On 1 September 2007, section 35A of the Income Tax Act, No 58 of 1962 (‘the Act’), came into operation.
1.) In terms of Sec 35A of the Act all purchasers of immovable property (including non-residents) are burdened with a statutory duty to withhold a certain percentage of the purchase price for payment to the South African Revenue services (‘SARS’) if:
1.1) the seller is a non-resident;
1.2)the purchase price exceeds R2 000 000.
2.) A purchaser is then compelled to withhold an amount equal to:
2.1) 7,5% of the purchase price if the seller is a natural person;
2.2)10% if the seller is a company (presumably also if the seller is a close corporation – the Act only refers to a company);
2.3) 15% if the seller is a trust.
3.) The amount withheld by a purchaser in terms of the Act has to be paid to SARS:
3.1) within 14 days from the date on which the amount was withheld, if the purchaser is a resident;
3.2) within 28 days after the date on which the amount was withheld, if the purchaser is a non-resident.
4.) In the event that a purchaser fails to pay any required amount to SARS within the period allowed for payment, he/she/it will be liable for payment of:
4.1) interest at the prescribed rate on any amount outstanding, and;
4.2) a penalty equal to 10% of the amount outstanding.
5.) A purchaser who knew, or who ought reasonably to have known, that a seller is a non-resident and who has failed to withhold the required amount, will be personally liable for payment of such amount to SARS on a date not later than the date on which payment should have been made if the amount had in fact been withheld.
6.) In the event that:
6.1) an estate agent, who is entitled to commission in respect of the sale of a property, and/or
6.2) a transferring attorney, who is entitled to a fee for professional services rendered in connection with the registration of transfer of a property,
knows, or should reasonably have known, that a seller is a non-resident, and fails to notify the purchaser in writing thereof (and that Section 35A of the Act may apply), the purchaser will be relieved of the sanction as explained in paragraph 5 above.
7.) An estate agent and/or a transferring attorney who fails to notify a purchaser of the fact that the seller is a non-resident, will be jointly and severally liable for the payment of the amount which the purchaser is required to withhold and pay to SARS, but their liability will be limited, respectively, to the amount of the estate agent’s commission and/or the professional fee of the transferring attorney.
8.) A purchaser, estate agent and/or transferring attorney will be entitled to claim from a seller any amounts that they were compelled to pay to SARS following their failures referred to in paragraphs 5 and 7 above.
9.) It is important to note that a seller is entitled to apply to SARS for a directive that no amount, or a reduced amount, be withheld by a purchaser.
The insertion of Section 35A into the Act was necessitated by the fact that effective recovery of tax (including capital gains tax) from a seller is often impossible if the latter moves abroad once a property is sold. It is much easier for SARS to recover the tax from a purchaser who will be holding the immovable property upon completion of the transaction.