Are you a non-resident selling immovable property in South Africa?
“A fine is a tax for doing something wrong. A Tax is a fine for doing something right.” – Anonymous.
Withholding Tax: A non-resident selling immovable property in South Africa
When it comes to the selling of immovable property, certain rules and regulations apply. If the seller of the property is a non-resident of South Africa, section 35A of the Income Tax Act, 58 of 1962 (as amended) imposes a duty on the purchaser to withhold tax on the sale of immovable property. A non-resident for tax purposes is a person who is not ordinarily resident in the Republic of South Africa, or does not meet the physical presence test, which determines that a person was not present in the country exceeding 915 days in total during the 5-year period preceding the year of assessment.
Section 35A states that any purchaser of immovable property (which includes a resident or non-resident purchaser) who pays more than R2 million consideration to a non-resident seller, is obligated to withhold from that amount the following percentage:
- 5% if the non-resident seller is a natural person;
- 5% if the non-resident seller is a company; and
- 10% if the non-resident seller is a trust.
The purchaser must pay the amount withheld to the South African Revenue Service (SARS) within 14 days after the date on which that amount was so withheld, usually from date of registration of the immovable property in the deed’s office. If the purchaser is a non-resident of South Africa, then the amount withheld must be paid to SARS within 28 days.
Section 35A was created as a mechanism to ensure the tax liabilities of non-residents are sustained and that the purchasers have enough funds to pay over the withholding tax to SARS. The purpose of this section is to prevent non-resident sellers to sell immovable property without paying tax due to SARS. The non-resident may obtain a directive from SARS, under certain conditions, that no amount or a reduced amount is withheld by the purchaser. That would depend on any security provided by the seller to SARS (such as other immovable properties or whether the tax liability is less than the monies to be paid over).
It is however important for purchasers and sellers to take note of the implications of section 35A insofar the time it could take for SARS to refund any excess amounts. It is therefore suggested that in such cases, both the purchaser and seller consult a property law expert or conveyancer for advice.