In South Africa there are currently no restrictions on ownership of fixed property by non-residents (provided they are not classified as illegal immigrants) and therefore all information supplied in previous articles in this series on the purchase and sale of fixed property will similarly apply to non-residents, irrespective of whether they are individuals or legal entities.
As an alternative to individual ownership, non-residents may own fixed property through shared ownership in a company (South African or foreign). However, there are certain procedures that have to be followed and requirements that have to be complied with in the event of a foreign company purchasing fixed property in South Africa:
- The company, although registered as such elsewhere in the world, will also have to be registered in South Africa;
- The South African resident public officer will have to be appointed for a South African company should shares in the said company be owned by a non-resident.
In addition, there are certain restrictions on the granting of mortgage loans to non-resident purchasers of fixed property, whether individuals or legal entities:
- They may not borrow more than 50% of the purchase price;
- The loan will be subject to foreign exchange approval by the South African Reserve Bank, the acquisition of which is normally undertaken by any one of the local commercial banks on behalf of the non-resident.
Foreign funds (normally the deposit, the balance of the purchase price and/or the relevant transfer costs) can be paid into any nominated bank account in South Africa, which in most cases will be the trust account of the transferring attorney.
South African Reserve Bank ruling B5 (i) states that “Authorised Dealers (normally commercial banks) may permit foreign nationals to re-transfer abroad capital which had been introduced into the Republic provided that they can substantiate the original introduction of the funds.” Therefore, whenever funds are transferred from a foreign source to a South African bank account, a “transaction advice” is supplied by the local bank which has to be carefully preserved by the non-resident purchaser as it will have to be presented when the property is sold and the non-resident wishes to repatriate the proceeds of such sale. It is advisable, though, as soon as possible after registration of transfer, to have the original title deed endorsed as “non-resident” by the bank through which the funds were introduced into South Africa.
The proceeds of a sale of fixed property belonging to a non-resident, together with any profit derived from the sale (proportionate to his/her shareholding in the property in the case of a legal entity being the registered owner), may be repatriated in terms of our Exchange Control Regulations. However, if the source of funds for payment of the initial purchase price (or any portion thereof) was a mortgage loan (bond) obtained in South Africa, the portion that was financed cannot be repatriated unless the total amount of the bond was settled with foreign funds. The repatriation of funds is subject to payment of capital gains tax by a non-resident seller. In order to control and facilitate payment thereof, an obligation has since 1 September 2007 been imposed on purchasers of fixed property, when buying from non-residents for a price exceeding R2 million, to retain and pay to the South African Revenue Services:
- 7.5% of the purchase price in the case of a non-resident individual;
- 10.0% in the case of a non-resident company; and
- 15.0% in the case of a non-resident trust
as an advance collection of the non-resident’s income tax liability for the year of assessment in which the property was sold. (In this regard, refer to chapter 8 for a comprehensive discussion of Section 35A of the Income Tax Act.)
Whenever transfer and/or bond documents are signed outside of South Africa, High Court Rule 63 has to be complied with. In terms thereof the relevant documents have to be signed before a Notary Public in certain specified countries. However, in most countries the documents will have to be signed at the South African Embassy or any Government authority of such country charged with the authentication of documents under the laws of that country.