Provisions relating to the purchase of immovable property in South Africa by foreigners.
Who is considered a foreigner or “non-resident”:
In terms of the Immigration Act 13 of 2002, a foreigner is defined as “an individual who is neither a citizen nor a resident, but is not an illegal foreigner”.
In terms of the Act, a person will be guilty of a criminal offence should he/she aid, abet assist or in any manner enable an illegal foreigner to let, sell to or make available immovable property in the Republic. There is however no prohibition against the purchase of immovable property by a non-resident or foreigner. A non-resident who has a temporary work permit in South Africa, is for the purposes of this discussion, not considered a non-resident or foreigner.
Registration of property:
The South African system of property registration requires that there must be consensus (agreement entered into between the parties) and the delivery of the property (registration in the relevant Deeds Office) in order for the valid transfer of ownership to take place. The agreement of sale must furthermore be in writing and signed by the parties, who must have the necessary legal capacity at the time of doing so, and signed by two witnesses, to be valid.
A person may, for instance, lack the legal capacity to enter an agreement without the consent of their spouse. In South African law this matter is regulated by the Matrimonial Property Act. This Act is however, not applicable to foreign marriages and therefore in terms of South African law, the couple’s marriage is governed by the laws of the country of domicile (residence) of the husband at the time of the marriage.
Should the marriage be governed by foreign law it is not always necessary that both spouses sign the documents unless alienating immovable property (selling, registering a bond or any other interest against). In this instance both spouse must sign all the documentation regardless of whether the property is registered in one or both of the spouses’ names.
Verification of identity:
In order to comply with South African legislation various details and the identity of all parties to the agreement are to be verified by the conveyancer attending to any registration in respect of immovable property. A foreign purchaser would therefore be required to submit information as to their date of birth, passport number, nationality, residential address and South African tax number (if applicable).
Acceptable documents to verify this information would be a certified copy of his/her passport, a utility bill (or recent bank statement from another bank or rates and taxes invoice or telephone account or motor vehicle registration document) etcetera. In respect of the tax number an official SARS document would be required.
Financing the property:
When considering the financing of immovable property, it is important to consider the restrictions placed on non-residents by the South African Exchange Control regulations.
A non-resident would not be allowed to borrow more than 50% of the purchase price of the property from a South African financial institution and such loans are furthermore subject to the approval of the South African Reserve Bank. The balance of the funds, or other 50%, must be introduced into South Africa by the non-resident for the purchase. The overseas funds can be transferred directly into the trust banking account of the conveyancer by adhering to the following guidelines:
1. Firstly you need to provide proof of where the funds are to be transferred from, this would require that you confirm the Country and Company or Institution doing the transfer - by way of your written declaration;
2. Secondly for FICA purposes in South Africa you would need to send the following documents in terms of the Financial Intelligence Centre Act, No. 38 of 2001:a) Your Passport or Proof of Identity issued in the Country where you have Citizenship;b) Your newest proof or confirmation of address;c) A Letter of confirmation from your employer that you are employed with them;
3. Thirdly in terms of the Exchange Control Act, No. 9 of 1933 (as amended) you also need to provide:a) Proof of the account or institution where the money is to be transferred from;b) Proof of the reason for the transfer or the Purchase Agreement thereafter the funds can be transferred into the trust account by utilizing the bank details as well as the swift code as provided by the recipient.
Repatriation of funds:
Once funds have been introduced to South Africa by a non-resident, the funds may be repatriated as long as the funds were brought into the country in the correct manner and proof thereof retained. It is advised that documentation such as the proof of the origin of the funds (including statements on the foreign account as well as the receiving conveyancers statement) and original agreement of sale, are kept to facility the process on resale of the property. On resale, application will have to be made for the exchange control approval for the repatriation of funds and the above documents should be included in said application. When bringing in funds from overseas the non-resident must ensure they obtain the original deal receipt showing the rate of exchange and go through the reserve bank in order to ensure the funds may be repatriated.
It is important to take note that although the funds brought into the country as well as the proceeds of the sale will be repatriated, this is only after the appropriate taxes have been provided for. Income earned from a South African source is subject to income tax in South Africa. Therefore any rental earned on a South African property will be subject to income tax and it is the responsibility of the non-resident to ensure that he/she is registered as a South African tax payer in respect thereof. Should a non-resident be letting property in South Africa it is also important to note that a non-residential South African banking account will have to be opened.
Capital gains tax is furthermore applicable on disposal of immovable property situated in South Africa in the year in which the gain is earned. In an effort to ensure that non-residents comply with this a “withholding tax” has been instituted. This entails that a purchaser of immovable property in excess of R2 million is obliged to withhold a percentage of the purchase price if the seller of the property is a non-resident. The amount withheld must be paid to SARS and is treated as an advance in respect of the non-resident’s liability for tax. The percentages withheld from the seller are as follows:
• A natural person 5%
• A company 7.5%
• A trust 10%
This is in effect attended to by the conveyancer and the withholding tax can only be waived, by the non-resident obtaining a directive from the South African Revenue Services.
It is therefore clear that non-residents are free to purchase immovable property in South Africa subject to adherence to South African law in respect of entering into the contract, verification of identity, utilizing the proper financing procedures in line with the exchange control regulations and ensuring payment of the necessary taxes. Prepared by Sarah Dignam, De Villiers Pheiffer Attorneys.Kindly take note that the information provided is subject to change and should not be relied upon solely to enter into agreements of this nature. Feel free to contact our offices should assistance be required with the purchase of property by contacting us via email: email@example.com.