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. Documents are available for public viewing. South Africa is reputed to have one of the best deeds registration systems worldwide with an exceptional degree of accuracy and security 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.
Buying a property
All contracts to acquire land must be in writing, contain certain prescribed information and be signed by both buyer and seller to be valid and legally binding. Contracts most commonly take the form of an Agreement of Sale or Offer to Purchase which, once accepted, constitutes an Agreement of Sale.
Once an Agreement of Sale has been signed by both parties it represents a valid and binding contract from which neither party can withdraw without incurring legal consequences, except in certain instances, for example:
- The agreement is subject to certain conditions which are not fulfilled.
The de facto ownership of property can also be obtained by means of acquiring the shares/members' interest and loan claims in a company/close corporation that owns a property.
Costs when purchasing property:
The Seller is responsible for:
- Brokerage (commission) is payable where a property professional/realtor is responsible for the successful facilitation of a sale of immovable property. Brokerage is customarily payable by the seller who mandates the property professional to procure a purchaser for the property. Should the parties however agree that the purchaser settles the selling agent's commission, there are certain tax implications, and the parties need to obtain advice.
- The seller is usually also responsible for the cost of procuring certain prescribed compliance certificates.
- If the seller's property is bonded (mortgaged), the seller is liable for the costs relating to the cancellation of the existing bond (mortgage) over the property.
- Usually, the seller also pays 90 days' advance rates, services and levies, where applicable, and any arrears to the local authorities.
The Purchaser is responsible for:
- Transfer Cost – The purchaser is responsible for the payment of transfer costs and the costs of registering any new mortgage bonds over the property purchased. These are often referred to as the “transfer cost”. The conveyancing fee is determined according to the purchase price of the property in a tariff guideline issued by the Legal Practice Council. Conveyancing fees further include:
- Transfer duty that is payable to the Receiver of Revenue, calculated on the following formula, based on the purchase price:
- R 1 to R 1 210 000: Notransferduty
- R1 210 001 to R 1 663 800: 3% of the value above R 1 210 000
- R 1 663 801 to R 2 329 300: R13,614+6% of the value above R 1 663 800
- R 2 329 301 to R 2 994 800: R53,544+8% of the value above R 2 329 300
- R 2 994 801 to R 13 310 000: R106,784+11% of the value above R 2 994 800
- R 13 310 001 and above: R 1 241 456+13% of the value exceeding R 13 310 000
Transfer duty is payable on the acquisition of property whether by an individual or entity. Note the exception: no transfer duty is payable if VAT is payable. It the seller is a VAT vendor, VAT will be payable either at the standard rate (15%) or at the rate of zero percent (0%) depending on the nature of the transfer.
- Sundry charges are imposed by the Deeds Registry and the Bank granting financial assistance; and
- Expenses for obtaining rates/levy clearance certificates.
Signature of Documents
Documents 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 by hand and in black ink.
In the event of such documents being signed outside of South Africa, there are certain jurisdiction specific formalities pertaining to authentication of the signatories that must be complied with to ensure the validity of the document. This authentication can be time-consuming and costly, and we encourage specific advice be obtained from the conveyancer.
It is possible, and often advisable, to leave a General Power of Attorney (GPA) in favour of a trusted person in South Africa to assist in this regard. It is important to note that no person may sign an affidavit on someone else's behalf, even if a GPA has been granted.
When you are married according to the laws of a foreign country the spouse of the seller will be required to assist the seller in signing all the transfer-related documents.
Non-residents and Tax
- Income tax:
- Non-residents are only liable to pay income tax in South Africa on income accruing from a South African source. This includes a profit realised from letting fixed or other property, as well as the capital profit realised from the disposal of a capital asset (capital profit).
Note that foreign pensions are specifically exempt from tax in South Africa.
A distinction must however be made between normal income and income of a capital nature. Income generated through a scheme of profit-making is classified as normal income and would, for example, include salary or rental income which is taxable. The sale of a capital asset can either result in capital gain or loss. In the event that it is a capital gain, it will be taxed in accordance with SARS withholding tax scale.
- Capital Gains Tax:
- The phrase “Capital Gains Tax” is actually a misnomer as this is not a separate tax. In reality, only a portion of a capital gain is included as normal income and the tax on this gain is referred to as Capital Gains Tax. The inclusion rate depends on the type of owner. The effective rate of tax applicable to a capital gain made by an entity is 21.6% and 36% in respect of a trust. The position for individuals is more complex due to a progressive sliding tax scale applied to the income of natural persons
The effective tax rate in respect of a capital gain in the hands of a natural person is directly related to the total taxable income for the year of assessment. 40% of the capital gain must be added to the taxpayer's total income for the year. The sliding scale ranges from 0% to 45%. The highest effective tax rate applicable to a capital gain realised by an individual is 18% (40% x 45%).
The disposal of the following will be treated as a capital disposal:
- 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 belonging to a non-resident through which trade is carried on in South Africa.
A non-resident realising a profit from the sale of fixed property or any other income from a South African source is obliged to register as a non-resident taxpayer in South Africa and to submit a tax return for the relevant tax period declaring the income to the South African Revenue Services (“SARS”) and to make payment in accordance with the assessment raised by SARS.
Buying property with foreign funds
Foreign funds can be paid into any nominated bank account in South Africa. This account will usually be the trust account of the transferring attorneys into which the deposit for the property and the balance of the purchase price is paid. These funds will be invested for the non-resident's benefit provided that the attorney is mandated to do so, and the non-resident can rest assured that the funds are secure and guaranteed.
When a non-resident transfers funds from a foreign source into a South African bank account, a record known as a “deal receipt” is kept of the foreign funds received by the South African bank. This is an important document which must be retained for purposes of repatriation of the funds.
Borrowing money in South Africa
Subject to the internal lending requirements of local financials institutions, non-residents are allowed to borrow up to 50% of the outstanding purchase price of the property locally on the proviso that the initial 50% of the purchase price as well as the transfer fees and transfer duties have been introduced into South Africa from a foreign source.
Remittance abroad of sale proceeds
Whilst the South African Reserve Bank (“SARB”) strictly enforces the exchange control regulations which limit the transfer of funds abroad, non-residents are allowed to remit their available proceeds overseas provided that the applicable regulations are adhered to.
