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PURCHASING PROPERTY IN SOUTH AFRICA YOUR LEGAL POSITION
° PURCHASING PROPERTY IN SOUTH AFRICA YOUR
LEGAL POSITION
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CAN NON-RESIDENTS OWN PROPERTY?
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HOW DO I ACQUIRE PROPERTY?
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HOW MAY I HOLD THE PROPERTY?
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CAN A NON-RESIDENT BOND HIS PROPERTY?
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ARE THERE COSTS IN ADDITION TO THE PURCHASE
PRICE?
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IS MY MONEY SAFE?
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WILL I BE ABLE TO GET MY MONEY OUT OF SOUTH
AFRICA?
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CAN I LEASE PROPERTY TO OTHERS
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CAPITAL GAINS TAX
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DOES A PROPERTY PURCHASE ENTITLE ME TO
PERMANENT RESIDENCE
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WHAT INCOME TAX AM I LIABLE TO PAY?
South Africa has one of the most advanced and best administered
land registration systems in the world. It offers an unusual
degree of certainty in regard to the ownership of property,
specifically as it pertains to the details of owners, past and
present, details of the extent of the property and any
limitations or rights in and to the property. Notwithstanding
this, you may as a potential non-resident purchaser, still have
certain concerns and queries, most of which we hope we have
addressed below;
CAN NON-RESIDENTS OWN PROPERTY?
Non-residents can own property partially or wholly, in their own
names or through an interest in a legal entity such as a Trust,
Company or Close Corporation.
HOW DO I ACQUIRE PROPERTY?
Property is acquired upon signature by a purchaser and seller of
valid Deed of Sale. Such Deeds of Sale are often drafted in the
form of an offer by the purchaser to the seller. While these
documents may be described as “Offers to Purchase”, they are
nevertheless Deeds of Sale, which become valid and binding upon
signature by both parties. Other than the requirements that the
sale of property is to be contained in a document which
describes clearly the parties, the property and the purchase
price and that the document be signed by both parties, there are
no further formal requirements for the execution of an
enforceable agreement. In other words, once you sign, you are
immediately bound. Accordingly, if advice on the contract is to
be sought, IT SHOULD BE PRIOR TO SIGNATURE OF THE AGREEMENT.
Once the agreement is signed, the actual change of ownership of
the property from seller to purchaser is effected by a
specialised attorney (solicitor) known as a conveyancer, who
registers the transfer of ownership at the Deed Registry. In the
absence of special or suspensive conditions which may prevent
the parties from proceeding to register the transfer, such as
the procuring of finance or the sale of a property by the
purchaser, the transfer should be completed approximately 4 – 6
weeks after the sale has been referred to the conveyancer.
HOW MAY I HOLD THE PROPERTY?
The most common form of ownership is still that of individual
title. However for various reasons, usually relating to saving
on tax or transfer duty, or protection of assets, property can
also be held in Companies, Close Corporations or Trust 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
form of Company which is far more informal, flexible and is
cheaper to form and administer than a Company. A Close
Corporation or Trust can normally be formed in less than a
month, whereas a company can take a few weeks longer than that.
We will be able to advise you in each case of the method of
holding property best suited to your particular needs.
CAN A NON-RESIDENT BOND HIS PROPERTY?
A non-resident may utilise mortgage finance to the extent of one
half of his/her “Borrowing Base”. “Borrowing Base” is a term
referring to funds which are imported into the Republic in order
to purchase the property.
The mortgage repayments may be effected by use of funds inside
or outside of South Africa. There is however an exception to
this. Investec Private Bank are able to provide 100% local
finance for non-residents by way of “Mauritian Loans” secured by
overseas assets. For more information on this please contact the
writer.
ARE THERE COSTS IN ADDITION TO THE PURCHASE PRICE?
There are various costs involved in the transfer of property.
Examples of these are given below and are stated exclusive for
Value Added Tax (VAT) at 14%.
The first is the commission of the estate agent, usually between
5% and 7.98%. This is usually paid by the seller, although it
may be agreed by the parties that the purchaser will pay the
commission.
