A Foreigners Guide To Buying Property In South Africa - 2021

According to Stefan le Roux, Managing partner of SL Law, there is no restriction on foreign investors acquiring property in South Africa.

Introduction

• All ownership of land is recorded in a deeds registry and is evidenced by means of a deed of transfer which is registered at the deeds registry. There are various deeds offices situated across the country.
• A conveyancing attorney who has been admitted as such by the High Court of South Africa attends to the transfer process which is finalised by means of registration at the deeds office.

WHAT ARE THE FORMALITIES?

• Under the Alienation of Land Act an agreement for the sale of land, whether freehold or sectional title, must be in writing and signed by the seller and purchaser or their agents acting on their written authority.
• There is no recognition in South African law of the British legal concepts of "joint tenants" or "tenants in common".
• As the South African deeds office does not concern itself with the laws of countries outside South Africa, the consent of the spouse of a person whose marriage is governed by the laws of a foreign country will be required when property in South Africa is mortgaged or disposed of by one of the spouses.
• Certain transfer and mortgage bond registration documents will therefore require signature by the spouse. This is so because under South African law there are two basic matrimonial property regimes, being in community of property or out of community of property. In the former case the provisions of the Matrimonial Property Act provide that both spouses must act jointly when dealing with (i.e. acquiring or encumbering) fixed property.
• Documents signed outside South Africa for purposes of use within South Africa must be signed according to the provisions of South African High Court Rule 63, which provides that:

Any document executed in any place outside the Republic shall be deemed to be sufficiently authenticated for the purpose of use in the Republic if it be duly authenticated at such foreign place by the signature and seal of office-

(a) of the head of a South African diplomatic or consular mission or a person in the administrative or professional division of the public service serving at a South African diplomatic, consular or trade office abroad; or

(b) of a consul-general, consul, vice-consul or consular agent of the United Kingdom or any other person acting in any of the aforementioned capacities or a pro-consul of the United Kingdom;

(c) of any Government authority of such foreign place charged with the authentication of documents under the law of that foreign country; or

(d) of any person in such foreign place who shall be shown by a certificate of any person referred to in paragraph (a), (b) or (c) or of any diplomatic or consular officer of such foreign country in the Republic to be duly authorised to authenticate such document under the law of that foreign country; or

(e) of a notary public in the United Kingdom of Great Britain and Northern Ireland or in Zimbabwe, Lesotho, Botswana or Swaziland; or

(f) of a commissioned officer of the South African Defence Force as defined in section one of the Defence Act, 1957 (Act 44 of 1957), in the case of a document executed by any person on active service.

HOW SHOULD YOU ACQUIRE THE PROPERTY?

Property can be owned by an individual, company or other entity, either local or foreign.

Individual

• Any person can own property outright in his/her own name and may also rent out the property.
• The rental income will be taxed under the South African tax regime by virtue of the fact that the property is situated in the Republic of South Africa. South African tax returns are therefore required to be completed and submitted annually.
• When an individual disposes of the immovable property, capital gains tax is payable at the maximum effective rate of 18%.

Foreign companies and trusts

• For foreign companies to acquire property in South Africa, they may need to register as an external company in terms of the Companies Act 71 of 2008.
• The deeds registry will also require a foreign trust to be registered by the Master of the High Court of South Africa.

South African companies

• Any rental income, net of expenses, derived by the company is taxed at a rate of 28%.
• The rate of 28% for the company is lower than the maximum tax rate for individuals, which is currently 45%.
• When the company disposes of the immovable property, capital gains tax is payable at a rate of 22.4%.
• Dividends declared by a company attracts dividend withholding tax at a rate of 20%.

South African trusts

• Any rental income, net of expenses, derived by the trust is taxed at a rate of 45%.
• When the trust disposes of the immovable property, capital gains tax is payable at a rate of 36%.

