In terms of the current statutory framework governing immovable property in the country, there are no prohibitions on the acquisition and ownership of immovable property by foreign nationals. The only restriction applies to foreign nationals who are in the country illegally.
What are the tax implications?
Foreign nationals who are in South Africa legally are subject to the same tax regulations as residents when acquiring and disposing of immovable property.
VAT vs Transfer Duty: When determining the tax implications of purchasing a property, it’s important to establish whether the seller is a VAT vendor or a non-VAT vendor. If the seller is a registered VAT vendor, the purchaser will be liable to pay VAT in terms of the Value Added Tax Act 89 of 1991 (VATA). However, if the seller is a non-VAT vendor, the purchaser will be liable to pay transfer duty.
Capital Gains Tax: Foreign nationals who acquire immovable property in South Africa are required to register as South African taxpayers, as the disposal of this property will attract Capital Gains Tax liability.Capital Gains is defined as the difference between the amount paid to acquire the property and the amount received on disposal of the property.
What about financial assistance?
Foreign nationals can borrow money from local banks to finance the purchase of property, subject to South African exchange control regulations. When granting a loan, the bank will first establish whether the foreign national has a South African work permit.
Non-residents with work permits are considered to be residents for the duration of their work permit and may be granted more than 50% of the purchase price at the bank’s discretion.
Non-residents without work permits may not be granted more than 50% of the purchase price. The balance will therefore need to be paid in cash or through off-shore funding.
Due to the loan percentage restrictions, it’s common for foreign funds to be brought into South Africa to settle the balance of a property purchase price. It’s important that a non-resident buyer keeps the deal receipt that is issued when they transfer foreign funds into a South African bank account, in the event that they would like to repatriate the funds in the future.
What documentation may be required for bond approval?
Lenders may require the following documentation before considering a non-resident for bond approval:
- A certified copy of their passport or work permit
- Proof of residency
- A certificate from the South African Reserve Bank showing their eligibility for a loan
- An international credit check
- Three months of overseas bank statements
- Three months of payslips
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