Capital gains tax and withholding tax for non-resident sellers

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by Erlise Loots

Capital gains tax

In South Africa, a so-called capital gains tax (“CGT”) is triggered when any immovable property situated in South Africa is sold.

The net capital gain is generally calculated by deducting all deductible capital expenses relating to the property (known as “base costs”) from the selling price of the property. However, if the property was purchased before 1 October 2001, different calculation methods must be used to determine the deductible base costs and, ultimately, the net capital gain.

The result (after deduction of all base costs, exemptions and rebates) is known as the “net capital gain” and is taxable at an effective tax rate of 0–18% if the seller is a natural person.

Withholding tax

When a non-resident individual of South Africa for tax purposes disposes of an immovable property in South Africa with a value exceeding R2 million, 7.5% of the purchase price must be withheld and paid to the South African Revenue Service (“SARS”).

The 7.5% withholding tax provision is a security measure implemented by SARS to ensure payment of capital gains tax. If capital gains liability is less than the 7.5% payment to SARS, a refund would be payable by SARS upon the completion and submission of an income tax return by the non-resident seller and the assessment and verification thereof by SARS.

The timeframe for submission of an income tax return and the process to obtain a refund from SARS by a non-resident could be quite lengthy.

The alternatives to paying 7.5% withholding tax to SARS are to:

  1. calculate the actual capital gains tax liability (in respect of the sale of the property) and to apply to SARS for a Directive that the actual tax liability be withheld and paid to SARS;
  2. furnish security; or
  3. apply to SARS to pay a reduced amount (or no amount) based on the extent of the assets of the non-resident seller in South Africa.

The amount paid to SARS would be deemed a self-assessment if an income tax return is not complete and submitted to SARS.

In respect of non-resident sellers whose main assets are immovable properties in South Africa, the tax directive route whereby the actual amount payable to SARS is calculated and paid to SARS often proves the best option.

For more information regarding tax matters, please contact:

 

Erlise Loots | Partner

E: e.loots@bissets.com

Areas of Expertise: Tax (Income Tax, Capital Gains Tax, Tax Directives re Capital Gains Withholding Taxes, Tax Clearances, and Estate Duty), Curatorships, Trusts, Estates, Exchange Control (involving remittance of funds abroad, formal emigrations, foreign investment allowances and the endorsement of title deeds), Non-resident services and advice

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)