs - Conveyancing and Attorney's Fees
These costs relate to the transferring attorney. They
are calculated on a sliding scale
regulated by a tariff and amount to between 1-2% of the
purchase price.
C. Mortgage Costs
Mortgage costs are the costs incurred for raising mortgage
finance. These fees include initiation and valuation fees.
Mortgage registration fees according to a prescribed tariff
are payable to the registering attorney.
Therefore: a home costing R500 000 with
a 50% mortgage bond registered in your own name would
attract additional costs of R2 996.
These costs are subject to change from
time to time and a complete and updated table of costs
is available from your Pam Golding Agent.
D. Estate Agents Commission
This fee, normally paid by the seller, attracts VAT (VAT
is currently 14%).
9. Does a property purchase affect
applications for permanent residence?
For any foreign person seeking to reside permanently
in South Africa, applying for a permanent residence permit,
or at least a temporary residence permit, is obligatory. Permanent
residence applications are assessed completely independently
of the issue of property in South Africa. However, the current
immigration law and regulations do allow for immovable property
owned in South Africa to be taken into account when assessing
the applicant's net worth.
Before embarking on the process of applying for permanent
or temporary residence in South Africa, it is best to consult
with an immigration lawyer since South Africa's immigration
laws have recently changed and are complex.
10. To what taxation am I liable?
For income tax purposes, South Africa is no longer a
source-based taxation system. In February 2000 proposed changes
to the South African tax legislation were announced and, although
the actual legislation has not been promulgated, the government
has indicated its intention to change from a source-based
to a residence-based taxation system.
In addition, a Capital Gains Tax was introduced in October
2001 and clients are advised that it is prudent in all cases
to seek professional legal and tax advice.
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| Signature
Of Documents |
Documentation
prepared by the conveyancer pertaining to the registration
of transfer of the property and any mortgage bond to be registered
over the property is required to be signed in black ink and
must be authenticated if signed outside South Africa. This
is sometimes inconvenient and it is possible, and often advisable,
to leave a General Power of Attorney in favour of an entrusted
person within South Africa to assist in this regard. Where
the purchaser is married, which marriage is governed by the
laws of a foreign country and a mortgage bond has been applied
for, please note that the spouse of the purchaser will be
required to assist the purchaser in signing the mortgage bond
documentation. Marriages according to the laws of the England
and Scotland are exceptions to the aforegoing rule.
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Buying
A Property
Offer To Purchase/Agreement Of Sale |
The Offer to
Purchase/Deed of Sale will contain certain of the following
standard provisions:
PURCHASE PRICE
A deposit is not mandatory but serves as a gesture of good
faith on the part of the purchaser and an indication of financial
ability. This amount will be invested by the estate agent/conveyancer
in an interest-bearing trust account for the benefit of the
purchaser.
Provision will be made in the Agreement for a guarantee to
be called for in respect of the balance of the purchase price.
In general, a guarantee will only be acceptable if issued
by a local financial institution which means that the funds
will actually have to be remitted to South Africa in order
for a local bank to issue such a guarantee or, alternatively,
arrangements must be made between a foreign and local bank
for a back to back guarantee to be issued. It is, however,
possible to negotiate the issue of a Standby Letter of Credit
from an overseas institution in certain circumstances.
OCCUPATION, POSSESSION, TRANSFER AND OCCUPATIONAL
RENTAL
Occupation is the physical occupation of the property whereas
possession is generally deemed to be the date upon which the
purchaser assumes responsibility for the property and it is
customary for the risk of ownership to pass on the date of
possession. Transfer refers to the actual date of registration
of ownership in the Deeds Registry in favour of the purchaser.
Occupational consideration is the rental payable by the party
occupying the property belonging to another where the date
of occupation and date of transfer differs, which is better
expressed in Rand terms or as a percentage of the outstanding
balance of the purchase price.
VOETSTOETS
This is a standard inclusion in all deeds of sale and implies
that the property is bought as is. As is means 'in the exact
condition in which the property is found'. However, all patent
and latent defects present in the property within the sellers'
knowledge must be brought to the attention of the purchaser.
It is not standard in South Africa to conduct property surveys
but these can be arranged with the assistance of the estate
agent or an attorney and should be included as a condition
of the purchase.
ELECTRICAL AND BEETLE-FREE CERTIFICATE
The property owner is required by law to be in possession
of a valid 'electrical compliance certificate' certifying
that the electrical installation at the property meets certain
statutory safety requirements. The beetle-free certificate
certifies that all accessible parts of the property are free
of infestation by certain defined beetle and this certificate,
whilst a standard inclusion in the Agreement of Sale, is neither
a legal requirement nor included in sales of sectional title
units. The cost of attending to the necessary repairs in order
for the aforesaid certificates to be provided, is generally
accepted as being for the account of the seller, although,
the parties can contractually agree otherwise.
FIXTURES AND FITTINGS
A property is sold together with all fixtures and fittings
of a permanent nature situated thereat. Generally fixtures
and fittings include anything which is attached to the property
or which by virtue of its considerable mass accedes to the
property. In the event of any uncertainty, the purchaser is
cautioned to ensure that all items intended to be included
in the purchase price are specified in writing in the Agreement
of Sale.
