Transferring Out Your Property Proceeds on Sale as a Foreigner
Transferring out your South African property proceeds on sale as a foreigner is not as straightforward as you may think.
South Africa is not like other countries when it comes to the international movement of money due to having exchange control regulations in place.
Whether you are thinking of buying a property as a foreigner or have already bought and are now selling, keep reading - we're sharing our 5 must-know points on transferring out your property proceeds on a sale as a foreigner:
1. Exchange Control Regulations
It is likely you have never come across exchange control regulations before as less than 25 countries in the world impose regulations on the flow of money in and out of their country.
Simply put, foreign exchange control regulates the passage of money in and out of South Africa. In this case most importantly your ability to transfer out the proceeds of the sale of your South African property.
There are certain restrictions and / or requirements in place that apply to non residents (and residents) that limit the amount of rand you may transfer out of South Africa. As a foreign property buyer or owner you need to understand these restrictions in order to make sure you can repatriate your funds if you ever want to.
2. What is a resident and non resident
Your residency status plays a large role in what you can and cannot transfer out of South Africa. Depending on your status different rules and limits will apply to you.
Determining your residency status is not as simple as it seems. Residency for transferring money out of South Africa is not the same as residency in terms of the Department of Home Affairs.
- If you are a non resident that owns property together with a South African resident, different rules apply for the two of you in terms of what kind of clearance you require as well as the type of documents you must produce to obtain clearance for the transfer of your proceeds.
If you take up permanent residency in South Africa and receive your bar coded SA ID book, you will be considered a resident for Exchange Control purposes.
- As a non resident there can be further complications if the purchase was partially financed by funds borrowed in South Africa. This portion of the purchase price cannot be repatriated unless the bond has been settled in full. It is important to note that during the course of the bond repayment history, the monthly and other installments towards the bond must again have emanated from a foreign source or from rental or interest income generated from a capital asset purchased partly or wholly with foreign funds.
You should speak to a money transfer company such as ourselves to determine your residency status for moving your money out of South Africa. The earlier you do this in the sale process the better.
3. Source of funds
When you repatriate funds from South Africa you will be subject to South African exchange control regulations. This means, among other things, that the Reserve Bank will investigate the initial source of your (the non resident) investment in South Africa. Therefore, you must take care to retain documentation of the initial purchase and transfer into your name of the property.
The following documents will need to be retained to enable transferring out your property proceeds on sale as a foreigner:
Every person, resident or not, is required to register for tax in South Africa with the South African Revenue Service. This was not always the case and it causes some issues for current non resident property owners. If you have not registered for tax when you sell your property, you will be required to do so. This registration can result in you being asked to complete tax returns for a number of years.
The reason for this is that South Africa levies a capital gains tax on the sale of property. Any gain over ZAR 2 million is liable to the prevailing capital gains tax rate.
To ensure that non residents do not transfer their sales proceeds out of South Africa before meeting their tax liabilities, exchange control clearance is required. Furthermore your property sale will be liable to withholding tax as described below:
- Any buyer of a property sold by a non resident for ZAR 2 million or more, has to retain a percentage of the purchase price and pay it to the South African Revenue Services.
- Payment of the tax to SARS must be accompanied by the relevant SARS form, and must be paid to SARS within 14 days of it being withheld if the purchaser is a South African resident or within 28 days if the buyer is a non resident.
- If the non-resident seller is an individual, the amount retained is 5%.
- If the seller is a non-resident company the amount is 7%.
- If the seller is a non-resident trust the amount will be 10%.
This withholding tax is a provision for the non resident’s CGT liability.
(If you contact us as you begin to market your property, we can approach the Revenue Services beforehand and obtain a Directive. This will avoid that money being withheld.)
5. How you transfer your money into South Africa matters
Many individuals buying property in South Africa will use their local bank or currency company to transfer the required funds into South Africa. As exchange controls are so rare worldwide there is little chance that these banks or currency companies will understand the repercussions of its regulations.
If the correct declarations and paperwork trail are not in place you will find transferring out your property proceeds on sale as a foreigner become very complex or even impossible in some cases.
Transfer the proceeds of your property sale the correct way.
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