Advisory Services - Buying property in South Africa

Exchange control/ Repatriation of funds

All funds introduced from outside South Africa to acquire fixed property within South Africa may be repatriated together with any profit on resale of the property, provided, the title deed of the property has been endorsed "non-resident". Similarly, funds introduced to acquire shares in a company/members interest in a close corporation may be repatriated together with any profit on resale, provided, the relevant securities have been endorsed "non-resident". Funds, introduced into South Africa in the form of a foreign loan to fund acquisitions of corporate entities which own property in South Africa, may be repatriated in terms of the original loan approval by the Reserve Bank. The profit on resale may also be repatriated, provided, the relevant securities have been endorsed "non-resident".

Income Tax

South Africa follows a revenue-based income tax system meaning that income earned from a South African source will be subject to ordinary income tax. Accordingly, any rental earned by non-residents in respect of South African properties will be subject to income tax and it is the responsibility of the non-resident to register as a South African taxpayer. Income earned by natural persons below R27 000.00 per annum (for persons under the age of 65) and R42 640.00 (for persons above the age of 65) is exempt from income tax, whilst all income earned over and above the aforesaid amounts, will be taxed at a marginal rate applicable to that non-resident in accordance with published tax tables. The marginal tax rate is calculated on a sliding scale with a maximum rate of 40%. Corporate entities are subject to a tax rate of 30% of each Rand of taxable income whilst the equivalent rate for trusts is 40%. Non-resident companies are taxed at a rate of 35% but are exempt from secondary tax on companies ("STC") in respect of dividends paid.

Capital Gains Tax

South African residents are liable for the payment of Capital Gains Tax ("CGT") on the disposal of any asset, subject to certain limited exceptions. Non-residents, however, are only liable to pay CGT on the disposal of the following:

• 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.

CGT is payable in the year in which the asset is disposed of and is calculated by adding 25% of the capital gain, or profit, to the individuals income for that year and taxing that income at the individuals marginal rate of income tax. The maximum marginal income tax rate for individuals in South Africa is presently 40% (reached at taxable income levels above R240 000). The capital gain is calculated and disclosed in the individuals' income tax return for the year in which it is sold. Thus, if a non-resident disposes of an 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. CGT became effective on 1 October 2001 and is thus payable only from that date. The amount of a capital gain is calculated either by deducting the value of the property as at 1 October 2001 (together with the costs of acquiring and improving the property) from the proceeds on disposal of the property or by apportioning the amount of time the property was owned between the period before 1 October 2001 and the period after that date. South African residents do not pay CGT on the first R1-million of profit made on the disposal of their primary residence. However, non-residents will not qualify for this exemption if their primary residence is not in South Africa.

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