Buying Property in South Africa as a Non-Resident

With regards to purchasing property in foreign countries, there are many issues other than the usual signing of contracts, documents and transfer of funds, which the average non-resident interested in investing in foreign property may not be aware of, or may not know who to ask.

Bellow are a list of various frequently asked questions which will assist non-resident with the many questions which they might have.

Are there any restrictions on non-residents buying property in South Africa?

No, except for a prohibition on illegal aliens owning immovable property in South Africa. Non -residents will naturally have to adhere to the same rules, regulations and processes which residents are subject to, however, it is with compliance with these that ensure the efficiency of the South African Land Registration system and security of tenure.

Should the non-resident not wish to purchase property in his or her individual name and alternatively purchase in the name of an entity, a company or trust for example, then this entity should be locally registered and meet the requirements associated with the chosen entity, such as those contained in the Companies Act. For example, a non-resident may make a decision to own property through  share ownership in a company, membership in a close corporation (unique to South Africa), as a beneficiary in a trust. Should a non resident not acquire property in an entity, then that money brought in will be represented as a loan to the local entity which would require exchange control approval. In most cases however, property is registered in the name of the purchaser as an individual.

Please note that as a purchaser, you need to have finalized your intentions with regards to the vehicle selected for purchasing the property prior to signing any Offer to Purchase or Agreement of Sale as this cannot be changed at a later date without the possibility of incurring serious penalties and resulting in delays in the transaction.

Lastly, a non-resident is even permitted to purchase South African property over the Internet, without ever entering the country, however, should they intend to live on the property, they will need to comply with the Immigration Act, and have either a valid permit to temporarily remain in the country or be in possession of a permanent residency permit.

How do I bring foreign funds into SA for a property acquisition?

Foreign funds may be deposited into any nominated bank account in South Africa. This account will usually be the estate agent or transferring attorney’s trust account into which the deposit for the property and the balance of the purchase price is paid. These funds will be invested for the non-resident’s benefit, and they can be ensured that such a transfer is secure and guaranteed,  as the handling of such trust accounts is monitored by the professional boards overseeing both the attorneys’ and estate agents’ professions.

When the non-resident transfers funds into a South African account from a foreign source, a record of such funds entering South Africa are kept, known as a deal receipt. This is an important piece of documentation that must be kept for purposes of repatriation of the funds.

Can I borrow money in SA to purchase property?

The South African Reserve bank will consider all foreigners not having their domicile in South Africa to be non-residents, barring foreigners with South African work permits who will be considered residents for the duration of their work permit. What this means is that non-residents are restricted in their borrowing ratio to 50% of the purchase price while the remaining 50% must be brought into the country in cash from a foreign bank. In order to qualify for a South African mortgage bond, the non-resident will need to provide proof of earnings and comply with the Financial Intelligence Center Act, which, although a mouthful, pertains to the non-resident’s identification for money laundering purposes and involves production of certain documents such as passport and proof of residential address.

Can a non-resident open up 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 account which can be done from abroad or from within the country. Again, certain documentation relating to the applicant’s identity will be required (application form with names, passport numbers and addresses, certified copies of relevant pages in the passport as well as proof of source of income such as salary slips or pension statements, which copies must be certified).Once open, foreign funds will need to be deposited immediately.

In certain circumstances, local currency can be deposited into the account, for example, receipt of rental acquired from property belonging to the non-resident. This is in order provided that the bank is in possession of a certified copy of the rental agreement. Obviously the rand value received on sale of immovable property in South Africa may also be receipted into the non-resident account providing the necessary documentation precedes the deposit.

Who chooses which attorneys will attend to the transfer and whose interests are the attorneys protecting?

It is customary in SA for the Seller of immovable property to nominate the attorneys who will attend to the transfer. Those 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 need to seek independent legal advice from other attorneys.Whilst the seller selects the attorneys, the purchaser pays the transfer costs. More about this further on.

Can transfer and bond documents be signed overseas and if so, what is the procedure?

Yes; however, there are certain formalities that need to be complied with. Documents can be signed either before a Notary Public or at the South African Embassy in that country. It can be costly and time consuming though. If a seller or purchaser is in the country at the time of sale and will be flying back overseas, it is advisable for them to leave a special or general power of attorney in favor of either a friend or family member here in SA, if possible.

Other than the purchase price, am I liable for any other costs when purchasing property?

Yes. The purchaser is usually liable for the following costs: transfer duty (a tax levied on property and based on the purchase price. This is not payable if the seller is VAT registered), transfer fees, deeds office levies, pro-rata rates and taxes/ sectional title levies, as well as the costs of obtaining a rates/levy clearance certificate. Most of these costs are determined according to the purchase price of the property. Please consult our tariff guide, namely our “Buchanan’s Book” for a full list of these costs.

The purchaser will incur further costs if he or she registers a mortgage bond, including the attorney’s fees and bank charges such as the initiation and valuation fee

Once the purchaser takes transfer of the property or assumes the risk therein, he or she will be liable for all costs and risks associated therewith. If the property is not bonded, it will be in the purchaser’s best interests to obtain insurance. This is compulsory if the property is bonded and normally arranged by that bank.

