What Non-Residents Should Know About "Withholding Tax" When Selling Property In South Africa

When a non-resident sells property in South Africa, a portion of the sale price—sometimes as much as 15%—might be held back as withholding tax. This might seem like a surprise, but with the right legal guidance, sellers can navigate this without a hitch.

Why the Tax Withholding?

Under Section 35A of the Income Tax Act, if you're buying property from someone who isn't a South African resident and the price is over R2 million, your conveyancer (the legal professional handling the transfer) is legally required to hold back part of the purchase price.

This money goes to the South African Revenue Service (SARS). It acts as a pre-payment for any tax the seller might owe in South Africa. For instance, if the property was rented out, the seller might owe tax on that rental income. Or, they might owe capital gains tax on the profit made from the sale.

Once SARS has assessed the seller's actual tax liability, they'll use the withheld amount to cover it. If the amount withheld is more than what's owed, SARS will refund the difference to the seller.

Essentially, Section 35A makes it easier for SARS to collect taxes from non-resident sellers, as it can be tricky to do so once they've left the country.

How Much is Withheld?

The percentage withheld depends on who the seller is:

• 7.5% if the seller is an individual (a "natural person").
• 10% if the seller is a company.
• 15% if the seller is a trust.

When Does It Get Paid?

The withheld amount needs to be paid to SARS within 14 days from the date the funds were withheld. This usually happens when the property transfer is officially registered at the Deeds Registry.

What Happens if the Rules Aren't Followed?

Failing to comply has serious consequences:

• For the Purchaser: If you, as the buyer, knew or should have known the seller wasn't a resident but didn't withhold the tax, you become personally responsible for paying that amount to SARS, plus interest and penalties!

• For Estate Agents and Conveyancers: These professionals must inform the buyer in writing before payment to the seller that Section 35A might apply. If they knew or should have known the seller was a non-resident and didn't warn the buyer, they could be held jointly responsible. However, their liability is limited to the amount of their commission or fees.

How Can You Help Reduce or Eliminate the Withholding?

As a non-resident seller, you (or an attorney like STBB) need to start working on this early in the sales process. You or the attorneys need to apply to SARS for a tax directive. This is a crucial step because this directive can significantly reduce or even completely eliminate the amount of tax that needs to be withheld.

Without this directive, the standard withholding rates can mean a large chunk of the non-resident seller’s sale proceeds—up to 15%—is held back, often more than the actual tax liability. Getting a refund from SARS later can be a lengthy process and can cause unnecessary financial strain.