At the best of times, buying and selling property is a lengthy and complex process involving reams of legal and financial documents and numerous regulatory laws. The process is even more complicated when one of the parties to the sale is not a South African citizen or a permanent resident.
“Statistics from March 2022 to April 2023 show that 23% of our sales on Cape Town’s Atlantic seaboard and 21% of our sold listings in the City Bowl went to foreign buyers. This is a big jump from 2020, and it has steadily increased since then. Foreign buyers are still very much in evidence,” says Susan Watts, broker/owner of RE/MAX Living, which celebrated its best year ever with total registered sales of R3.4 billion.
Conveyancing
To ensure a smooth transition from South African owners to foreign nationals, appointing a specialist conveyancing attorney with experience in this field is crucial.
This is particularly important if the transaction will be concluded while the foreign nationals are still abroad. Additional documentation is required, and procedures for signing documents can vary depending on the country in which they live.
It is often the small omissions that can hinder the successful conclusion of a deal. For example, having just one missing signature or incorrect document can delay - or even nullify - a sale.
The consequences can be costly, so it makes good financial sense to appoint conveyancing attorneys familiar with the local laws relating to property transactions involving foreign nationals.
Signatures
The process of transferring any fixed property requires all parties to the transaction to sign numerous documents. In a sale involving foreign nationals, the following can prove even more complicated when signing documents:
- Spousal signatures - When non-residents buy property in SA, their spouse’s signature is not required. However, the transfer document must state which country’s marriage laws govern their union. On the other hand, when a foreigner sells property in SA, the spouse’s signature may well be required.
- Signing of transfer documents - If foreign buyers sign the transfer documents outside of SA, this should occur at a SA consulate or embassy. Unfortunately, this is not always practical or cost-effective as the embassies are often some distance from where the buyers live. For example, the only SA embassy in Australia is in Canberra, so buyers from other areas would need to travel a long way to sign the necessary documents.
Suppose the country where the buyers will be signing the documents is a member of the Hague Convention. In that case, they can sign the necessary documents in the presence of any notary public, and an apostille will be attached. The Hague Convention is an international treaty signed in 1961, which abolished the requirement for the legalisation of foreign public documents. It sets out how documents can be verified, and an apostille is the applicable certification, which is accepted in any of the 105 member countries.
If the country is not a member of the Hague Convention – for instance, Canada and China - an apostille will not be acceptable. Once the documents from any of these countries have been notarised, they need to be sent to the local department of foreign affairs for authentication.
The simplest option for avoiding these issues is for foreign buyers to sign a special power of attorney authorising someone in South Africa to sign on their behalf. If they are unable to visit South Africa to sign documents before the transaction takes place, this will cause further delays.
Taxation
Taxation matters are also complicated in property sales involving foreign nationals.
When a foreign national sells property valued at more than R2 million in SA, the buyer is legally obliged to withhold a percentage of the purchase price. This is to ensure the total amount realised from the sale is not taken out of the country before the applicable capital gains tax has been paid. The sellers can apply to SARS for a tax directive in this instance and have the amount reduced before it becomes due.
The amount of tax due is calculated as follows:
- Tax of 5 percent is due if the seller is a natural person.
- 7.5 percent is due if the seller is a company.
- 10 percent is applicable for trusts.
The relevant amount must be paid to SARS within 14 calendar days of transfer if the buyer is a resident and within 28 calendar days if the buyer is a non-resident.
The conveyancing attorney will usually pay the funds over to SARS. However, the buyers are liable if the sellers receive the full purchase price and have been advised that the withholding tax needs to be paid to SARS.
It is also important to note that, when taking the sale proceeds out of SA, sellers must be able to show the flow of the foreign funds and have a receipt to show when the funds were first brought into the country.
Writer: Sarah-Jane Meyer