If I decide to sell the property, will I be able to take my money out of the country?

Understandably, this is no doubt the number one question non-residents need answered before investing in South Africa. The answer is simply, yes. Money from a foreign source may be repatriated in due course according to our Exchange Control Regulations, together with any profit, proportionate to that non-residents share-holding in the property. (Consider a non-resident who has purchased a property 50/50 with his girlfriend who is a South African resident but funded the full purchase price with funds from off-shore.)

On transfer to the non-resident purchaser of the property, the title deed will be endorsed “non-resident’ and /or a deal receipt retained by the banking institution when the foreign funds were originally introduced into the country. This then facilitates the repatriation of the funds and profit on sale of the property, as long as they are able to satisfy the bankers that such profit is reasonable and market related. Obviously if the purchase was financed with funds borrowed in South Africa, that portion of the purchase price cannot be repatriated out of the country unless the bond has been settled in full.

Furthermore, if a foreigner takes up permanent residency in South Africa and signs a Declaration and Undertaking at a South African bank (namely to declare whether they are in possession of foreign funds and to undertake not to place these at the disposal of anyone resident in the Republic) they will be considered a resident for exchange control purposes and only able to repatriate funds within five years of their immigration, following which they will be considered akin to a South African and subject to the same regulations and limitations.

Finally, the repatriation of funds will be subject to capital gains tax of which we will have more discussion in due course.

As a non-resident, am I 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 that income accruing from a South African source. So, if the property is rented out for example, that 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 individual’s name, 25% of the profit will be taxed at the individual’s marginal income tax rate. The maximum marginal rate is currently 40%, and this therefore translates to a maximum flat rate payable of 10% of the capital gain.

Up until recently, an obligation existed on non-resident sellers to register as income tax payers in the year of disposal of their immovable property here in SA. However, this was not being done and our Receiver of Revenue was losing out on income tax that was payable. Accordingly, measures have been introduced which will tighten their tax collection net considerably. In terms of new proposals to the capital gains tax legislation, an obligation will be imposed on any purchaser who purchases a property from a non-resident for a purchase price exceeding R1-million to retain a percentage of that purchase price and to pay it over to SARS within 10 days from the date of transfer of the property. The amounts that will be retained are 5% if the seller is a non-resident individual, 7.5% if the seller is a non-resident company or close corporation or 10% if the seller is a non-resident trust. This amount will then operate as an advance collection against the non-resident’s 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 amount of time within the country. This is known as the “physical presence test” and is calculated over days spend in the country over a three year period.
No tax is levied on foreign pensions.

What about estate duties on death?

Any inheritances bequeathed to surviving spouses are not subject to estate duty which is usually levied at the rate of 20% of the dutiable amount. Non-residents, like South Africans, will have a R1.5 million exemption on their dutiable assets; however, unlike South Africans, this dutiable amount will be limited to assets situate in South Africa.

Please contact us if you require any further information or would like to apply for finance:

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011.327.4489 / 0861 1111 93

morne@mortgagepluscc.co.za

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The economic downturn brought an end to the double digit growth the property market experienced over the past few years. While it might not be as easy to make a quick buck as a few years ago, buying a property is still a good long-term investment. Investing in property, like investing in shares, is the best way to make sure your money beats the eroding effect of inflation in the long run.

It is important to note that when you rent out a property to a tenant, the Receiver of Revenue will consider the rent received as income and it will be included as “gross income” on your tax form. Gross income is usually a basic form of income like a salary. Do not omit your rental income from your tax form – the taxman can easily pick up undeclared rental income by contacting the deeds office.

On the positive side, you will be allowed to deduct expenses incurred in order to generate rental income from the amount you receive as income. This will include expenses like water and electricity (if you pay the bill), rates and taxes, insurance, agent fees, body corporate levies and certain household expenses. It might be a good idea to stipulate these expenses in the rental contract as this will indicate the expenses were incurred as part of the lease. Always keep invoices and statements in a safe place – the South African Revenue Service require that you keep these records for five years.

While the taxman considers repairs to your investment property as tax deductible expenses, improvements are considered of a capital nature and will therefore not be tax deductible. The general rule is that if the expense is incurred to restore the property to its original condition, it will be tax deductible. Expenses incurred to upgrade your home, will not be deductible.

Something that you might not be aware of is that if your investment property is covered by a bond, your interest payments to the bank will also be tax deductible. The capital part of your payment may not be subtracted though. Your bank will be able to supply you with an amortisation table that will indicate which part of your installment is interest on the bond.

By choosing Mortgage Plus for a loan, you will get professional advice to make sure you are getting the best deal possible.

CONTACT US

Speak to a home loan consultant about financing your new property or reviewing your existing mortgage. We are able to assist in lowering your bond repayments and securing attorney discounts.

Complete this short form online
Call us on 011.327.4489
Email: morne@mortgagepluscc.co.za

www.mortgagepluscc.co.za