Property and being a Foreign Buyer

Feb 12, 2019 | All, Industry

Overseas investment property is a big lure for many foreigners. It becomes even more appealing when the exchange rate is favourable and the weather is excellent.

South Africa is one of the most appealing options for foreign investors for all these reasons and more.

Currently, there are no restrictions on foreigners buying property in South Africa, unless they are illegal immigrants.

Foreigners can purchase and own immovable property in South Africa without restriction – non-nationals are subject to the same laws as nationals.

Before buying

Non-residents who want to live in South Africa will have to make sure they comply with the Immigration Act. If you are not currently living or working in South Africa, make sure you check with the South African Department of Home Affairs about the options available to you. Foreign property investors may meet the requirements for a retirement visa, but make sure to familiarise yourself before shopping around.

Getting a home loan as a foreigner or paying cash

The process of applying for a bond as a foreigner in South Africa will depend on a number of things. Buying a property as a foreigner can be done individually or jointly, or through shares in a company that is the registered owner of a property.

Non-residents are usually only allowed to apply for a 50% bond, meaning the rest of the capital will need to be raised elsewhere. Additionally, foreigners not resident or domiciled in South Africa must invest one rand in the country for every rand they wish to borrow.

If you’ve got the cash to pay up front, though, that option is available, too. Home finance specialist at Ooba, Yvonne Viljoen, explains:

“They can pay cash and introduce the full amount into South Africa via the Reserve Bank. The buyer will have to provide a guarantee issued by a local financial institution for the balance of the purchase price. In order for a local bank to issue that guarantee, the funds will have to be remitted to South Africa via the Reserve Bank, otherwise, arrangements must be made between a foreign and local bank for a back-to-back guarantee. It is possible to negotiate a standby letter of credit from an overseas institution in certain circumstances.”

What you need to know about tax on property as a foreign buyer/seller

According to legal firm, Smith Tabata Buchanan Boyes (STBB), Property Fox’s legal partners, South African residents are liable for the payment of Capital Gains Tax (“CGT”) on the disposal of any capital asset, subject to certain limited exceptions. Non-residents, however, are only liable to pay CGT on the disposal of the following:

They can pay cash and introduce the full amount into South Africa via the Reserve Bank.

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.

The capital gain is calculated and disclosed in the individual’s income tax return for the year in which it is sold. Thus, if a non-resident disposes of 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.

An obligation relating to the withholding of a percentage of the sale proceeds from non-resident sellers was introduced into our tax laws in 2007. This provision requires that, where a non-resident sells a property for more than R2 million, provisional CGT must be paid to SARS in an amount of:

  • 7,5% in the event of a natural non-resident seller,
  • 10% in the event of a foreign company; and
  • 15% in the event of a foreign trust

unless a specific CGT directive is applied for prior to transfer of the property being registered.

Estate duty is presently calculated at 20% of the dutiable amount of an estate for the value up to R30 million and 25% on the value exceeding R30 million. However, any inheritance bequeathed to a surviving spouse is not subject to estate duty.

Non-residents, like South Africans, are entitled to a rebate of R3.5 million on their dutiable assets; however, unlike South Africans, this rebate is limited to assets situated in South Africa.

In a nutshell: Important things that non-resident buyers need to know

  • You are allowed to own property in South Africa as a non-resident, provided you meet the immigration requirements.
  • In most cases, foreigners can only apply for a home loan of 50%.
  • There are tax complications to consider for foreign investors.
  • Always check the requirements with a legal representative before signing a deal.

South Africa holds great potential for foreigners looking to invest in property. A favourable exchange rate and a variety of options – from compact city apartments to lush properties fit for development. However, make sure you check the legal requirements.

With the help of our highly effective scheduling team and legal team, at PropertyFox, you can be well-informed throughout your property journey. Contact us today and we’ll take it from there.

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