Foreign Purchasing

Exchange Control

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, provided the title deed of the property has been endorsed "non-resident". Similarly, funds introduced to acquire shares in a company / members interest in a close corporation may be repatriated together with any profit on resale, provided the relevant securities have been endorsed "non-resident". Funds introduced into South Africa in the form of foreign loan to find acquisitions of corporate entities which own property in South Africa, may be repatriated in terms of the original loan approval by the Reserve Bank. The profit on resale may also be repatriated, provided the relevant securities have been endorsed "non-resident".

Income Tax

South Africa follows a revenue based income tax system meaning that income earned from a South African source will be subject to ordinary income tax. Accordingly, any rental earned by non-resident in respect of South African properties will be subject to income tax and it is the responsibility of the non-resident to register as a South African tax payer.

Income earned by natural persons below R27 000 per annum (for persons under the age of 65) and R42 640 (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.

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%. Non-resident companies are taxed at a rate of 35% but are exempt from Secondary tax on companies (STC) in respect of dividends paid.

Capital Gains Tax (CGT)

Non-residents are only liable to pay CGT on the disposal of the following:

• Immovable property situated in South Africa, including any right or interest in immovable property.
• Assets of a permanent establishment of a non-resident through which trade is carried on in South Africa.

CGT is payable in the year in which the asset is disposed of and is calculated by adding 25% of the capital gain, or profit, to the individuals income for that year and taxing that income that the individuals marginal rate of income tax. The maximum marginal income tax rate for individuals in South Africa is presently 40%. The capital gain is calculated and disclosed in the individual's income tax return for the year in which it is sold. Thus, if a non-resident disposes of an 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 and will be liable for the payment of CGT on that gain.

South African residents do not pay CGT on the first R1 million of profit made on the disposal of their primary residence. However, non - residents will not qualify for this exemption if there primary residence is not in South Africa.

There are certain restrictions on non-residents wishing to purchase property in South Africa. The non-resident may borrow up to a maximum of 100% of his/her borrowing base. The Borrowing base of a non-resident individual is the sum introduced into South Africa to fund the purchase of a property, i.e. 50% of the purchase price. E.g. - A non-resident wishes to purchase a property in South Africa for ZAR600,000.00. Provided ZAR300 000.00 is introduced into South Africa to effect the purchase he / she would be able to apply to the South African Reserve bank for permission to avail himself of a bond of ZAR300 000.00. In other words banks will lend up to 50% of the purchase price, subject to their normal terms and conditions, which would include a valuation of the property.

Technically, if a non-resident has consistently brought funds into the country over a number of years, he/she may borrow up to a maximum of 100% of the total funds invested in South Africa. Theoretically this could also be more than 50% of the purchase price of the property.

These non-resident loans are however subject to foreign exchange approval from the South African Reserve bank. Financial assistance is granted in the form of a loan secured by a mortgage bond to be registered in favour of the bank granting the loan. Lew Geffen Sotheby's International Realty can apply to all the major financial institutions in South Africa on your behalf, for a mortgage bond, thereby obtaining the most competitive package on your behalf. This is a free service and no fee is charged. The obtaining of financial assistance from a financial institution should be included in the agreement of Sale as a suspensive condition where the sale is subject to the receiving of financial assistance.

The Non-resident does not have to open a banking account in SA with a commercial bank, although some banks insist, as he/she can transfer funds directly from his overseas account into his Mortgage Account. If an account is to be opened, especially if an access facility is required for the capital paid off, then the non-resident is required to obtain an original letter of credibility from his bankers. This local account will often be funded from abroad or from rental income from the property purchased, subject to the bank holding the account being in possession of a copy of the rental agreement.

As Exchange control is a complex subject, Non Residents are advised to consult with our Home Finance Experts on this issue.

