What do you do as an expat if you decide to sell the property you own back home because you no longer have any intention of returning to South Africa? If you’re a non-resident, you’ll need to be prepared for the tax implications of this cross-border transaction. Here are four things you need to know about selling immovable property back in South Africa as a non-resident.
Selling Property In South Africa As A Non Resident
The distinction between resident and non-resident is important in the sale of a South African property for Capital Gains Tax purposes.
Aside from a handful of exceptions, South African residents are obligated to pay Capital Gains Tax (“CGT”) on the sale of any capital asset, while non-residents are only obligated to pay this CGT on disposal of immovable property situated in South Africa, including any right or interest in such property.
As a South African who has ceased to be a tax resident of the Republic, a Capital Gains Tax liability became payable to SARS when you were deemed to have disposed of all your worldwide and South African assets, with the exception of your immovable property located in South Africa. Your property was excluded from the Capital Gains Tax calculation at this point because the South African Revenue Service (SARS) already knew that they’d get another chance to tax you on this property in the future – either in the form of estate duty on your passing, or when you decided to sell your property. As a non-resident buyer, you are obliged to disclose this fact to the estate agent handling the sale of your property, as well as potential buyers.
If you are considered a non-resident for tax purposes the sale of your property will be subject to a potential withholdings tax in South Africa.
This withholding tax is charged to the sale price of your property, where that price is in excess of R2 million. This means that the estate agent or attorney handling the transfer of your property will be obliged to withhold the appropriate amount of tax which must be paid directly to SARS before you can make any money off the sale.
How much is withholding tax for non-resident property sellers?
Please note that this withholding tax is only charged if the property is sold for R2 million or more. If the property is sold for less than R2 million, you will need to declare the capital gain made by filing a tax return and paying the relevant tax.
If you are a non-resident seller, this tax payment must be made to SARS and accompanied by the relevant form within 28 days. It’s important to note that although the tax must be withheld before payments are made to the seller, merely paying a deposit on the property sale is insufficient to trigger the withholding tax.
The amount of withholding tax on a non-resident immovable property sale is as follows:
- 7.5% of the sale price if the seller is an individual
- 10% of the sale price if the seller is a company
- 15% of the sale price if the seller is a trust
It’s important to note that the withholding tax is not a final tax – the amount payable will depend on establishing your tax liability for the year of assessment in order to determine whether you have underpaid or overpaid tax on the sale of your fixed property. The problem with the withholding tax for you as a seller is that you may have more tax withheld than your eventual liability, but as long as you apply for the refund within 12 months of it being withheld, you will be entitled to a refund on excess tax paid.
As a non-resident seller of immovable property, you may be entitled to request that tax be withheld at a lower or even zero rate.
To avoid overpaying on withholding tax upfront it’s possible for the agent/attorney doing the transfer of the property to apply to SARS for a tax directive to reduce the withholding tax. When done correctly, this will reduce the amount of withholding tax payable, which saves the time and hassle of having to claim this money back as a refund.
Justifying a lower/zero tax rate for the property sale will depend on the facts of the particular case. For example, you may be fully exempt from income tax, or have a low taxable income, or you may have disposed of the property at a loss. To request a tax directive for a lower or zero rate to be withheld, as the seller you must complete form NR03 and submit your request together with the offer to purchase, tax calculation and your supporting documentation to firstname.lastname@example.org. It takes roughly 21 business days for SARS to process this directive, so make sure you’ve given yourself enough time to get this done.
The withholding tax for non-resident sellers is not payable on properties with a selling price of R2 million or less.
As a non-resident, it’s important to be aware that this rule applies to the sale of your South African property and you might need to prepare yourself for the fact that you might walk away with a lower cash amount than you expected from the sale of your property.
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