WITHHOLDING TAX FROM NON RESIDENT SELLER ON SALE OF IMMOVABLE PROPERTY
The transaction of purchasing of an immovable property by a purchaser from a non-resident seller, contributes further requirements onto all parties of the transfer process. In essence when a purchaser buys an immovable property, such as house or sectional title property, from a person who is non-resident for R2 000 000-00 (Two Million Rand) or more, the purchaser compelled to withhold a certain percentage from the purchase amount due to the seller. That withheld amount is then paid to the South African Revenue Services (SARS).
An important source in understanding this practice is the INCOME TAX ACT 58 OF 1962 (“Income Tax Act”). Section 35A (1) of the Income Tax Act summarised states that a purchaser of immovable property, if the amounts payable by the purchaser to the seller exceeds R2 million Rand, the purchaser is obliged withhold a certain percentage from the amount due to the seller.
In terms of the Act, the amount of tax to be withheld is determined as such:
5% of the total amount where the seller is a natural person;
7,5% of the total amount where the seller is a company; and
10% of the total amount where the seller is a trust.
Section 35A(4)(a) and (b) highlight the time frame in which the Tax amount has to be paid. Where the purchaser is a resident of South Africa the withheld tax amount is required to be paid within 14 days after the date on which that amount was withheld. Alternatively, where that purchaser is not a resident, the payment of the withheld tax amount has to be paid within 28 days after the date on which that amount was so withheld or in other words collected.
A non-resident seller does have the option to request that tax be withheld at a lower or even zero rate. The reasons why a sale would attract a lower rate of capital gains tax will depend on the facts of the particular case.