The format of agreements concluded for the acquisition of
shares/members interest and loan accounts in property-owning
companies/close corporations contains many of the aspects
discussed above, although it is substantially different and
includes numerous warranties and indemnities granted by the
seller to the purchaser who acquires the property-owning entity
together with its financial history.
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| Exchange
Control/Repatriation Of Funds |
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, provided, the title deed of the property
has been endorsed "non-resident". Similarly, funds
introduced to acquire shares in a company/members interest
in a close corporation may be repatriated together with any
profit on resale, provided, the relevant securities have been
endorsed "non-resident". Funds, introduced into
South Africa in the form of a 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 Reserve Bank. The profit on resale may also be repatriated,
provided, the relevant securities have been endorsed "non-resident".
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| Income
Tax |
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-residents
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.
Income earned by natural persons below R40 000 per annum (for
persons under the age of 65) and R65 000 (for persons above
the age of 65) is exempt from income tax, whilst all income
earned over and above the aforesaid amounts, will be taxed
at a marginal rate applicable in accordance with published
tax tables. The marginal tax rate is calculated on a sliding
scale with a maximum rate of 40%.
Companies and close corporations are subject to a flat tax
rate of 29% of each Rand of taxable income whilst the equivalent
rate for trusts is 40%. If a company declares a dividend it
will be subject to an additional tax (STC) of an amount of
12.5 % of the dividend declared. Non-resident companies are
taxed at a rate of 35% but are exempt from secondary tax on
companies ("STC") in respect of dividends paid.
On death a person is deemed to have disposed of all property
at market value hence triggering a CGT liability. For non-residents
this deemed disposal applies to immovable property situated
in South Africa. In addition on death a person is liable for
estate duty at 20% (after deducting a R2.5million abatement
from net assets and after deducting any CGT payable by virtue
of the deemed disposal of the property). In the case of a
non-resident estate duty would be levied on immovable property
situated in South Africa (subject however to the terms of
any applicable Double Death Duties Act entered into by South
Africa with any other State). There is an exception to the
foregoing if a person bequeaths his or her estate to his or
her spouse the bequest is exempt form both CGT and estate
duty.
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| Capital
Gains Tax |
South African
residents are liable for the payment of Capital Gains Tax
(CGT) on the disposal of any asset, subject to certain limited
exceptions.
Non-residents, however, 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
(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);
-
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 25% of the capital gain, or
profit, to the individual’s income for that year and
taxing that income at the individual¹s marginal rate
of income tax. The maximum marginal income tax rate for individuals
in South Africa is presently 40% (reached at taxable income
levels above R300 001). 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.
CGT became effective on 1 October 2001 and is thus payable
only from that date.
The amount of a capital gain is calculated either by deducting
the value of the property as at 1 October 2001 (together with
the costs of acquiring and improving the property) from the
proceeds on disposal of the property or by apportioning the
amount of time the property was owned between the period before
1 October 2001 and the period after that date.
South African residents do not pay CGT on the first R1.5milion
of profit made on the disposal of their primary residence
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| SA
Immigration Act |
The Immigration
Act number 13 of 2002 came into operation on the 7th April
2003 and heralded a degree of certainty in terms of the various
categories of temporary and permanent residence in South Africa
for the first time. It also represented an Act of Parliament
upon which all interested parties and stakeholders had been
give an opportunuty to give input. Much of this input has
been included in the the current Act and Regulations.
The Immigration Act Amendment Bill was signed into law by
the President of South Africa on the 22nd October 2004 but
will not come into operation until the draft new regulations
in terms of the Immigration Act and its Amendment have been
gazetted into operation. There is still at an administrative
and public participation process which will have to be followed
before this can happen and in addition the draft regulations
still have to be forwarded to the Immigration Advisory Board
"the IAB" for that body to advise the Minister on
the final drafts.
The draft regulations will then be published in the final
format and hopefully approved by the Minister and gazetted
into operation. This would have to take place simultaneously
with the coming into operation of the Immigration Amendment
Act.
One of the main purposes of the draft Immigration Amendment
Act and Regulations is to bring about a degree of certainty
in the immigration law and regulatory sphere. It is certainly
hoped that this goal can be achieved.
Full particularity will be carried in updates of this article
as and when the information comes to hand.
The most important categories of permits under the current
Immigration Act and Regulation are set out hereunder together
with comment, wherever possible, of what can be expected in
terms of the Immigration Amendment Act and the new Regulations:
Temporary Residence Permits
Visitors Permit (Section 11 of the Act) :
- Cannot exceed a period of three months;
- Section 11(1)((b)(ii) however provides for issue of
a permit for a period not to exceed three years to a foreigner
who can prove available resources in South Africa to sustain
themselves (to the satisfaction of the Department of Home
Affairs) and who is in South Africa and engaged in activities
such as academic sabbaticals, voluntary or charitable
activities, research or “other prescribed activities
and cases”. This last category opens up the door
for long term visitors permits to be granted in appropriate
cases for up to three years,he so called ”long term
visitors permit”.