TRANSFER TAXES(STAMP DUTY LANDS TAX) Transfer duty is payable to SARS by a purchaser when property is acquired. With effect from 1st March 2021 the following transfer duty rates apply:

Value of the property (R) Rate

0 - 1 000 000.00 0%

1 000 001 - 1 375 000 3% of the value above R1 000 000

1 375 001 - 1 925 000 R11 250 + 6% of the value above R 1 375 000

1 925 001 - 2 475 000 R44 250 + 8% of the value above R 1 925 000

2 475 001 - 11 000 000 R88 250 +11% of the value exceeding R2 475 000

11 000 001 and above R1 026 000 +13% of the value exceeding R11 000 000

If the seller of the property is a registered vendor for VAT purposes, then VAT at 15% is payable by the seller and not transfer duty. Under certain circumstances the acquisition of a business property maybe subject to zero-rated VAT. OTHER COSTS Seller The Seller is responsible for the payment of the estate agent's brokerage. If the property is mortgage, the Seller will pay the cancellation costs in order to cancel the mortgage bond. A Seller is responsible for the compliance certificate inspection fees and any remedial work required in order to have the electricity, water, gas, electric fence and beetle certificates issued. Purchaser The Purchaser is responsible for the payment of the attorneys' fees relating to the registration of the property into his/her name and any bond registration fees. Deeds Office charges, and levy and rates clearance certificate charges are payable by the Purchaser WHAT ABOUT FINANCING? A foreign purchaser can obtain a loan from a South African bank of up to 50% of the purchase price provided all South African Reserve Bank conditions are satisfied. If you are a permanent resident in South Africa however you may qualify for a higher loan provided South African Reserve Bank requirements are met. Repayment of a loan to finance the acquisition of fixed property will generally be secured by means of registration of a mortgage bond at the deeds office simultaneously with registration of transfer of the property into the name of the purchaser. Mortgage bonds afford a bondholder first preference over the proceeds of the sale of the property in the event of insolvency of the property owner.

TWO BASIC PROPERTY TYPES As with the distinction in British law between commonhold and freehold property, under South African law there is sectional title (similar to commonhold) and freehold property. The Deeds Registries Act and the Sectional Titles Act are relevant here.

• Whereas freehold property is depicted on a diagram approved by the Surveyor-General, it is possible to own units in buildings through the Sectional Titles Act. These are known as sectional title units, and are registered in a deeds registry, by reference to a sectional title plan, prepared by a land surveyor and registered with the Surveyor-General
• A unit in a sectional title scheme is to be described in title deeds as follows:

A unit consisting of:-

(a) Section No. ..... as shown and more fully described on Sectional Plan No. SS........../...., ("the sectional plan") in the scheme known as ............... in respect of the land and building or buildings situate at .............., in the municipal area of ....................., of which section the floor area, according to the said sectional plan, is 82 (EIGHTY TWO) SQUARE METRES in extent ("the mortgaged section"); and

(b) an undivided share in the common property in the scheme apportioned to the said section in accordance with the participation quota as endorsed on the said sectional plan ("the common property").

• Under the Sectional Titles Act it is also possible to have the exclusive use of certain parts of the common property such as parking bays, registered under a notarial deed or allocated in terms of the rules of the sectional title scheme.

WHAT IF YOU SELL YOUR PROPERTY IN SOUTH AFRICA?

The seller is entitled to appoint his own conveyancing attorney to attend to the transfer, to ensure that the purchase price is properly secured and in good time, and to ensure that the transfer process is not delayed by the purchaser.

• Properties may not be transferred unless the mortgage bond is cancelled. Accordingly the consent of the bondholder is required for the transfer of a property.
• A withholding amount is payable to the SARS pending determination of the tax liability by the non-resident seller to SARS. The amount withheld by the purchaser serves as an advance payment towards the seller's final income tax liability.

The current rates are:

• 7.5% for individuals
• 10% for companies and
• 15% for trusts.

If certain requirements are met, application may be made to the South African Revenue Services for a tax directive stipulating a lesser/no amount to be withheld.

Treaty relief may be available to taxpayers in terms of international treaties.

Can you transfer your sale proceeds abroad?

• Before the proceeds of the sale of immovable property in South Africa or shares in a company-owning South African immovable property may be taken abroad by a non-resident, South African Reserve Bank approval is required.

It is advisable to keep all financial records relating to the transaction, particularly proof that the funds used to purchase the property were introduced from overseas.

ESTATE DUTY

Estate duty is levied at 20% for estates with a gross value of R30M and 25% of the value exceeding R30M, however any assets bequeathed to the surviving spouse is not subject to estate duty. The rebate of R3.5 million is also applicable to non-residents in respect of South African assets only. It is recommended that a Last Will and Testament, regulating the distribution of South African assets, be executed.