Buying from nonresident means taxing property deal

Posted On Monday, 20 August 2007 02:00 Published by
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Purchasers of immovable property from foreigners in SA will be required to withhold taxes on the purchase price and pay them to the SA Revenue Service

By Sanchia Temkin

Purchasers of immovable property from foreigners in SA will be required to withhold taxes on the purchase price and pay them to the South African Revenue Service (SARS), according to new tax laws.

The onus lies with the purchaser and his conveyancer or estate agent to determine whether the seller is a nonresident. Failure to do so and deduct the withholding tax may mean the purchaser is liable for the tax.

Conveyancers and estate agents who handle the registration of properties may also find themselves saddled with the administrative task of paying the taxes to SARS on behalf of their clients, prompting warnings of a possible hike in conveyancing fees.

The aim of the new legislation is to shift the tax collection burden from SARS to the purchaser.

Doelie Lessing, a tax lawyer at business advisory firm Maitland, said at the weekend that the property withholding tax was made law in 2004 but its effective date was only recently announced by the finance minister.

The rate of withholding tax will depend on the entity of the nonresident seller: 5% for an individual; 7,5% for a company; and 10% for a trust.

“The development is regarded as a measure to assist the tax authorities with their tax collection duties, as it is often difficult to track down nonresidents in order to collect taxes from them,” Lessing said.

The tax payment was part of the nonresident’s “normal tax” liability in SA, which includes income tax (where the nonresident holds the property in question for speculative purposes) and capital gains tax, she said.

It is a withholding tax and therefore the nonresident seller will receive credit for the tax already paid on his or her behalf when paying South African tax.

In practice, the purchaser must deduct the tax from each payment to the seller, and then pay it over to SARS. Failure to deduct could result in the purchaser being personally liable for the tax.

However, Lessing said: “The purchaser will be absolved from the liability where an estate agent or conveyancer knew, or should have known, that the seller is nonresident and did not notify the purchaser. In such a case, the estate agent and conveyancer are jointly and severally liable for the withholding tax.

“Any withholding tax paid by the purchaser, estate agent or conveyancer can, however, be recovered from the nonresident seller,” she said.

In certain circumstances, Lessing said, the nonresident seller can apply to SARS to have the tax withheld at a lower or zero rate.

Taxing nonresidents is consistent with international best practice and is recognised by international tax treaties. Many jurisdictions impose a withholding tax when the sale involves immovable property.

Nonresidents are subject to tax on their SA-sourced income. In the case of capital gains, nonresidents are subject to tax only on the sale of immovable property in SA or on any interest or right in such property. Nonresidents pay this tax as part of the general income taxes.

The new tax is dealt with under the provisions of section 35A of the Income Tax Act.


Publisher: I-Net Bridge
Source: I-Net Bridge

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