Amounts to be Withheld when a Non-resident Sells Immovable Property in SA - 11 November 2024 - Layman Version

Understanding Withholding Tax on South African Property Sales by Non-Residents

• This guide explains a specific tax rule in South Africa (SA) that applies when someone who does not live in South Africa (a Non-Resident Seller) sells immovable property (like a house, flat, or land) located within SA [1, 4a].

Key Concepts to Understand First:

• • Withholding Tax: This isn’t a new tax, but rather an advance payment towards the Non-Resident Seller’s normal income tax liability in SA for the year they sell the property [6e].
  • Who Withholds?: The Purchaser (the person buying the property) is responsible for withholding a portion of the purchase price and paying it directly to the South African Revenue Service (SARS) [4b].
  • Effective Date: This law, Section 35A of the Income Tax Act, has been in effect since 1 September 2007 [4a]. The current guide is effective from 11 November 2024.

When Does This Withholding Tax Apply?

• • • The withholding tax applies if a Non-Resident (Seller) is disposing of immovable property in South Africa [4b].

However, it DOES NOT apply in these specific situations [7g]:

• • • If the total amount payable by the Purchaser for the property does not exceed R2 million [7gi].
    • For deposits paid to secure the property, until the sales agreement becomes unconditional. If a deposit was not withheld, the amount that should have been withheld must be taken from the next payments made by the purchaser [7gii, 8].
    • Important Note: If the property value exceeds R2 million, the withholding amount is applied to the full purchase price, not just the amount above R2 million [5c].

How Much Tax Needs to be Withheld?

• • The percentage of the purchase price to be withheld depends on who the Non-Resident Seller is [4bi, 4bii, 4biii]:
    • If the seller is a natural person (an individual): 5% of the amount payable [4bi].
    • If the seller is a company: 10% of the amount payable [4bii].
    • If the seller is a trust: 15% of the amount payable [4biii].
  • Can the Withholding Amount Be Reduced or Waived? (The Tax Directive – NR03)
  • Yes, the Non-Resident Seller can apply to SARS for a “Tax Directive” (using Form NR03) to have the amount withheld reduced or even completely waived [5d].

Reasons a Seller might apply for this directive [5di, 5dii, 6c]:

• • • If the seller has provided security for the tax due on the property sale.
    • If the seller is not actually subject to tax on the disposal of the property.
    • If the seller’s actual tax liability is expected to be less than the standard 7.5%, 10%, or 15% calculation [6c].

How to Apply for the Tax Directive (NR03) [8a, 9, 10c, 11e]:

• • Who can apply?: The Seller or their Representative [11e]. (The Purchaser, Conveyancer, or Estate Agent can also download the forms [8a]).
  • Get the Form:
    • Go to the SARS website: sars.gov.za [8a].
    • On the Home Page, select “Types of Tax” [9i].
    • Select “Capital Gains Tax” [9ii].
    • Under the “Forms” tab, select “NR03 (Tax Directive Application by Non-Resident Seller of Immovable Property in SA)” [9iii].
    • Click on the form, print it, and manually complete the required information [9bi, 9bii, 9biii].

Information Needed for NR03:

• • Seller’s details: Full names, initials, surname/registered name, trading name, income tax number, ID/Passport number (and country/issue date), company/CC registration number, country of residence if non-resident.
  • Seller’s physical address: Unit/complex number (if applicable), street number/name, suburb/district, city/town, postal code.
  • Seller’s postal address: Can be the same as physical address or a different postal agency/PO Box/Private Bag address.
  • Property details: Date of transaction, reason for directive, reason for application (referencing Section 35A(2)(a), (b), or (d)), and the property’s description as per the Title Deed.
  • Purchaser’s details: Full names, initials, surname/registered name, trading name, income tax number, ID/Passport number (and country/issue date), company/CC registration number, country of residence if non-resident.
  • Purchaser’s physical address: Unit/complex number (if applicable), street number/name, suburb/district, city/town, postal code.
  • Purchaser’s postal address: Can be the same as physical address or a different postal agency/PO Box/Private Bag address.
  • Calculation of amount to be withheld: Gross selling price (if over R2 million) and the applicable percentage (7.5%, 10%, or 15%).
  • Declaration: After completing all fields, the applicant must print, sign, and submit the declaration. Failure to do so will result in the application being rejected [18a, 37a].
  • Submission: Email the completed NR03 form and the Deed of Sale to nres@sars.gov.za [10c, 10di].
  • Processing Time: SARS aims to process the Tax Directive application within 21 business days [12g].
  • Outcome: If approved or declined, SARS will issue a letter, the Tax Directive (NR03), and a provisional payment advice (IRP6) to the Purchaser/Conveyancer/Estate Agent, detailing the status and the amount payable [19c].
    • If the Seller is not yet registered for Income Tax, SARS will register them for withholding tax purposes [19a].
  • The Purchaser’s Declaration (NR02) and Payment Process
  • Regardless of whether a Tax Directive (NR03) was issued, the Purchaser (or Conveyancer/Estate Agent) must complete and submit a “Declaration by Purchaser for Sale of Immovable Property in SA by Non-Resident” (Form NR02) [9iv, 11e, 30iii].

