There are many foreigners who have bought or are in the process of buying fixed property in South Africa.
The tax implications on the sale of these properties is not well understood. This article seeks to explain how this process works and to assist foreign property owners in ensuring that they do not over pay tax in South Africa without obtaining a refund of the over payment.
For a person who is a non-resident for tax purposes (broadly this means that you do not consider South Africa to be your home – please note that this is a complicated area of South African tax law and each situation will need to be decided on its merits) they are subject to a potential withholdings tax on the sale of their fixed property in South Africa.
This withholding tax is a tax that is levied on the sale price of the property in question – in other words the agent/attorney dealing with the transfer of your property should withhold an amount of tax and pay it directly to SARS before the proceeds from the sale are paid to you as the seller of the property.
The amount of withholding tax is as follows:
- 7.5% of the sale price of the property if the seller is an individual;
- 10% of the sale price of the property if the seller is a company;
- 15% of the sale price of the property if the seller is a trust.
The withholding tax is not a final tax; this means that you still need to establish your tax liability for the year to determine whether you have under paid or over paid tax on the sale of the 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 for tax.
The effects of this is best illustrated by means of examples:
Example 1 – Withholding Tax payable by non-resident seller
- Purchase price of property: R3 million
- Sale price of property: R4 million
- Capital Gain: R 1 million
- Withholding tax payable (7.5% of R4 million): R300 000
This withholding tax should be paid directly to SARS by the agent/attorney. As a seller you would, therefore only receive R3.7 million from the sale of this property in this example.
Example 1 continued – Final tax actually payable
- Purchase price of property: R3 million
- Sale price of property: R4 million
- Capital Gain: R 1 million
- Capital gains tax payable: R66 419 (presuming that no other income was received in South Africa).
What this means is that the withholding tax that you have paid when selling the property was over paid by R233 581 (R300 000 – R66 419). This over payment of tax will be exacerbated if you have made a small capital gain or even a capital loss on the sale of the property.
In order to get a refund of the over payment of this tax you will need to register as a taxpayer in South Africa and submit a return to SARS within 12 months after the end of the tax year, failing which SARS will be entitled to the full R300 000 already paid.
However, it is also possible for the agent/attorney doing the transfer of the property to apply to SARS for a tax directive to reduce the withholding tax. If this is done correctly, you should be able to reduce the amount of withholding tax that is payable so that you do not over pay the withholding tax.
Please note that this withholding tax is only levied if the property is sold for R2 million or more. If the property is sold for less than R2 million, the seller will need to declare the capital gain made by filing a tax return and paying the tax thereon.