South Africa has one of the most comprehensive property registration systems in the world and there are currently no restrictions on foreign ownership of land in South Africa (although there is a legislative proposal in respect of foreign ownership of farmland).
Foreigners can freely purchase and sell property and repatriate the original capital introduced from outside South Africa to make the initial purchase, plus any profit made. When a non-resident transfers funds from a foreign source into a South African bank account, the bank will issue a record known as a ‘Deal Receipt’.
This is an important document. A non-resident will need to submit it to the South African Reserve Bank if and when the property is sold and the owner wishes to return the funds to the foreign country. Foreigners are also able to obtain mortgage financing from a South African financial institution up to a maximum of 50% of the proposed purchase price.
A foreign company or trust can buy and own land in South Africa. In certain instances, the purchaser is required to register as an entity in South Africa and, if the shares are owned by a non-resident, to appoint a public officer who is a South African resident.
Substantial tax advantages can be gained by purchasing South African property through a company. In summary, these are as follows:
- The avoidance of South African estate duty, which is presently 20%
- An easier and less expensive sale because transferring shares avoids the lengthy procedures that are necessary to register a fresh title to the property. Transfer duties are applicable depending on the value of the property
- Asset protection and confidentiality may be enhanced if the shares of the company are placed in a suitable entity such as a trust
- If the property is rented, thereby creating a taxable income, a company enjoys more flexibility in deducting expenses from such income
- Planning to minimise capital gains tax can also be provided.
Sovereign Trust (SA) assists many of its clients with the acquisition of real estate in South Africa. With our knowledge of the property ownership laws and regulations, we can manage the transaction process and financing arrangements and also advise on tax and structuring strategies.
We appreciate that each family presents a unique set of circumstances and will work to balance their residence requirements with their estate planning needs and to structure ownership of real property to the family’s advantage.