Many South Africans who simultaneously emigrate and cease to be South African tax residents are faced with a situation where the sale of a fixed property has not been finalised by the time they cease to be tax residents. This may result in the unintended consequence of them becoming a non-resident seller of immovable property in South Africa.
In terms of South African tax laws, any purchaser who must pay any amount exceeding R2 million to any other person who is not a resident (or to any other person for, or on behalf of, that seller), is required to withhold an amount equal to 7,5% of the amount payable if the seller is a natural person (known as a withholding tax). This is mandated in respect of the disposal by the seller of any immovable property in the Republic. The withholding mechanism essentially acts as pre-payment in respect of any capital gains tax exposure in South Africa. A purchaser is personally liable if they know or should reasonably have known that the seller is a non-resident, which is often the case in scenarios such as described above. If the amount is in fact withheld, the purchaser must pay the amount to SARS before or on the date on which payment would have been made.
If an estate agent or conveyancer has assisted in the disposal of property, a purchaser will not be held personally liable if they were not notified of the seller’s non-resident status by that estate agent or conveyancer. If an estate agent or conveyancer should reasonably have known that the seller is a non-resident and fails to notify the purchaser, the failing estate agent or conveyancer is jointly and severally liable for the payment of the amount which the purchaser is required to withhold and pay to the Commissioner. Yet, this amount is limited to the sum of remuneration or other payment in respect of the services rendered in connection with the disposal of immovable property by the seller, or the registration of transfer, whichever applies.
An application may, however, be made for a directive that no amount be reduced or withheld by the purchaser if the actual liability of the seller in respect of tax, at the time of the disposal of the immovable property, is less than the amount arrived at by applying the percentage of 7,5%. To request a tax directive for a lower or zero rate of tax to be withheld, the seller must complete an NR03 form and submit it together with the offer to purchase, tax calculation and supporting documentation to email@example.com or use one of the other submission methods described on the form.
South African taxpayers who plan on emigrating should actively manage this process to ensure that properties are disposed of before ceasing tax residency or ensure that they adhere to the requirements of withholding taxes.
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)