| 1. |
NON-RESIDENT PURCHASERS
In general, there are no prohibitive restrictions applicable to the ownership of immovable property ("property") by foreign purchasers apart from the requirement that such purchasers are not illegal aliens. Certain procedures and formalities with regard to registration and financing do however apply and these are discussed in more detail below. |
| 2. |
PROPERTY REGISTRATION SYSTEM
Individual portions of South African property are identified by way of a land surveyor's diagram and registered in the various Provincial Deeds Registries which are offices of public record. Ownership of property is formally transferred by way of registration in the Deeds Registry resulting in a Title Deed in the name of the purchaser which provides proof of ownership. Property may take the form of freehold, leasehold, sectional title or share block property, each of which has variations of ownership rights and obligations. Property may be registered in the name of an individual, more than one individual jointly in undivided shares, a trust or a corporate entity such as a company or close corporation. Foreign corporate entities are required to be registered locally with the Registrar of Companies and to appoint a local representative before acquiring ownership. |
| 3. |
FINANCE AND BANKING
Loans to non-resident property purchasers by local financial institutions are limited to a maximum of 50% of the value of the property being acquired. Such loans also require the approval of the South African Reserve Bank, which is applied for by the local bank providing the finance, and are secured by the registration of a mortgage bond over the property. Non-residents are entitled to open non-resident banking accounts with local commercial banks although these are not fully functional current accounts and their operation is subject to some limitations. |
| 4. |
PROPERTY PURCHASE
Contracts for the acquisition of property are required to be in writing and signed by both the seller and the purchaser (or their agents, duly authorized in writing), and must contain certain essential elements such as the details of the property, the purchase price and the terms of payment.
Usually, the purchaser submits an offer to purchase to the seller and upon acceptance of the offer, a valid and binding sale agreement is formed. If the agreement is subject to a suspensive condition, such as the obtaining of mortgage finance by the purchaser, the operation of the contract is suspended pending fulfilment of the condition and the contract will lapse upon non-fulfilment. Important elements of the agreement are the following: |
|
4.1 |
The purchaser:
As indicated above, the purchaser can be a natural person or persons, corporate entity or trust. It is important that the identity of the purchaser be established at the outset as the reservation of the right to nominate a nominee purchaser at a later stage may have adverse financial implications with regard to transfer duty. The tax environment and estate planning requirements will impact on the determination of the most suitable entity for ownership to suit the needs of the individual purchaser. |
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4.2 |
The purchase price and payment thereof:
The purchase price is designated and payable in local currency. If the seller is a developer who is a registered Value Added Tax ("VAT") vendor, the purchase price will include VAT unless this is specifically excluded and separately identified.
Usually a deposit of 10% is payable upon conclusion of the sale agreement and is held by the conveyancer in trust with interest accruing to the purchaser pending transfer, with the balance of the purchase price payable upon registration of transfer. A guarantee from a local bank for the balance of the purchase will be required in most cases. This will entail either the actual remittance of the necessary funds to the local bank or the provision of a back to back guarantee by the purchaser's foreign bank. |
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4.3 |
The transfer process:
Ownership of the property is transferred by registration in the Deeds Registry and this is attended to by a specially qualified legal practitioner known as a conveyancer. The conveyancer is appointed by the seller and is responsible for preparing the necessary transfer documents, obtaining rates clearances, paying transfer duty, liaising with the conveyancer attending to the mortgage bond registration, arranging the finances and monitoring the transfer process in general. It is not the norm for both parties to have their own attorneys. Once the preliminary steps are completed, the finances are in order and the transfer documents signed, the documents are lodged in the Deeds Registry for examination and, provided they are approved, registration follows after approximately 8 working days. |
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4.4 |
Transfer and bond registration costs:
These costs include the conveyancer's fee calculated according to a tariff recommended by the Law Society, Deeds Registry fees and transfer or stamp duty and are generally payable by the purchaser. |
