It has been announced that section 35A of the Income Tax Act, which was introduced in 2004 to come into effect on a date to be announced, will be in operation from 1 September 2007. At the moment, as is the case with all residents, non-resident sellers of immovable property are liable to pay capital gains tax (CGT) when they dispose of local fixed property and certain interests in local fixed property, held as a capital asset. They are not liable for CGT when they dispose of shares held in South African (SA) companies or unit trusts. It follows that non-residents should register for tax in SA and disclose gains on disposal of fixed property in their annual SA income tax returns, along with other income tax.

However, SARS has found that it is extremely difficult to enforce collection of taxes from persons who live in a foreign country, especially those foreigners with tenuous connections to SA. This has meant that the CGT payable by a non-resident in respect of the sale of fixed property has often not been taxed. It is of course much easier to collect the tax from the purchaser because that gives SARS access to the property as a means of enforcing the payment of the tax. This situation led SARS to follow the example set by other countries, for example Canada, and impose a withholding tax payable by the resident purchaser.

How it works

When a purchaser buys, for example, a house from a person who is non-resident for R2 million or more, the purchaser must withhold a certain percentage from the amount due to the seller.


  • If the seller is a natural person: withhold 5%.
  • If the seller is a company: 7,5%.
  • If the seller is a trust: 10%.

Effectively, these rates are about half of the amount of CGT that would be due by the seller. However, unlike CGT where the base cost is deducted from the disposal value and the difference is taxed, the withholding tax does not take into account the cost of the property to the seller. The rate of withholding tax is based purely on the realisation value of the property.

When payable

  • If the purchaser is a resident: within 14 days of the money being withheld.
  • If the purchaser is also non-resident: within 28 days of the money being withheld.

The withholding tax is seen as an advance on the tax ultimately payable by the non-resident seller when he next submits his tax return to SARS. So, if he does indeed submit a return, this payment by the purchaser will effectively reduce the amount the seller has to pay with his next tax return.

Foreign currency conversions

If the amount is withheld from a consideration payable in foreign currency, the amount will be converted into Rands on the date it is paid to SARS.

Holding the purchaser, conveyancers and estate agents liable

The first persons who have a responsibility in a transaction involving a non-resident seller is the estate agent or conveyancer, if either or both are involved in a transaction and are being paid for performing this function.

If they are, they BOTH have a duty to tell the purchaser in writing that the seller is non-resident, and that there may be a duty to withhold. If they do not do so, and they knew or should reasonably have known that the seller is non-resident, they can be held jointly and severally liable for payment of the tax, up to the amount of their respective fees from the deal.

If no agent or conveyancer is involved, and the purchaser knows or should have known that the seller is not a resident, the purchaser becomes personally liable for the amount. Furthermore, the purchaser has to pay that amount to SARS by the date on which the payment should have been withheld.

The purchaser, agent or conveyancer, as the case may be, may recover from the seller any monies paid on behalf of the seller, a task which is easier said than done. They may also only recover the actual tax withheld and paid over, not any interest and penalties that may arise from late payment.

Penalties for the purchaser

If the purchaser fails to pay the withholding taxes to SARS on time, liability for interest arises, PLUS a penalty of 10% of the withheld amount.

Reduction of withholding tax

In certain circumstances the seller may apply to SARS for a directive that no tax or a reduced tax be withheld. SARS may consider issuing such a directive if, for example,

  • the seller provides SARS with security; or
  • the seller has several other properties in SA;
  • if SARS is satisfied that the seller is not subject to CGT due to a double taxation agreement with the seller’s country of residence;
  • if the seller can prove that the withholding rate (eg 7%) is higher than the actual CGT due.


As is often the case, there are exceptions.

  • As mentioned earlier, this duty to withhold applies only where the purchase price is over R2 million.
  • Secondly, the duty to withhold does not apply in respect of any deposit paid by a purchaser to secure a property UNTIL that the sale agreement is final and unconditional. This will happen where a potential purchaser pays the seller an option consideration, i.e. a cash payment to keep the offer open exclusively for the purchaser for a certain period of time.

Conclusion and implications

In practice, it can be very difficult to determine whether a person is resident or non-resident for tax purposes in SA. This is particularly true where the person is a natural person. The following questions arise: will SARS be prepared to assist agents, purchasers and the public in determining the residence status of certain sellers? Can SARS impose such an onerous duty on parties involved in property transactions without being prepared to provide at least some guidance? It remains to be seen.

From an administrative point of view, conveyancers and estate agents will now have to carry an extra burden. Extensive affidavits will have to be compiled and completed, asking each seller-client intrusive questions about residence status, involvement in local companies and property portfolio.

The risk carried by conveyancers will be increased even further, as they are the ones controlling the flow of monies in a property transaction, and will therefore be expected to exercise final control over payments to SARS on date of transfer. Some property professionals will no doubt consider raising their fees or commission.

The implications of this new law for conveyancers in particular are serious. As happened with the FICA legislation, the powers that be have shifted the duty of policing compliance with certain laws on to intermediaries.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.