Withholding tax when dealing with a non-resident seller

taxGenerally speaking, capital gains tax is normally payable on the proceeds of sales of immovable property. However, the enforcement and payment of this have proven problematic, particularly when sales of immovable property concerns non-residents. From the South African Revenue Services’ (“SARS”) perspective; it has been always been extremely problematic to ensure proper and fair compliance in these situations.

For this reason, a withholding tax was introduced on the disposal of immovable property owned by non-residents. Section 35A was inserted into the Income Tax Act No. 58 of 1962, as amended, in terms of section 30 of the Revenue Laws Amendment Act, No 32 of 2004.  This section now deals with the withholding of tax in respect of non-residents who dispose of property in South Africa on or after 1 September 2007.

Section 35A imposes an obligation on a purchaser, who purchases immovable property for a price that exceeds R 2 million from a seller who is a non-resident, to withhold part of the purchase price from the seller on registration of transfer, and pay this withheld portion to SARS.

If the purchaser knows, or reasonably ought to have known, that the seller is not a resident, and he fails to withhold the amount required, the purchaser becomes personally liable to pay the amount to SARS on the due date, with interest and penalties, where late payment is made.

It is thus of the utmost importance to obtain the advice of a tax expert as well as a conveyancer on whether section 35A is applicable to the transaction or not.

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