Effective 1 September 2007, if you're buying SA fixed property, you will be required to deduct a withholding tax from the price paid to the seller, if the seller is a non-resident.

So how is the tax calculated?

The new rules are contained in section 35A of the Income Tax Act. The tax only applies where the selling price exceeds R2-million. The actual tax rate depends on whether the non-resident seller is:

  • a natural person — five percent;
  • a company — 7.5 percent; or
  • a trust — 10 percent.

    The tax is not charged on the full selling price all at once, but rather on each payment as and when it is paid from the purchaser to the seller.

    Duties of the purchaser

    The obligation arises if the purchaser knows (or should reasonably have known) that the seller is a non-resident. The purchaser must deduct the tax from each payment to the seller, and then pay it over to Sars.

    If the purchaser is a SA-resident, the tax must be paid over to Sars within 14 business days of paying the seller, whereas non-resident purchasers have up to 28 business days. Penalties and interest will be levied for late or non-payment.

    The purchaser is personally liable to pay the tax to Sars irrespective of whether or not it was withheld from the seller.

    Estate agents and conveyancers

    Where the estate agent or conveyancer knows (or should reasonably have known) that the seller is a non-resident, they have a duty to inform the purchaser in writing.

    If they do not inform the purchaser, the withholding obligations fall upon the agent or conveyancer — albeit limited to the remuneration they would have been entitled to on the deal.

    For the non-resident seller

    The withholding tax is not a final tax but rather should be seen as an advance payment of tax. The seller should still file a SA tax return, calculate the normal tax liability in the usual way, and then set off the withholding tax against the final tax liability.

    However, the seller may also apply to Sars for a directive to prevent the application of the withholding tax, where Sars is satisfied that the seller has sufficient other assets or security in SA or that the seller will ultimately have a very low (or no) tax liability in respect of the property-sale.

    This article was originally published on www.taxtalk.co.za.

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