The question of whether a non-resident can buy property in South Africa is a common one, given the country's robust property market and growing international interest. The simple answer is yes, non-residents are legally entitled to purchase property in South Africa. However, there are several factors to consider, including legislation, taxes, and exchange control regulations.
South Africa's Property Clauses Act, alongside the Alienation of Land Act, allows non-residents to buy immovable property provided they comply with the required protocols. This includes notifying the South African Revenue Service (SARS) and adhering to exchange control regulations.
Residency Status and Property Ownership
Non-residents, by definition, are individuals who do not live permanently in South Africa. However, there are different types of non-residency statuses in terms of South African tax laws.
Understanding your residency status is crucial as it impacts the tax implications of owning a South African property. It's advisable to consult with a tax professional or legal expert to determine your residency status.
Ordinary Residents vs. Non-Ordinary Residents
Ordinary residents are individuals who are resident in South Africa throughout the year. Non-ordinary residents, on the other hand, consist of individuals who are not ordinary residents but are present in South Africa for an aggregate period of more than 91 days during the year of assessment, unless they are physically present for an average of less than 91 days in each of the five years before the year of assessment.
For non-ordinary residents, the first R1 million of capital gains are exempt from tax, while any gain above this is taxed at different rates based on the individual's taxable income for that year.
Foreign Persons
A foreign person is defined by the Income Tax Act as someone who is not a South African citizen or is not ordinarily resident in South Africa. Non-residents buying property in South Africa will fall into this category.
For foreign persons, the first R2 million of capital gains is exempt from tax, with any gain above this subject to tax at 18%. Additionally, foreign persons are required to pay triumvirate tax at the same rates as income tax on rental income derived from South African property.
Exchange Control Regulations
Exchange control regulations refer to the rules governing the movement of funds in and out of South Africa. These regulations apply to both South African residents and non-residents.
The South African Reserve Bank (SARB) places restrictions on the amount of money that can be moved into and out of the country. For non-residents, the limit is currently equivalent to R1 million per calendar year. This amount may cover both the purchase price and any related costs such as transfer fees, agent's commission, bond registration costs, and maintenance deposits.
Purchasing a Property as a Non-Resident
Non-residents should ensure they have the necessary funds available in South Africa before attempting to buy property. This is often done through a foreign exchange dealer, who will convert the funds at the current exchange rate and transfer them into a South African rand account.
Once the funds are available in South Africa, the non-resident can proceed with the property purchase. It's crucial to ensure all documents required by the SARB are completed accurately and submitted as part of the application for the exchange control approval. This is typically done through a bank or an attorneys' firm.
Selling a Property as a Non-Resident
When it comes time to sell the property, the non-resident needs to ensure they have sourced the required funds in South Africa to cover the selling costs. These costs can include transfer fees, agent's commission, and retaining capital gains tax.
Upon selling the property, the proceeds must be repatriated outside of South Africa. The non-resident can do this in increments up to the R1 million limit per calendar year, as outlined above. Any capital gain made on the sale is subject to capital gains tax. Foreign persons should consult with a tax professional to determine their liability for capital gains tax.
South Africa's property market continues to attract international interest, making it an attractive option for non-residents looking to invest. By understanding the residency status, tax implications, and exchange control regulations, non-residents can navigate the process of buying and selling property in South Africa with confidence."