For expat property owners in South Africa, handling the sale process from abroad can be stressful. Dealing with estate agents, attorneys, banks, and buyers can be a lot of managing, especially when you’re not in the same country. While many hidden costs are involved in selling a house in South Africa, sellers often overlook the fact that there is potentially a Capital Gains Tax liability on the transaction. To avoid any nasty surprises arising from the sale of your property as an expat, we put together a quick guide of what to expect when selling property as a non-resident of South Africa.
Who is considered a non-resident selling property in South Africa?
The first step is determining your residency status for tax purposes. South Africa uses two tests:
- Ordinary residence test: assesses whether South Africa is your usual or principal residence, the place you consider your “real home.”
- Physical presence test: considers how much time you spend in South Africa. To be considered a resident, you must be physically present for:
– More than 91 days in the current year of assessment.
– More than 91 days in each of the preceding five years.
– A total of more than 915 days in the preceding five years.
Read more: Breaking tax residency with SA: when to apply the physical presence or ordinary residence test.
Capital Gains Tax vs. withholding tax on property sales in South Africa
When you sell a property in South Africa as a non-resident, you may be subject to two types of taxes: Capital Gains Tax (CGT) and withholding tax. These taxes are different, but both can impact your net proceeds from the property sale.
1. Capital Gains Tax (CGT) on the sale of property in SA
CGT is a tax on your profit when an asset, such as property, is sold. For non-residents, CGT applies specifically to immovable property located in South Africa. The tax rate varies depending on your status as a seller:
- Individuals and special trusts: Maximum effective rate of 18%
- Companies: Maximum effective rate of 21.6%
- Trusts: Maximum effective rate of 36%
It’s important to note that CGT is calculated on the net capital gain, meaning allowable deductions can reduce the taxable amount.
2. Withholding tax on the sale of property in SA
Withholding tax is a sum deducted from the sale proceeds by the property buyer and paid directly to the South African Revenue Service (SARS). The purpose is to provide provisional payment toward your potential CGT liability. The withholding tax rates are:
- Individuals: 7.5% of the purchase price
- Companies: 10% of the purchase price
- Trusts: 15% of the purchase price
Unlike CGT, withholding tax is calculated on the gross purchase price, regardless of potential deductions or losses.
Critical differences between Capital Gains Tax and withholding tax:
- Basis of calculation: CGT is based on the profit from the property sale while withholding tax is based on the total sale price.
- Timing of payment: CGT is typically paid after the end of the tax year in which the property was sold while withholding tax is paid upfront and deducted from the buyer’s payment.
- Purpose: CGT is a tax on the capital gain, while withholding tax is a provisional payment towards CGT.
It is vital for you, as a non-resident seller of property located in South Africa, to understand both CGT and withholding tax implications to estimate your potential tax liabilities and plan accordingly accurately. It is also essential to remember that while withholding tax serves as a provisional payment, the final CGT liability may differ. As a seller, you can apply for a tax directive from SARS to reduce or exempt your withholding tax potentially.
The role of the conveyancer when selling as a non-resident
The conveyancer, a legal professional managing the property transfer, plays a vital role in withholding tax on the property sale. They are responsible for:
- Withholding the relevant tax amount from the sale price.
- Keeping the withheld funds in a trust account before transferring the remaining net proceeds to you.
- Paying the withheld tax to SARS (South African Revenue Service) within 21 business days of the transfer registration.
Exemptions and reduced withholding rates for non-residents
The good news is that, as mentioned, you may be eligible for an exemption or a reduced withholding tax rate depending on your specific circumstances. Here are some potential reasons:
- Total exemption from income tax: If you are fully exempt from South African income tax, you may be eligible for a complete exemption from withholding tax.
- Low taxable income: For individuals, a low taxable income may reduce your overall CGT liability, allowing for a lower withholding rate.
- Property sold at a loss: If you sell the property for less than you bought it, you haven’t made a capital gain and, therefore, shouldn’t owe CGT. This could qualify you for a withholding tax exemption.
Applying for a tax directive as a non-resident property seller
You can submit a Form NR03 and supporting documents to SARS to request an exemption or a reduced withholding rate. You can apply yourself or grant a Power of Attorney to your tax advisor or conveyancer to handle it on your behalf.
Processing time and implications
SARS typically aims to process tax directive applications within 21 business days, but it could take longer if they require additional information.
Essential considerations for expats when selling property in SA
- Reduced net proceeds: Be aware that a portion of your sale proceeds might be withheld until your tax situation is clarified. This may impact your anticipated net income from the sale.
- Communication is vital: Open communication with your conveyancer is essential. They can outline Section 35A implications for you and advise on applying for a tax directive to avoid cash flow issues.
- Disclosure of non-resident status: If you have emigrated from South Africa, you must disclose your status to the conveyancer handling the transaction. This allows
them to determine the appropriate tax treatment for your property sale, including Capital Gains Tax and withholding tax.
FinGlobal: cross-border financial specialists for South Africans
Understanding the CGT and withholding tax implications of selling your South African property as a non-resident is vital for a smooth and transparent transaction. However, as a South African expat, finding your way through the maze of tax regulations can be overwhelming. The paperwork and deadlines can be a real headache, from withholding tax to tax clearances. Let FinGlobal handle the hassle. We specialise in simplifying the tax process for non-residents. Our expert team will manage all the headaches of dealing with SARS, ensuring compliance and peace of mind. We will assist you with tax clearance, tax refunds and international money transfers from South Africa, and we can also help you with retirement annuity encashments and more.
Ready to experience a stress-free tax journey when selling your South African property as a non-resident? Contact FinGlobal today to discuss your specific needs.
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