Under South African law, non-resident sellers may face an unexpected withholding tax liability of up to 15% of the purchase price. However, with the right legal guidance, sellers can avoid unwanted complications.
The legal basis for withholding tax
Section 35A of the Income Tax Act places a legal obligation on a purchaser of property – via the conveyancer – to withhold a portion of the purchase price in certain instances, i.e. when the seller is a non-resident and the purchase price exceeds R2 million.
The withheld amount must be paid over to the South African Revenue Service (‘SARS’) to cover any potential liability of the seller. If the property was previously let, a non-resident seller may be liable for tax in South Africa on rental income. Alternatively, they may be liable for the payment of capital gains tax on the profit realised from the sale.
SARS will then apply the withheld amount to any taxes due. If the amount exceeds the tax owed, the excess will be refunded to the seller after SARS has finalised its assessment.
Section 35A therefore enables the expedient collection of taxes owed by non-resident sellers, as it can be costly and impractical to do so once the seller has left the country.
What percentage must be withheld?
At present, the withholding tax rates are:
- 7.5% if the seller is a non-resident natural person
- 10% if the seller is a non-resident company
- 15% if the seller is a non-resident trust
When must withholding tax be paid?
The withheld amount must be paid to SARS within 14 days from the date of withholding, which is typically the date the transfer is registered at the relevant Deeds Registry.
Non-compliance has serious consequences
If the purchaser knew or should have reasonably known that the seller is a non-resident and failed to withhold the required amount, the purchaser becomes personally liable to pay the amount to SARS, plus interest and penalties for late payment.
Moreover, estate agents and conveyancers involved in such transactions are required to notify the purchaser in writing (before payment to the seller) that section 35A may apply. If the agent or conveyancer knew or should have reasonably known that the seller is a non-resident and failed to warn the purchaser, they may be held jointly and severally liable, although their liability is capped at the value of their remuneration.
How we can help sellers reduce or eliminate the withheld amount
At STBB, we proactively assist non-resident sellers early in the conveyancing process by applying to SARS for a tax directive. Critically, this directive may reduce or even eliminate the amount to be withheld. Without this directive, standard withholding rates may result in substantial sums being retained – up to 15% of the purchase price – often exceeding actual tax liability. Furthermore, applying for a refund from SARS can take considerable time and place unnecessary financial strain on non-resident sellers.
For expert legal support in all property-related matters, contact us at info@stbb.co.za today and let us handle your transaction from start to finish.
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