We all know why offshore investors are attracted to South Africa's premium properties.
Where else can you get sand, sea, sun and fun at a fraction of First World prices? And let's not forget the fantastic capital gains to be made when boredom sets in and it's time to sell.
Despite being required to pay capital gains tax (CGT) on gains from immovable property, many non-resident taxpayers do not - they simply leave.
But not for very much longer. The draft Revenue Laws Amendment Bill is proposing that purchasers, both resident and non-resident, of South African immovable property deduct withholding tax from the selling consideration paid to non-resident individuals, companies and trusts.
Withholding tax allows the government to exacts its share of a tax before the wealth leaves its shores and moves beyond its control.
The rates for the selling proceeds are: individuals 5%, companies 7.5% and trusts 10%.
Non-residents can apply for a directive specifying a lower rate, and transactions where the aggregate consideration is less than R1-million are exempt.
What is interesting about the proposal is that the purchaser of immovable property, the conveyancers and the estate agent are all to be tasked with the recovery of the withholding tax. This sounds Draconian but, in reality, the withholding tax will be dealt with as part of the conveyancing process.
The seller will probably have to demonstrate registration as a South African taxpayer, or withholding tax will be deducted.
Pessimists predict that withholding tax will scare offshore investors away, cause a property price crash in Cape Town and bunker all new golf estates.
I don't buy that. A non-resident South African taxpayer is probably going to have to pay CGT on a worldwide basis in the country where resident. The South African withholding tax should then be credited in the determination of final liability. At least with the new system, the country will reap some of the benefit.
But what most interests me are the mysterious foreign characters we find clogging up the golf courses who claim that they are not South African-resident taxpayers. They wave various foreign passports or cite a range of other elaborate justifications.
Soon, if they sell their properties and withholding tax is applied, SARS will be on their trail. And I think it will be for a whole lot more than just CGT on the odd property. It will be a few years' back-taxes on their worldwide income that is up for grabs.
Lester is professor of taxation studies at Rhodes University, Grahamstown
Sunday Times
Publisher: Sunday Times
Source: Sunday Times
