Can I own property in South Africa as a non-resident?
Non-residents can own property partially or wholly, in their own names or through ownership of an interest in one or other forms of legal entity such as a Company, a Close Corporation (CC) or a trust. There is no restriction in South Africa on the ownership of property by non-residents. Non-residents should ensure that their title deeds are endorsed "non-resident" so that, when the property is eventually sold by them, they have no difficulty repatriating the proceeds.
 
What types of ownership are there in South Africa?
Almost all residential property is owned either “freehold”, where the owner has outright title to the land (this would typically be the case in a suburban house) or “sectional title” where an owner has legal title to his section (typically an apartment in an apartment block), and has a share of the ownership of the common property.
 
Once a sectional title register has been opened a body corporate comes into operation in respect of the sectional title scheme concerned. This body corporate is managed by trustees who are elected by the owners of the sectional title units in the scheme. These trustees are responsible for the administration of the scheme and for the maintenance of the common areas in the scheme such as gardens, lifts, lobbies, etc. Similar to apartment complexes in Ireland a monthly levy is paid to the body corporate for administration and maintenance of the scheme. The body corporate will usually employ a managing agent/company for this service.
 
Can I rent my property out to others?
Non-resident owners of South African property have all the normal rights of ownership including the right to recover rental income from tenants. Any foreigner is allowed to open a non-resident bank account with commercial banks in South Africa. Rentals can be paid into this account. Rental income is normally taxable in South Africa. 40% is the highest income tax rate in South Africa.
 
Rental income derived from the property is taxable and is included in the taxpayer’s ‘gross income’. A tax deduction can be claimed in general for operating expenses including any interest costs, monthly levies and agent’s commission for administering the property.
 
Can I get my money back out of South Africa?
All funds introduced from outside South Africa to acquire fixed property within South Africa may be repatriated together with any profit on resale of the property, after deduction of any Capital Gains Tax payable. The maximum Capital Gains Tax payable in South Africa is 10%.
 
BUYING A PROPERTY

All contracts to acquire land must be in writing, contain certain prescribed information and be signed by both buyer and seller to be valid and legally binding. Contracts most commonly take the form of an Agreement of Sale or Offer to Purchase which once accepted constitutes an Agreement of Sale. Once an Agreement of Sale has been signed by both parties it represents a valid and binding document.
 
Are there additional costs to the purchase price?

• Transfer costs: These are payable to the conveyancing attorney (approximately 0.8% of the purchase price)
• Arranging Finance Locally : Financial Institutions charge for arranging finance required locally in South Africa for the buyer (approximately 0.5% of the value of the loan obtained in South Africa).
• Property Inspection / Valuation Fees: This is carried out by the financial institution organizing your local finance (approximately 0.2% of the value of the property)
• Mortgage registration costs: These are paid to the attorney registering the mortgage. This is not necessarily the same attorney who is attending the transfer of the property. These costs are calculated on a sliding scale depending on the value of the loan. (e.g. R1, 000, 000 = 0.9%, R2, 000,000 = 0.6%, R3, 000,000 = 0.5%)
• Transfer Duty: This can be up to 8% of the purchase but does not apply to Mandela Rhodes Place or any property bought off-plan from a developer.

What are the Tax implications for non-residents?
Non-residents are taxed on income derived from a South African source including rental income derived from the letting of immovable property in South Africa.
 
Capital Gains Tax
Capital Gains Tax (CGT), which became effective on 1 October 2001, is only applied to profit one makes on a property when it is disposed of and not to the entire value of the property.
 
For properties owned by an individual 25% of the capital gain must be included in the taxable income for the year of assessment in which the property is disposed of. The present maximum marginal rate of income tax for individuals is 40% which means individuals will pay a maximum of 10% of the capital gain. If a non-resident disposes of a immovable property in any year of assessment and is not already registered as a South African taxpayer, he or she will have to register as such and submit an income tax return reflecting the calculation of the capital gain. He/she will be liable for the CGT on that gain.
 
