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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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