WHEN A NON-RESIDENT SELLS THE PROPERTY, CAN THE MONEY BE TAKEN OUT OF SA? Yes, the proceeds from the sale of the property can be taken out of the country (repatriated) when the non-resident sells the property. Any sums still owing under a mortgage bond over the property must be paid as the sale transaction is registered so that only the net proceeds will be repatriated. Similarly, if a non-resident owns property together with a South African resident, only the non-resident’s portion may be repatriated and will be limited to the amount representing the non-resident’s share in the property.
Note that such repatriation of funds attracts South African Exchange Control Regulations which means, amongst other things, that the Reserve Bank will investigate the initial source of the non-resident’s investment in South Africa. Therefore, the non-resident must take care to retain documentation of the initial purchase and transfer into his name of the property so that these are available when the property is subsequently sold. The documents to retain are all the “Deal Receipts”, a copy of the agreement of sale and the conveyancer’s final statement of account. When the non-resident sells the property, these documents must be submitted to the Reserve Bank before the repatriation of the proceeds will be allowed.
Furthermore, if a foreigner takes up permanent residency in South Africa and signs a Declaration and Undertaking at a South African bank (namely declaring whether they are in possession of foreign funds and undertaking not to place same at the disposal of anyone resident in the Republic), they will be considered a resident for Exchange Control purposes and accordingly will only be able to repatriate funds within five years of their immigration. Thereafter they will be considered to be a South African citizen and subject to the same regulations and limitations. Finally, the repatriation of funds will be subject to capital gains tax, which we discuss in the next paragraph.
DOES A NON-RESIDENT PAY SOUTH AFRICAN 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.
AUTHOR - Corne van Dongen. Resident of Balule Game reserve.