Secondly, there are transfer fees, the fees of the transferring
attorney for effecting the transfer, which are calculated on a
sliding scale regulated by a tariff and which normally amount to
between 1% and 2% of the purchase price. These are usually borne
by the purchaser.
Where the purchaser is a natural person, transfer duty is
calculated on the following scale; exempt on the first R140
000.00 of the purchase price; 5% between R140 000.00 – R320
000.00 and 8% on the balance. Where the purchaser is a legal
entity, such as a Trust, Company or Close Corporation, transfer
duty is levied at a flat rate of 1% of the purchase price.
Fourthly, where mortgage finance is utilised, there will be
mortgage bond registration fees payable to the bond registration
attorney according to the prescribed tariff, usually in an
amount of approximately 0,5% - 1,5% of the mortgage amount.
IS MY MONEY SAFE?
The banking systems in South Africa are established, state of
the art, and dependable. Any transfers of funds through the
major South African banks are completely secure. Once the money
has been transferred through the bank it is normally held in
trust by attorneys, either on your behalf, or on behalf of the
seller. The concept of the holding of funds in trust by
attorneys is a cornerstone of the attorneys practice and is
regulated by the various Law Societies and secured by Attorneys
Fidelity Insurance. In other words, monies held in trust on
behalf of attorneys are secure.
WILL I BE ABLE TO GET MY MONEY OUT OF SOUTH AFRICA?
Any funds which are imported into the country (plus any profit
made on the sale of the property) may be repatriated, together
with any capital gain on the investment, according to South
African Exchange Control policy. It is anticipated that even the
formalities of processing the repatriations through Exchange
Control will be dispensed with very shortly. We suggest that in
the interim, however, that you ask your attorney, where funds
have been brought into the country to secure the purchase price,
to have the title deed of the property endorsed “non-resident”
to facilitate the smooth registration of funds abroad. In this
regard it is critical to keep proof of all remittances (Form E
from banks, deposit slips, confirmation of investments, customer
advices, etc) as proof that the funds were introduced into the
country from an overseas source.
CAN I LEASE PROPERTY TO OTHERS
You will have all the normal rights of ownership including the
right to recover rental income from the lessees. Rental income
is taxable in South Africa to the extent that it exceeds certain
thresholds.
CAPITAL GAINS TAX
Capital Gains Tax was introduced to South Africa on 1 October
2001. This is an all embracing tax which will be levied on
property of any kind, whether movable or immovable, tangible or
intangible, subject to certain specific exclusions. The crux of
Capital Gains Tax is that you are taxed on the capital gains
made on the disposal of assets after the effective date of 1
October 2001. The capital gains/loss made on the disposal of an
asset (i.e. the cost of acquiring, enhancing or disposing of the
asset) and the consideration realised on the disposal of same.
Your principle (i.e. first) owner-occupied residence (which is
registered in your own name and not in that of a legal entity
such as a Company, Close Corporation or Trust) is exempted from
Capital Gains Tax up to a gain of R1 000 000.00 (ONE MILLION
RAND). It is important for providing base costs to the Receiver
of Revenue, to have your property valued as close as possible to
the implementation date of this tax.
DOES A PROPERTY PURCHASE ENTITLE ME TO PERMANENT RESIDENCE
The question of permanent residence is assessed completely
independently of the issue of property purchase. However, in
assessing whether an applicant for permanent residence has
complied with certain requirements in regard to the amount of
funds which must be imported into the Republic of South Africa,
the value of the property purchased in South Africa will be
included in the calculation of the amounts imported and will in
that way clearly assist in application for permanent residence.
We will gladly advise you more specifically with regard to
individual permanent residence applications, if requested.
WHAT INCOME TAX AM I LIABLE TO PAY?
Since 1 January 2001 South Africa has had a residence based
taxation system. In other words, tax is paid on income which is
deemed to be received by, or accrued to a resident from a source
in the Republic of South Africa. Foreign residents will be taxed
on their South African source income only. Accordingly, income
received, for example, from the renting out of a property
purchased here, is subject to taxation. Taxation of individuals
in South Africa is levied according to a sliding scale of annual
income, those individuals who earn more are taxed more heavily
and fall into a higher tax bracket.
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