Temporary residents / foreign nationals

Foreign Nationals (temporary residents) may apply for local financial assistance, including a mortgage bond for the purchase of residential property. Such a mortgage bond is not restricted and depending on the standing of the client can be 50% of the purchase price of the property. The granting of any borrowing facility is subject to the approval of the Lending Manager in the Branch of the bank where the foreign national holds his / her account. It is important to note that when a foreign national departs the Republic of South Africa, the criteria for Non-Resident purchasers will apply and the bond may have to be reduced to fall in line with the South African Reserve Bank's formula requirements. Please talk to one of our experienced Home Finance Experts to facilitate you with your application for bond finance.

South African Residents working abroad

For South African residents, working abroad, a 50 - 70% mortgage bond can be obtained. Most banks will consider granting up to a 70% loan but each application will be evaluated on individual merit. Some clients have been granted 100% finance but in exceptional circumstances. You must live abroad temporarily and plan to return to South Africa. Moreover, an application to emigrate must not have been made, nor should you have surrendered your permanent residency status in South Africa. Please speak to one of our experienced Home Finance Expert to assist you in this regard.

Contract workers

Contract workers are regarded as South African residents for the purposes of obtaining finance in South Africa and can therefore borrow up to 100%, subject to normal income qualifying criteria.

Transfer Costs

The purchaser is responsible for the payment of transfer costs and the costs of registering any new mortgage bonds over the property purchased. He / she will also have to pay an inspection fee and initiation fee. Transfer costs include transfer duty and conveyancers fees. Transfer duty is calculated as a percentage of the purchase price and varies depending on the purchaser's legal status. Conveyancers fees, charged by the attorneys for attending to the transfer and registration of mortgage bonds are calculated according to a tariff.

Bond Costs

Bond costs are the costs incurred for raising mortgage finance. Mortgage registration fees according to a prescribed tariff are payable to the registering attorney.

Click here to access our Bond and Transfer costs calculator which will allow you to determine the costs associated with the purchase of property and those costs related to the registration of the home loan.

Property of any kind in South Africa is usually purchased through a broker or Real Estate agent who should be a registered member of the Estate Agencies Board.

In South Africa, all contracts to purchase property must be in writing, must contain certain set information has to be signed by both the buyer and seller of the property and has to be signed by two witnesses, for the contract to be legally binding. These contracts usually take the form of an Offer to Purchase or an Agreement of Sale. Once this has been signed by both parties is a valid binding document from which neither party can withdraw without incurring legal consequences. Accordingly the decision to enter into and sign an offer to Purchase / Agreement of sale is not something to be taken lightly. It is recommended that an inexperienced purchaser obtain independent legal advice if uncertain of any aspect.

The offer to purchase will contain certain of the following standard provisions:

Purchase price

A deposit is not compulsory but it serves as a gesture of good faith on behalf the part of the purchaser and indicates financial competence. Provision will be made in the Agreement for a guarantee to be called for in respect of the balance of the purchase price. In general, a guarantee will only be acceptable if issued by a local financial institution which means that the funds will actually have to be remitted to South Africa in order for a local bank to issue such a guarantee. Alternatively, arrangements must be made between a foreign and local bank for a back-to-back guarantee to be issued. It is however possible to negotiate the issue of a Standby Letter of Credit from an overseas institution in certain circumstances.

Electrical and Beetle certificate

The property owner is required by law to be in possession of a valid 'electrical compliance certificate' certifying that the electrical installation at the property meets certain statutory requirements. The beetle free certificate certifies that all accessible parts of the property are free of infestation by certain defined beetle. (These certificates are usually only compulsory in coastal regions).

Fixtures and fittings

A property is sold with all fixtures and fittings of a permanent nature situated thereat. Generally fixtures and fittings include anything with is attached to the property or which by virtue of its considerable mass accedes to the property. In the event of any uncertainty, the purchaser is cautioned to ensure that all items intended to be included in the purchase price are specified in writing in the agreement of sale.

Besides individual or joint ownership, property can also be obtained by means of acquiring the shares / members interest and local claims in a company / close corporation respectively which company is the registered owner of a property. These contracts must also be in writing. Only a natural person can acquire the member's interest in a close corporation. Accordingly, if it is intended for a non-resident company or Trust to be the ultimate purchaser, provision can be made for the close corporation to be converted to a private company at a nominal expense to facilitate the same should it be a condition of the purchase.