Advisory Service | Key Information for Property Acquisition as a Non-Resident

Yes, foreign funds can be paid into any bank account in South Africa. Usually the foreign purchaser will pay the purchase price for the property bought into the trust account of the estate agent that brokered the sale or into the trust account of the conveyancing attorney who attends to the registration of the transaction.

Note that these funds are only paid to the seller on registration of the transaction in the local deeds registry. Until then, the funds may be invested at the non-resident’s direction and to his benefit. The operation of such trust accounts is regulated by the estate agents’ and attorneys’ professional boards.

When a non-resident transfers funds from a foreign source into a South African bank account, a record known as a ‘Deal Receipt’ is issued by the South African bank. This is an important document and the non-resident will need to submit it to the Reserve Bank when, in future, he sells the property and wishes to return the funds to the foreign country.

Non-residents purchasing a property in South Africa may borrow up to a maximum of 50% of the purchase price from a South African financial institution.

The remaining 50% of the purchase price will therefore need to be made up of foreign funds that the non-resident transfers to a South African account.

The total loan amount granted by a bank however remains within the bank’s discretion. A bank will generally require proof of the non-resident’s income as well as compliance with South African anti-‘money laundering’ legislation (the Financial Intelligence Centre Act), which involves the furnishing of proper identification and the submitting of certified copies of documents (such as a passport and proof of residential address). In addition, and subject to certain exceptions, if the purchaser is married under the laws of a foreign country, his spouse will also be required to sign the mortgage bond documentation.
Banks moreover require that a non-resident opens a non-resident account to which the loan repayment instalments are to be made. The non-resident can fund the repayments from abroad or, if the property is leased, from rentals so received. If the monthly instalments are made up of rental collected by the non-resident, the bank must be furnished with a copy of the lease agreement.

Note that foreigners who work in South Africa on the strength of a work permit, are not regarded as ‘non-residents’ by the South African Reserve Bank. They are considered to be residents for the duration of the period of their work permit and they are therefore not restricted to a minimum of a 50% loan.

Yes, a foreign company can buy and own land in South Africa. The company will have to register itself as an entity in South Africa and, if the shares are owned by the non-resident, the company must in addition appoint a public officer who is a South African resident.

In South Africa it is customary for the seller of immovable property to nominate the attorneys that will attend to the transfer, although it is the purchaser who pays the attorneys’ (conveyancers’) fees. The election to nominate the conveyancer rests with the seller to ensure that the process is driven by the party who has the least interest in delaying transfer. A late transfer costs a seller money in lost interest and opportunity costs. The attorney appointed by the seller predictably acts on the seller’s behalf. Therefore, in the event of a dispute between the seller and purchaser, the attorney will have a conflict of interest and it is in the purchaser’s best interests then to seek independent legal advice.

Fortunately a purchaser need not necessarily be personally present in South Africa to sign the documents that are required for the registration of transfer of ownership in the property. However, there are formalities that must be complied with in such a case, requiring that the documents must be signed either before a Notary Public or at the South African Embassy in the foreign country. Both these options are unfortunately usually costly and time consuming. It is often to the non-resident’s best advantage, whether he is selling or buying, to execute a Special Power of Attorney prior to departing from South Africa in favour of a local friend, family member, or attorney so that this person can act and sign documentation on his behalf. It is important to remember that an affidavit cannot be signed by the person holding the Power of Attorney on your behalf.

Income Tax
Whilst South Africans are taxed on their worldwide income, non-residents are liable to the South African tax authorities only in respect of income earned from a South African source. For example, if a non-resident rents his property out, the rental income will be subject to South African income tax and the non-resident is obliged to register as a South African taxpayer. Rest assured that because of a number of ‘double taxation’ agreements with other countries, the non-resident will not be taxed here and in another country on the same income.

Capital Gains Tax (CGT)
The non-resident is liable for payment of tax on the gain made on selling the property (capital gains tax). For property registered in the name of an individual, 25% of the profit will be taxed at the individual’s marginal income tax rate (the maximum marginal rate is currently 10%), meaning that the maximum rate payable in respect of CGT will be of 10% of the capital gain. Whilst South African residents in certain circumstances enjoy a rebate in that CGT is only paid on the portion of the profit that exceeds R1,5 million, non-residents are excluded from this relief and must pay CGT on the full amount of the gain repatriated.

Withholding Tax
Because some foreign buyers in the past avoided paying CGT when they sold their property, new legislation was passed which obliges any buyer of a property sold by a non-resident for R2 million or more, to retain a percentage of the purchase price and pay it to the South African Revenue Services within 40 days of the transfer. (If the non-resident seller is an individual, the amount retained is 5%. If the seller is a non-resident company the amount is 7% and if the seller is a non-resident trust the amount will be 10%.).

This is referred to as ‘withholding tax’ and is a provision for the non-resident’s CGT liability. The non-resident can avoid the money being withheld by approaching Revenue Services beforehand and obtaining a Directive.