Reading Time: 4 minutes

For non-resident South African taxpayers wishing to dispose of immovable property within South Africa, the decision to sell that fixed property should be an informed one. Section 35A of the Income Tax Act, 58 of 1962 (“the Act”) is applicable to all sales of SA fixed property by non-resident taxpayers, where the selling price exceeds R2m.

Income Tax Act S35A explained

Under S35A of the Act, withholding tax (“WHT”) must be levied by the conveyancer overseeing transfer of the fixed property to its new owner. This WHT must be paid to SARS within 21 days of the date of transfer. The value of WHT of the sale price depends on the capacity in which one is making the sale, the rates being as follows:

7.5% in the case of sale by a natural person
10% where the seller is a company
15% if the seller is a trust

This provision in the Act primarily affects former SA tax residents and typically individuals that have emigrated. At the time of emigration and in finalization of income tax affairs, SARS deems the sale of worldwide and SA assets to have occurred, but excludes SA immovable property in the deemed sale, and determines the Capital Gains Tax (“CGT”) payable thereon. The exclusion of immovable property in this CGT calculation is in fact temporary, as SARS would exercise its opportunity to tax the capital profit on the ultimate sale or on death (determined in the calculation of estate duty payable), whichever event should occur first.

Any over or underpayment of taxation arising from the WHT calculation would be determined upon assessment of the final tax liability for the year.

Implications for the non-resident seller

The key implications are the following:

If you are a non-resident taxpayer and the price of the property sold exceeds R2m, the sale would be subject to withholding tax.
You are obliged to advise both the buyer and the conveyancer of your non-resident status.
The conveyancer bears a statutory obligation to withhold the sum due under S35A and pay it to SARS within 21 days of transfer.

It is, however, possible to reduce the value of WHT by being prepared ahead of the sale, through the medium of a tax directive. Under a tax directive, SARS may direct, depending on the individual circumstances of the seller, that a lower value of the sale price be retained as WHT. In granting the directive, SARS would consider factors such as whether the seller is exempt from income tax or if the sale of the property would be at a capital loss. SARS would generally process a directive application within 21 days.

The take out…..

It is important that there is communication between the seller, the conveyancer and the tax professional acting on behalf of the seller, to promptly apply for the directive where circumstances warrant a lower tax rate on the sale, as this could have significant impact on the cash flow of the seller.

For non-resident taxpayers wishing to dispose of their immovable property, we encourage reaching out to the MMS Group team of tax consultants for professional assistance in the tax directive application. To reach our team, contact us via the services page of our website.