Property withholding tax looms for non-resident sellers

From 1 September purchasers of fixed property worth more than R2 million will be required to deduct a withholding tax from the price paid to the seller, if the seller is a non-resident.

The onus lies with the purchaser and his conveyancer or estate agent to determine whether the seller is a non-resident. Failure to do so and deduct the withholding tax may mean that the purchaser is liable for the tax.

Doelie Lessing, a tax lawyer with Maitland, says that the property withholding tax was made law in 2004 (see Notes) but its effective date was only recently announced by the Minister of Finance.

The rate of withholding tax will depend on the entity of the non-resident seller: 5% for a natural person; 7.5% for a company; and 10% for a trust.

Lessing comments: " The development is regarded as a measure to assist the tax authorities with their tax collection duties, as it often is difficult to track down non-residents in order to collect taxes from them."

According to Lessing, the tax payment is part of the non-resident's "normal tax" liability in South Africa, which includes income tax (where the non-resident holds the property in question for speculative purposes) and capital gains tax.  It is a withholding tax and therefore the non-resident seller will receive credit for the tax already paid on his behalf when paying South African tax.

In practice, the purchaser must deduct the tax from each payment to the seller, and then pay it over to SARS. Failure to deduct could result in the purchaser being personally liable for the tax.

However, Lessing says : "The purchaser will be absolved from the liability where an estate agent or conveyancer knew or should reasonably have known that the seller is non-resident and did not notify the purchaser.  In such a case the estate agent and conveyancer are jointly and severally liable for the withholding tax." 

"Any withholding tax paid by the purchaser, estate agent or conveyancer can, however, be recovered from the non-resident seller."

In certain circumstances, Lessing says that the non-resident seller can apply to SARS to have the tax withheld at a lower or zero rate.