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4.5 |
Possession, occupation and occupational interest:
Occupation occurs when the purchaser takes physical occupation of the property, the date of which is usually specified in the sale agreement and may or may not be simultaneously with transfer. The legal concept of possession arises when the purchaser assumes the risks and benefits of ownership and becomes responsible for the property. Possession may or may not coincide with occupation but is usually linked to transfer. If the purchaser takes occupation prior to transfer, occupational interest is usually payable to the seller as a form of rental. |
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4.6 |
The condition of the property:
Property is generally sold "voetstoots" or "as is" with the seller giving no warranty as to the condition of the property. The seller is however obliged to disclose to the purchaser any latent defects in the property of which he has knowledge. It is not standard practice to conduct property surveys although this can be included as a condition in the sale agreement. |
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4.7 |
Fixtures and fittings:
Property is generally sold with all attached fixtures and fittings of a permanent nature, unless otherwise specified in the sale agreement. |
|
4.8 |
Electrical compliance certificate:
The seller is obliged by law to provide the purchaser with an electrical compliance certificate which certifies that the electrical system in the property complies with certain basic requirements relating to its safety and correct connection to the main electrical supply. |
| 5. |
SALE OF PROPERTY
Non-residents may freely dispose of property acquired with offshore funds and repatriate such funds and any profits realized on the disposal of the property. Should the property be entrusted to an estate agent for sale, the seller will be liable for estate agents' commission of up to 7.5% of the selling price plus VAT of 14% thereon upon the successful sale of the property. As indicated above, the purchaser will be liable for the transfer and bond registration costs, whilst the seller will be liable for the relatively nominal costs of cancelling any mortgage bond which may be registered over the property. |
| 6. |
INCOME TAX AND CAPITAL GAINS TAX |
|
6.1 |
Income tax:
Although South Africa adopts a primarily residency-based income tax system, there are certain source-based exceptions which affect non-residents. Essentially any income earned by a non-resident from a source such as rental on a property in South Africa, after deduction of the allowable expenses, exemptions and deductions will be subject to taxation in South Africa and the non-resident income earner will be obliged to register as a local taxpayer. Income not exceeding SAR 43,000.00 per annum, for persons under the age of 65, is however exempt from income tax, whilst income not exceeding SAR 69,000.00 per annum, for persons over the age of 65, is equally exempt. Income exceeding these amounts will be taxed on a sliding scale ranging from marginal rates of 18% to 40%. In broad terms a foreign national not ordinarily resident in the country will be deemed to be a South African resident if he spends more than 91 days in the country in each of the current year and the preceding 3 years as well as more than 549 days for the previous 3 years.
Corporate entities are taxed at a flat rate of 29% whilst the equivalent rate for trusts is 40%. Non-resident companies are taxed at a flat rate of 34%. |
|
6.2 |
Capital Gains Tax:
Capital Gains Tax was introduced on 1 October 2001 and is applicable to property disposed by both residents, with some exemptions, and non-residents. The capital gain upon disposal of property is determined by adding a portion of the gain or profit to the income of the individual, corporate entity or trust and taxing that portion of the gain at the relevant marginal or flat tax rate. The effective tax rates on such gains range from a maximum of 10% for individuals to 14.5% for corporate entities and to a maximum of 20% for trusts. |
| 7. |
IMMIGRATION
Recent changes to legislation are being challenged before the Courts and this has resulted in some uncertainty regarding the enforceability of the requirements for the various categories of visitors and immigrant residents as determined by the Department of Home Affairs. A detailed discussion of the categories and criteria applicable to each is both premature in the circumstances and beyond the scope of this document and specific advice should be obtained from a specialist. |
| The material in this guideline is provided for the purpose of general information only and should not be construed as constituting legal, tax, immigration or other professional advice. Schnetler's accepts no responsibility or liability for any loss, damage or prejudice of any nature whatsoever which may arise as a result of the reliance on information contained herein by any person. |
