Beware new tax on property sales to non-residents

Buyers, sellers and property professionals need to be aware when dealing with a property owned by a non-SA resident due to a new tax requirement in the pipeline.

A new withholding tax levy will soon be due when a property situated in South Africa is acquired from a non-resident on purchases exceeding R2-million.

According to Greg Tarrant, a KPMG consultant on international tax, the tax is deducted from the purchase price and payable to SARS by the buyer of the property.

The rate of withholding tax differs depending on whether the non-resident seller is a natural person (5%), a company (7,5%) or a trust (10%). Where the purchaser is a resident the date of payment of the withholding tax must be within 14 days after the date on which the amount was withheld. If the purchaser is a non-resident this is extended to 28 days.

“The onus is thus on buyers and estate agents and conveyancers to find out whether a seller is a non-resident or not,” he adds. “If a purchaser knows or should reasonably have known that the seller is a non-resident he or she becomes personally liable for the payment to the Receiver should he fail to withhold any amount as required.”

This is not the case, however, where the purchaser makes use of an estate agent or a conveyancer and they fail to inform him of the non-resident status of the seller. This approach was adopted by SARS as estate agents and conveyancers, as professionals, are more likely to be aware of the withholding tax obligation arising from the transfer than the ordinary purchaser. Where they fail to inform the purchaser they become jointly and severally liable for the withholding tax. The liability is, however, restricted to any commission/fees generated from the transaction.

“It is essentially an advance on the normal tax payable by the seller,” comments Tarrant. According to SARS, the non-resident’s connection to South Africa is often tenuous and the new requirement will be achieved through withholding. The amounts withheld can be applied by the non-resident to reduce the total income tax due for the year or to claim a refund.

The non-resident seller may apply to the Commissioner for a directive that no amount or a reduced amount be withheld by the purchaser but only under certain conditions. These include the seller providing adequate security to SARS or if the non-resident seller can demonstrate that the sale of the property will result in a capital loss.

Tarrant says that the new requirement is yet to come into effect. “The reason given by SARS for the delay is that flexibility is required to establish the procedure for issuing directives and for the professional communities affected to fully inform members and to fully prepare compliance procedures.”

Given the amount of foreign interest in South African properties as investment properties, sellers should keep a watchful eye on the enactment of this section. Estate agents and conveyancers should take particular note, he warns.
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