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What restictions exist on Foreign
Ownership? |
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There are
no restrictions on property ownership by
non-residents, save for a prohibition on illegal
aliens owning immovable property within South Africa. There are,
however, procedures and requirements which must be complied with in
certain circumstances. For example, the local registration of entities
registered outside of South Africa, where it is purchasing property in
South Africa; the appointment of a South African resident public
officer for the local company, whose shares are owned by a
non-resident. In the event of a non-resident purchasing property in
the country with the intention of residing here for longer periods,
permanent residence will have to be applied for, in accordance with
the given requirements and procedures of South African law.
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What
financing is available? |
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The only restriction on foreigners, with regard to financing, is on
loans to a non-resident purchasing property. In brief, the non
resident may only borrow up to a maximum of the amount invested by the
non-resident in the purchase of the property,
which translates into 50% loan to value borrowing ratio.
Such loans are, however, subject to foreign exchange approval by the
SA Reserve Bank, which approvals are efficiently handled by all South
African Commercial Banks offering financial assistance. Investec and
RMB, two private finance banks, have also engineered a system where
they can provide loans in Rand, through their offices in Mauritius,
and can get a non-resident a loan of between 70-80% LTV, but they have
a minimum amount of R2.5 million.
Money transfers are closely regulated
by FICA (Financial Intelligence Centre Act), which ensures that all
persons entering into financial transactions disclose all their
personal particulars. |
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What
costs do I incur during the property purchase? |
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As with other international markets, the seller pays the brokerage to
the estate agent as well as the compliance certificates, and the buyer
pays for the transfer costs. The transfer costs include the duty paid
to the Receiver of Revenue, calculated using the following formula
based on the purchase price, if a natural person purchases a property:
- R0 – R500 000 Exempt
- R500 000 – R1 000 000 5%
- R1 000 000 and above 8%
When the property is purchased by a
legal entity, and not a natural person, the transfer cost incurred is
8% regardless of the value of the property. Attorney’s fees for
attending to the transfer and registration of the mortgage bonds are
calculated according to a tariff. Further sundry charges are imposed
by the Deeds Registry and the bank granting financial assistance.
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Can
Funds be repatriated? |
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All funds
introduced to South Africa from outside South Africa to acquire fixed
property within South Africa, may be
repatriated together with any profit on the resale of the property,
provided the title deed of the property has been endorsed ‘
non-resident’. With the strong economy and currency, there is also a
very strong possibility that exchange control is going to be
completely lifted in February 2006 when the budget is announced. |
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What
income tax do I pay on rental income? |
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South Africa
follows a residence based income tax system, meaning that world wide
income earned by a South African resident will be subject to ordinary
income tax. Non-residents are liable for tax on a more limited basis
and their liability is dependent on the source of their gross income
being from a South African source.
Any rental, earned by non-residents 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.
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What
capital gains tax do I incur on sale? |
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South African
residents are liable for the payment of Capital Gains Tax (CGT) on the
disposal of any asset, subject to certain limited exceptions.
Non-residents, however, are only liable
to pay CGT on the disposal of immovable property situated in South
Africa, including any right or interest in immovable
property.
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
individual’s income for that year and taxing that income at the
individual’s marginal rate of income tax. The maximum
marginal rate of tax for individuals in South Africa is 40% (reached
at taxable income levels above R270 000).
The capital gain is disclosed and
included in the individual’s income tax return for the year in which
it is sold. Thus non-residents who sell, will have to register for tax
and pay CGT on that gain. Finally, South African residents do not pay
CGT on the first R1 million profit made on the disposal of their
primary residence. However, non-residents will not qualify for this
exception if their primary residence is not in South Africa.
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