Where the seller is a company or close corporation, the applicable rate of CGT is 15%
 
Where the seller is a Trust, the applicable rate of CGT is 20%. However, CGT could be payable by the beneficiary at a lower rate and not by the Trust where there is a distribution of such capital by the Trust to the beneficiary.
 
How is a capital gain calculated?
A capital gain is calculated by deducting the base cost of the property from the proceeds on the disposal of the property.
 
The following may be included in base cost:

• The costs of acquiring the property, including the purchase price, transfer costs, transfer duty, VAT and professional fees (e.g. attorneys and surveyors). There is no transfer duty on properties bought directly from a developer off-plan as they are inclusive of VAT @ 14%.
• The costs of improvements, alterations, renovation, etc.
• The costs of disposing of the property, including estate agent's commission, advertising costs, valuation costs (including valuing the property for CGT purposes) and any professional fees.

Expenditure on repairs, maintenance, insurance and rates and taxes are not included in base costs.
 
It has become essential to maintain accurate records of the above costs. If records are not kept, no deduction will be allowed from the proceeds to determine the capital gain. Therefore it is essential to search for and compile records relating to the costs and dates of acquisition of the property and subsequent costs relating thereto. Records must be kept for a period of 4 years from the date of submission of the income tax return for the year in which the capital gain or loss is reflected.

What is the procedure for transfer of ownership of a property?
Contracts for the purchase of property must be signed by both buyer and seller so the contracts can become legally binding. These contracts are often drafted in the form of an ‘Offer to Purchase’ or ‘Agreement of Sale’ and once signed by both parties become a legally binding document whereby neither buyer nor seller can withdraw without incurring legal action. These documents must be authenticated if signed outside South Africa; therefore it is advisable to leave a General Power of Attorney with a solicitor in South Africa. We can provide a list of reputable solicitors to you.
 
The registration of a property transaction is usually handled by a qualified attorney known as a conveyancer. It is the Seller's prerogative to appoint the conveyancer of his choice, who will attend to the registration of transfer of the property sold, and the costs relating to the sale are for the account of the purchaser.
 
The conveyancer prepares the required documentation after both parties to the transaction have signed the relevant paperwork. The documentation is then lodged in the Deeds Registry, together with the cancellation of any existing mortgage bonds and the registration of new mortgage bonds.
 
On registration, all existing mortgage bonds registered over the property are cancelled simultaneously with the registration of any new mortgage bonds by the purchaser in favour of the bank granting the financial assistance. The purchaser is recorded as the new owner of the property and the purchase price is paid to the seller.
 
This procedure does not apply where the shares/members interest and loans are acquired in a property-owned company/close corporation where no change in ownership is recorded.
 
Are there additional costs to the purchase price?

• Transfer costs: These are payable to the conveyancing attorney (approximately 0.8% of the purchase price)
• Arranging Finance Locally : Financial Institutions charge for arranging finance required locally in South Africa for the buyer (approximately 0.5% of the value of the loan obtained in South Africa).
• Property Inspection / Valuation Fees: This is carried out by the financial institution organizing your local finance (approximately 0.2% of the value of the property)
• Mortgage registration costs: These are paid to the attorney registering the mortgage. This is not necessarily the same attorney who is attending the transfer of the property. These costs are calculated on a sliding scale depending on the value of the loan. (e.g. R1, 000, 000 = 0.9%, R2, 000,000 = 0.6%, R3, 000,000 = 0.5%)
• Transfer Duty: This can be up to 8% of the purchase but does not apply to Mandela Rhodes Place or any property bought off-plan from a developer.

Can finance be arranged locally in South Africa for my property purchase?
All prices are in South African Rand
 
Up to 50% of the purchase price can be obtained locally in South Africa through a local bank. The other 50% must be brought into the country by the applicant. It usually takes about one week to process the application for finance. On receipt of mortgage approval a non-resident account must be opened by the non-resident into which mortgage repayments are made.
 