- All applications to extend a permit must be made timeously
and at least thirty days prior to expiry of the current
permit;
Work Permits (Section 19 of the Act)
- Various categories of temporary work permit are provided
for in the Immigration Act. All of these are linked to
the applicant having an offer of employment and the required
skills, qualifications and experience for the position.
An overriding factor in all of this type of application
is that the prospective employer must show what efforts
have first been made to secure the services of a South
African Resident before a foreign national can be employed.
This is generally achieved by proving an advertisement
in the national printed media in respect of the position
being offered him by way of a report from the regional
Department of Labour. In the quota permit, intracompany
transfer and the category where the applicant is in a
spousal relationship with a South African citizen , the
advertisement requirements are dispensed of. Applications
in this category must be lodged at the South African High
Commission or Embassy closest to where the applicant normally
resides all should be processed at the Department of Home
Affairs regional office closest to where the applicant
will reside and work, if the applicant is already in South
Africa It is advisable to consult with and have an assesment
of viability done by a specialist immigration attorney
before embarking on an application.
- A permanent residence permit in the “worker”
category is also possible but can only be made contingent
upon a job offer that is permanent, in line with the applicant’s
skills, experience and qualifications, which must also
be inherent requirements of the job being offered to that
applicant. Applications in this category should be lodged
at the South African High Commission or Embassy closest
to where the applicant resides or works.
Retired Persons Permit: (Section 20 of the Act)
- A temporary residence permit in this category may be
granted for periods exceeding three months and up to four
years providing that an applicant can show that they have
the required financial resources to sustain and support
themselves during their stay in South Africa and in specific
either a pension or lifelong retirement annuity or a “retirement
account” providing the required income for this
purpose.
- A qualified dispensation to” work” to a
limited degree in respect of retirees exists in the current
regulations. The new regulations which will come into
force shortly will in all likelihood make provision for
a further relaxation of this requirement and may even
lift the restrictions on “work” .Off neccesity
this may require the retiree to obtain a work permit to
be endorsed onto their retired persons permit.
- Retirees must be able to show that their pensions or
annuities will deliver to them an income of not less than
ZAR 20,000-00 per month readily transferable to South
Africa, alternatively a “retirement account”
of not less than ZAR12 Million delivering an income of
not less than ZAR 15,000-00 per month (The new regulations
about to come into operation will in all likelihood provide
for a relaxation of the qualifying monthly income amount
and will in all likelihood also allow for the equivalent
rental value of property owned by the retiree to be factored
into the income amount. The condition being that the retiree
must be living on the property, however it must be remembered
that this comment must not be acted upon and till the
Immigration Amendment Act has been promulgated in law
and there is certainty on this aspect).
- In the permanent residence permit category it is an
additional requirement that the applicant show that the
rights they have to the pension/annuity or “retirement
account” are lifelong in terms of duration.
- Note: Under the current Immigration Act there is a
requirement to have a South African Chartered Accountant
certify the financial aspects. The Immigration Amendment
Act will do away with this requirement in most categories
of residence and replace it with the requirement that
an applicant must prove “to the satisfaction of
the Director General” that they have adequate resources.
Business permit category: (Section 15 of the Act)
- A temporary residence permit (known as the "own business/self-employment"
category under the old immigration laws) may be obtained
for a period of up to two years from the date of the issuance
of the permit and which is renewable for further to your
periods.
- In order to succeed in this category a potential immigrant
must meet the capitalisation requirements of at least
ZAR 2.5 million to be invested as part of the book value
of the business. This amount must be sourced from abroad.
Upon application to the Department of Home Affairs May,
acting upon recommendation from the Department of Trade
and Industry may reduce or even the waive the capitalisation
requirement.
In addition to the capitalisation requirement a potential
immigrant intending to apply in this category, must also
prove one of the following:
- A business track record to prove entrepreneurial
skill.
- Prove that the business contributes to the geographical
spread of economic activity.
- Proof that at least five South African citizens
or residencts will be employed.
- This prove that the business in question is either
in the information technology, clothing and textiles,
chemicals and biotecnology or agro-processing, tourism,
crafts or automotive and transport industries.
- The export potential of the business; or
- Calls for or involves a transfer of technology not
previously generally available in South Africa.
- A sustainable and viable business plan, certified
by a South African Chartered Accountant must be filed
with the Department of Trade and Industry, requesting
a recommendation and must also be included with documentation
lodged with the application automatically. This business
plan must show short to medium term sustainability
and viability.
Applications in the business permit category should
be lodged at the nearest South African consular office
to where the applicant resides or works.
- A permanent residence application in the business
permit category must comply with all of the above
criteria and obviously must also show continued long-term
sustainability and viability of the business.
This article will be updated as and when there are any changes
in legislation, regulation and policy
Click
here to read an overview of the current state of the Immigration
Act number 13 of 2002, the Amendment act and regulations
Information courtesy of Julian Pokroy, Immigration Specialist
Attorney.
The contents of this brochure are presented for information
purposes only and they are not to be depended on in any particular
transaction. Professional legal and accounting advice should
be sought on individual transactions. The contents contained
herein are subject to change.
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