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Residential property ownership in SA for non-South Africans is uncomplicated and has no hidden disadvantages 2009-06-08
A whole list of successfully managed international sports events has proved to the world that South Africa is a safe haven for this type of activity – and has the skills and dedication to see that they run smoothly.

This was said this week by Tony Clarke, MD of Rawson Properties, who then listed 24 major events- from the Rugby World Cup, the A1 Grand Prix and the Nedbank Golf Challenge to the Comrades Marathon and certain surf-ski and mountain biking events to bear witness to his statement.

“The latest coup, the winning of the 2009 DLF Indian Premier League, is additional evidence that the world trusts us to organise these events,” said Clarke. “It shows yet again that we can be competent sports organisers. The FIFA World Cup will, we believe, be the cherry on the top and further boost our image.”

All this top level sporting activity, said Clarke, will focus attention on SA as never before – and is bound to have spin-offs for those marketing property here.

“Many people,” said Clarke, “think that it is extremely difficult for a foreigner to buy property in South Africa. This is definitely not the case: anyone reading the admirably lucid Smith Tabata Buchanan Boyes booklet on the subject will discover that the only people prohibited from buying property here are illegal aliens, which in practice means only those with a criminal or terrorist record.”

Clarke went on to make a few salient points: should the buyer, he said, not wish to purchase the property in his own name, the purchase vehicle must, nevertheless, be locally registered and it must comply with the South African laws, particularly those relating to South African companies, trusts or closed corporations.

This, however, does not, said Clarke, prevent the purchase being made in the name of an overseas company or trust.

Quoting the STBB booklet, “It is important,” added Clarke, “that the entity chosen to hold the acquired property be set up before the offer to purchase is made because a change of the holding vehicle after transfer will almost invariably carry a penalty.”

Non-residents are allowed to buy South African property over the Internet and it is not essential to be in the country to finalise the deal.

Transfer and bond documents, said Clarke, can be signed overseas provided that this is done in the presence of a notary public or at the local South African Embassy and foreign funds can be paid into any South African bank account. In practice, said Clarke, this will usually be the trust account of the attorneys handling the deed of sale and, he said, this is a safe form of investment as these trusts are regulated by professional bodies, of which lawyers are members.

Asked about the position of foreigners raising bonds in South Africa, Clarke said that even if the overseas buyer does not intend to live in South Africa fulltime he is still allowed to raise a bond here. However, this is limited to 50% of the total sale price. It is also, he said, acceptable to the South African Revenue Services for part or all of the remaining 50% to be in the form of a bond raised overseas - it does not have to be paid in cash.

As is the case with South African residents, however, the foreigner borrowing here will have to prove that his earnings are sufficient to pay the monthly instalments. Proof of substantial assets held by the purchaser, said Clarke, is not in itself sufficient to qualify for a South African bond these days - a monthly income stream has to be assured as well.

Buyers will also be subject to a FICA (Financial Intelligence Centre Act) investigation, the purpose of which is to ascertain that the funds used have been legally acquired.

The big question always asked by foreign buyers, said Clarke, is what rules apply to the repatriation of the money if and when the property is sold - but there are no problems here provided the original deed of sale has specified that the buyer is a non-resident and provided the sums still owing on the property are paid as the sale goes through. The rest of the money can be repatriated.

If the foreigner decides at some stage to become a permanent resident (which involves declaring his foreign assets to the South African Reserve Bank) he may not repatriate funds within five years of being accepted as a South African citizen.

All funds repatriated are subject to Capital Gains Tax and the non-resident will pay this on the full amount, even if it is his only South African home - unlike the South African resident who pays Capital Gains Tax only if the profit on his primary residence is above R1,5 million.

Unlike South African residents, foreign residents buying in South Africa, said Clarke, are exempt from South African income tax on overseas earnings – they pay only on money earned here (if any).

The Capital Gains Tax on the sale of a property registered in the name of an individual, i.e. not a trust or a company, will be 25% of the capital gain and will be taxed at the individual’s marginal income tax rate, which at present may not exceed 40%. This, said Clarke, translates to a maximum rate of 10% on the capital gain, which by any standards can hardly be deemed a high tax imposition.

As some foreign buyers in the past have avoided paying Capital Gains Tax on their property sale, the South African Revenue Services now stipulate that any buyer of a property sold by a non-resident for R2 million or more has to retain a percentage of the purchase price and pay it to the South African Revenue Services within 40 days of the transfer. If the non-resident seller is an individual, the amount retained is 5%. If the seller is a non-resident company the amount is 7% and if the seller is a non-resident trust the amount will be 10%.

All in all, said Clarke, South Africa remains a country friendly to foreign buyers and very easy for them to deal with. The tax laws, he said, are enlightened and not onerous and the local legal professions are adequately trained to ensure a smooth transfer of ownership.