Income Tax
South Africa follows a revenue-based income tax system. Rental income derived from a property is taxable and is included in the taxpayer’s ‘gross income’. A tax deduction can be claimed in general for operating expenses including any interest costs, monthly levies and letting agents commission for letting the property.
 
Income earned by natural persons below R30 000 per annum (for persons under the age of 65) and R47 222 (for persons above the age of 65) is exempt from income tax, whilst all income earned over and above the aforesaid amounts, will be taxed at a marginal rate applicable to that non-resident. Also individuals under 65 deduct a rebate of R5400 from the tax determined. Individuals over 65 can deduct a rebate of R8, 500 from the tax determined. Below are the tax rates for 2004.
 

2003/04 Taxable income (R) Rates of tax	Rates of Tax
0 – 70 000	18% of each R1
70 001 – 110 000	R12 600 + 25% of the amount over R70 000
140 001 – 180 000	R22 600 + 30% of the amount over R110 000
140 001 – 180 000	R31 600 + 35% of the amount over R140 000
180 001 – 255 000	R45 600 + 38% of the amount over R180 000
255 001 and above	R74 100 + 40% of the amount over R255 000

Corporate entities are subject to a tax rate of 30% of each Rand of taxable income whilst the equivalent rate for a trust is 40%.

OCCUPATION, POSSESSION, TRANSFER AND OCCUPATIONAL INTEREST
Occupation is the physical occupation of the property whereas possession is generally deemed to be the date upon which the purchaser assumes responsibility for the property and it is customary for the risk of ownership to pass on the date of possession. Transfer refers to the actual date of registration of ownership in the Deeds Registry in favour of the purchaser. Occupational interest is the rental payable by the party occupying the property belonging to another where the date of occupation and date of transfer differs, which is better expressed in Rand terms or as a percentage of the outstanding balance of the purchase price.

TRANSFER PROCEDURE
The registration of a property transaction is handled by a specially qualified legal practitioner known as a conveyancer. It is customary for the seller to appoint the conveyancer to attend to the registration of transfer of a property sold, whilst the costs attendant on same are for the account of the purchaser, unless contractually agreed to otherwise.
 
The conveyancer prepares the requisite transfer documentation that, after signature by the purchaser and the seller, is lodged together with the cancellation of any existing mortgage bonds and new mortgage bonds to be registered in a regionally located Deeds Registry. The deeds are subject to an intense examination process whereafter they are made available for registration. On date of registration of transfer all existing mortgage bonds registered over the property are cancelled simultaneously with the registration of any new mortgage bonds by the purchaser in favour of the bank granting financial assistance. The purchaser is recorded as the new owner of the property and the purchase price is paid to the seller. The above procedure does not apply in an instance where the shares/members interest and loans are acquired in a property-owning company/close corporation where no change in ownership is recorded in the Deeds Registry. It is important to note that upon transfer to the new owner, any liabilities in respect of the property incurred by the previous owner, remain with the previous owner and not necessarily pass to the new owner, unless otherwise agreed to.
 
VAT rebate of 14%
In summary, if you intend buying an apartment for your own use, or to rent out on a residential basis (typically on a lease of perhaps a year), then you cannot recover the VAT you pay in the purchase price. There are no exceptions to this rule.
 
However, the position is completely different if your intended use is one of:

• Short-term letting (periods of under 28 days), typically the executive type serviced apartment, or holiday letting
• Commercial use (i.e. a shop or office)
• Rental pool style operations.

In all of these cases you may recover your VAT paid on the purchase, provided you are VAT registered, as you will be paying VAT to the South African Revenue (SARS) on your income when earned. Eurocape will assist with VAT registration and VAT returns.
 
Do note however that as a VAT registered owner, when your property is sold, that price includes VAT, which must be paid over to South African revenue. In summary you therefore enjoy a cash flow gain initially.