How to Submit the Return (NR02) [8a, 9, 10c, 11e]:

• • Who completes/submits?: The Purchaser, Conveyancer, or Estate Agent [11e].
  • Get the Form:
    • Go to the SARS website: sars.gov.za [8a].
    • On the Home Page, select “Types of Tax” [9i].
    • Select “Capital Gains Tax” [9ii].
    • Under the “Forms” tab, select “NR02 (Declaration by Purchaser for Sale of Immovable Property in SA by Non-Resident)” [9iv].
    • Click on the form, print it, and manually complete the required information [9bi, 9bii, 9biii].

Information Needed for NR02:

• • • Seller’s details: Similar to NR03 – names, tax ref no., ID/Passport, etc..
    • Seller’s physical and postal addresses.
    • Property description (as per Title Deed).
    • Public Officer/Trustee details (if applicable): Surname, initials, date of birth, ID/Passport, Income Tax Ref. No..
    • Purchaser/Conveyancer/Estate Agent details: Names, tax ref no., ID/Passport, etc..
    • Purchaser/Conveyancer/Estate Agent’s physical and postal addresses.
    • Conveyancer/Estate Agent’s Firm details: Name of firm/agency.
    • Calculation of amount to be withheld: Year of assessment, date, receipt number, gross selling price (if over R2 million), percentage on gross selling price, any interest or penalty, and total payable.
  • Submission: Email the completed NR02 form and the Deed of Sale to nres@sars.gov.za [10c, 10di, 11f].
    • Important: When applying for the Transfer Duty receipt, the conveyancer must select “YES” to the question ‘Are the provisions of Section 35A of the Income Tax Act 1962 applicable?’ and upload the NR02 or NR03 along with the Deed of Sale [11f].

Making the Payment to SARS:

• • • The amount withheld must be paid to SARS with the NR02 form [29b].
    • Payment Deadlines:
    • If the Purchaser is a SA Resident: Within 14 days after the amount was withheld [30i].
    • If the Purchaser is NOT a SA Resident: Within 28 days after the amount was withheld [30ii].
    • Currency Conversion: If the amount was withheld in a foreign currency, it must be converted to South African Rand (ZAR) using the spot rate on the day it’s paid to SARS [29a].

Payment Method:

• • • SARS offices no longer accept cheque or cash payments for tax types [31c].
    • Payments must be made at a bank [31c]. (Note: Banks generally don’t accept cheques over R500,000) [31c].
    • For specific payment methods, refer to the “SARS Payment Rules – External Guide” (GEN-PAYM-01-G01) [30iii, 32].

Provisional Tax Payment (IRP6):

• • • If the Seller did not request an NR03 directive and is registered for Income Tax, they will be considered a provisional taxpayer [31d]. In this case, the Purchaser/Conveyancer/Estate Agent must submit the third period payment advice (IRP6) in the seller’s name along with the payment to SARS.
    • If you don’t receive an IRP6 form with the NR03 directive letter, you can download it from sars.gov.za: On the Home Page, select “Types of Tax,” then “Provisional Tax,” scroll down, and select “IRP 6 (3) Payment Advice for additional provisional tax” [32e].
    • Payment Receipt: Once payment is made to SARS, a payment receipt will be issued to the Purchaser/Conveyancer/Estate Agent [33f].
    • What Happens If the Seller Doesn’t Submit a Tax Return?
    • The amount withheld is an advance payment for the seller’s normal tax [6e]. If the Non-Resident Seller does not submit a tax return for that year of assessment within 12 months after the end of that year, SARS can use the amount withheld as a sufficient basis to issue a tax assessment against the seller [6f, 12h].
    • Consequences of Failing to Comply with Withholding Tax Rules
    • This is a very important section, as penalties can be severe.

Purchaser’s Liability [38a, 41]:

• • A Purchaser is personally liable for the withholding tax if they knew or reasonably should have known that the seller was a Non-Resident [38a]. They must pay the amount to SARS by the required deadline [38a].
  • If a Purchaser fails to pay the withheld amount to SARS on time, they will be liable for [41e]:
    • Interest at the prescribed rate, calculated from the day after the due date until SARS receives the payment [41ei].
    • A penalty equal to 10% of the unpaid amount, in addition to any other penalties [41eii].
  • Note: There is no provision to waive interest on late payments [41f].

Estate Agent and Conveyancer’s Role and Liability [38b, 39, 40]:

• • If an Estate Agent or Conveyancer helped with the sale, a Purchaser will NOT be held personally liable if they were not notified by the Estate Agent or Conveyancer about the seller’s Non-Resident status [38b].
  • Any Estate Agent or Conveyancer who is getting paid for their services related to the property sale must, before any payment is made to the seller, notify the Purchaser in writing that the seller is a Non-Resident and that Section 35A (the withholding tax rule) might apply [39c]. This applies if they are entitled to remuneration for their services [39c].
  • If an Estate Agent or Conveyancer should reasonably have known the seller was a Non-Resident and fails to notify the Purchaser, they become jointly and severally liable for the amount the Purchaser was supposed to withhold and pay to SARS [40d].
    • Their liability is limited to the amount of their own fees or remuneration received for their services in connection with that property sale [40d].