SARS Introduces Withholding Tax On Sale Of Fixed Property By Non-Residents

by Robert Lee, Tax-News.com, London

08 June 2005

New rules published by the South African Revenue Service (SARS) introduce a withholding tax on the proceeds from the sale of immovable property by non-residents, which must be withheld by the buyer.

The tax, which includes the sale of non-residents' holiday homes and shares in a company, excludes primary residences up to R1-million (US$150,850). The tax also does not apply to properties where the total contract price is less than R2 million.

If the amount exceeds R2 million, the full amount is subject to the withholding tax at a rate of: 5% if the seller is an individual; 7.5% if the seller is a company and; 10% if the seller is a trust.

An interest in immovable property includes shares in a company where more than 80% of the net value of the company is attributable to immovable property, and the non-resident must hold a minimum of 20% of the equity share of the company either directly or indirectly.

The act places the onus on the buyer to withhold the tax and pay it over to SARS, but only if the buyer "knows or should reasonably have known" that the seller is a non-resident. The withheld amount must be paid within 14 days from the transaction date. Non-resident buyers will have 28 days to pay over the withheld amounts. Amounts paid in a foreign currency must be transmitted to SARS at the spot rate on the date of payment.

The obligation to withhold the tax also applies to estate agents and conveyancers, who are entitled to compensation from the sale of the immovable property, and who must give written notification to buyers that the seller is a non-resident.

Failure to withhold the tax will mean that individual buyers may be held liable for the whole amount, plus interest and a 10% penalty. Agents and conveyancers will also be held jointly liable for any corresponding unpaid tax, although the penalty is limited to any fees or commissions earned from the transaction.

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