Non Resident Property Investment

South Africa by Non-Residents

South Africa is reputed to have one of the best deeds registration systems worldwide with an exceptional degree of accuracy and of tenure being guaranteed. Property can be owned individually, jointly in undivided shares or by an entity such as a company, close corporation or trust or a similar entity registered outside South Africa.

South Africa follows a system of land registration where every piece of land is reflected on a diagram and ownership recorded in one of the regionally located Deeds Registries where documents are available for public viewing.

NON-RESIDENTS

There are no restrictions on property ownership by non-residents, save for a prohibition on illegal aliens owning immovable property within South Africa. There are, however, procedures and requirements which must be complied with in certain circumstances, such as, the local registration of entities registered outside of South Africa where it purchases property in South Africa and the appointment of a South African resident public officer for a local company whose shares are owned by a non-resident. In the event of a non-resident purchasing property in the country with the intention of residing here for longer periods, permanent residency will have to be applied for in accordance with the given requirements and procedures of South African law.

FINANCIAL ASSISTANCE

There are restrictions on loans to non-resident purchasers of property. In brief, the non-resident may only borrow up to a maximum of the amount invested by the non-resident into the purchase of the property, which translates into a 50% to value borrowing ratio. Such loans are, however, subject to foreign exchange approval by the SA Reserve Bank which approvals are efficiently handled by all South African Commercial Banks offering financial assistance. Financial assistance is granted in the form of a loan secured by a Mortgage Bond to be registered in favour of the Bank granting the loan. Where the sale is subject to financial assistance, this should be included in the Agreement of Sale/Offer to Purchase as a suspensive condition. There are stringent restrictions and prohibitions imposed where the property is owned by a company and financial assistance is sought to finance the acquisition of shares and loan accounts in the property-owning company. 

TRANSFER PROCEDURE

The registration of a property transaction is handled by a specially qualified legal practitioner known as a conveyancer. It is customary for the seller to appoint the conveyancer to attend to the registration of transfer of a property sold, whilst

• the costs attendant on same are for the account of the purchaser, unless contractually agreed to otherwise.

The conveyancer prepares the requisite transfer documentation that, after signature by the purchaser and the seller, is lodged together with the cancellation of any existing mortgage bonds and new mortgage bonds to be registered in a regionally located Deeds Registry. The deeds are subject to an intense examination process where-after they are made available for registration. On date of registration of transfer all existing mortgage bonds registered over the property are cancelled simultaneously with the registration of any new mortgage bonds by the purchaser in favour of the bank granting financial assistance. The purchaser is recorded as the new owner of the property and the purchase price is paid to the seller. The above procedure does not apply in an instance where the shares/members interest and loans are acquired in a property-owning company/close corporation where no change in ownership is recorded in the Deeds Registry. It is important to note that upon transfer to the new owner, any liabilities in respect of the property incurred by the previous owner remain with the previous owner and not necessarily pass to the new owner, unless otherwise agreed to.

SIGNATURE OF DOCUMENTS

Documentation prepared by the conveyancer pertaining to the registration of transfer of the property and any mortgage bond to be registered over the property is required to be signed in black ink and must be authenticated if signed outside South Africa. This is sometimes inconvenient and it is possible, and often advisable, to leave a General Power of Attorney in favour of an entrusted person within South Africa to assist in this regard.

Where the purchaser is married, which marriage is governed by the laws of a foreign country and a mortgage bond has been applied for; please note that the spouse of the purchaser will be required to assist the purchaser in signing the mortgage bond documentation. Marriages according to the laws of England and Scotland are exceptions to the aforegoing rule.

OCCUPATION, POSSESSION, TRANSFER AND OCCUPATIONAL RENTAL

Occupation is the physical occupation of the property whereas possession is generally deemed to be the date upon which the purchaser assumes responsibility for the property and it is customary for the risk of ownership to pass on the date of possession. Transfer refers to the actual date of registration of ownership in the Deeds Registry in favour of the purchaser. Occupational consideration is the rental payable by the party occupying the property belonging to another where the date of occupation and date of transfer differs, which is better expressed in Rand terms or as a percentage of the outstanding balance of the purchase price.

EXCHANGE CONTROL/REPATRIATION OF FUNDS

All funds introduced from outside South Africa to acquire fixed property within South Africa may be repatriated together with any profit on resale of the property, provided, the title deed of the property has been endorsed "non-resident". Similarly, funds introduced to acquire shares in a company/ members interest in a close corporation may be repatriated together with any profit on resale, provided, the relevant securities have been endorsed "non-resident". Funds, introduced into South Africa in the form of a foreign loan to fund acquisitions of corporate entities which own property in South Africa, may be repatriated in terms of the original loan approval by the Reserve Bank. The profit on resale may also be repatriated, provided, the relevant securities have been endorsed "non-resident".

INCOME TAX

South Africa follows a revenue-based income tax system meaning that income earned from a South African source will be subject to ordinary income tax. Non Residents are liable for tax on a more limited basis and their liability is dependent on the source of their gross income being a South African source. 

Any rental earned by non-residents in respect of South Africa properties will be subject to income tax and it is the responsibility of the non-resident to register as a South African Tax Payer.

CAPITAL GAINS TAX

South Africa residents are liable for the payment of Capital Gains Tax (“CGT”) on the disposal of any asset, subject to certain limited exceptions. Non-residnets, however, are only liable to pay CGT on the disposal of the following:

• Immovable property situated in South Africa, including any right or interest in immovable property (this also includes an interest of at least 20% in a company where 80% or more of the value of the net assets of the company is attributable, directly or indirectly, to immovable property in South Africa);
• Assets of a permanent establishment of a non-resident through which trade is carried on in South Africa.

CGT is payable in the year in which the asset is disposed of and is calculated by adding 25% of the capital gain, or profit, to the individuals income for that year and taxing that income at the individuals marginal rate of income tax. The maximum marginal income tax rate for individuals in South Africa is presently 40% (reached at taxable income levels above R270 000).

The capital gain is calculated and disclosed in the individuals' income tax return for the year in which it is sold. Thus, if a non-resident disposes of an immovable property in any year of assessment and is not already registered as a South African taxpayer, he or she will have to register as such and submit an income tax return reflecting the calculation of the capital gain and will be liable for the payment of CGT on that gain.

CGT became effective on 1 October 2001 and is thus payable only from that date. The amount of a capital gain is calculated either by deducting the value of the property as at 1 October 2001 (together with the costs of acquiring and improving the property) from the proceeds on disposal of the property or by apportioning the amount of time the property was owned between the period before 1 October 2001 and the period after that date.

South African residents do not pay CGT on the first R1-million of profit made on the disposal of their primary residence. However, non-residents will not qualify for this exemption if their primary residence is not in South Africa.

Note

SACAR Development Consultancy (cc) is able to act on your behalf with provision of one- stop shop services. We are able and willing to act as your proxy in areas of Powers of Attorney in the Sales Agreement, sourcing of mortgage, and facilitate the services of a third party agent in the registration and transfer of property to the purchaser.