Investing In Commercial Property In Tzaneen

ADVICE FOR FOREIGN BUYERS

Foreign Buyers, wishing to purchase commercial property in Tzaneen, to be used in the Tourism Industry, need to comply with the following:
  • An investment of 2.5 million ZAR is required
  • A Permanent Residence Document for the owners will be required – application must be made prior to purchase, and South Africa will first issue a Temporary Residence Document
  • Employment of a minimum of five (5) South African Citizens in the operation
  • A Business Permit for the owners will be required , so they can work in the business
  • A Business Plan, Marketing Plan and Financial Plan will be required
  • The necessary applications for Immigration must be made – all documents and information should be available at their local Embassy or Consulate
INVESTMENT OF 2.5 MILLION ZAR: Prospective buyers should add all costs involved in acquiring the property i.e. air tickets, car hire and accommodation. Any equipment required for the business i.e. cameras, computers and kitchen appliances – should be valued and added to the investment amount.

EMPLOYMENT OF 5 SOUTH AFRICAN CITIZENS: Proof of a plan to employ five SA citizens is required i.e. in the Business Plan, in the first year you will employ 2 SA citizens, in the 2nd year another 1 SA citizen, and in the 3rd year another 2 SA citizens.

BUSINESS PERMIT: Click the following link for more information: http://www.intergate-immigration.com/business-permits-visa-south-africa-immigration.php

PERMANENT RESIDENTCE DOCUMENT: A Temporary Residency Document will be issued for two years – foreigners are expected to apply for a Permanent Residence Document in the second year.

BUSINESS PLAN: The Business Plan is to include Marketing and Financial Plan. Additionally:
  • Bank statements and financials are to be audited by a Charted Accountant of South-Africa (Pricewaterhouse Coopers South-Africa have a branch in the Netherlands http://www.pwc.com )
  • Submission of your Immigration Application, which has to go through the South African Embassy in your home country, together with all the supporting documentation they require.
FREQUENTLY ASKED QUESTIONS
  1. CAN FOREIGN FUNDS BE BROUGHT INTO SOUTH AFRICA TO PAY FOR THE PROPERTY?
    Yes, foreign funds can be paid into any bank account in South Africa. Usually the foreign purchaser will pay the purchase price of the property bought, into the trust account of the estate agent that brokered the sale - or into the trust account of the conveyance attorney who attends to the registration of the transaction.

    NOTE: The funds are only paid to the seller on registration of the transaction in the local deeds registry. Until then, the funds may be invested - at the non-resident’s direction and to his benefit. The operation of such trust accounts is regulated by the estate agents’ and attorneys’ professional boards. When a non-resident transfers funds from a foreign source into a South African bank account, a record known as a ‘Deal Receipt’ is issued by the South African bank. This is an important document and the non-resident will need to submit it to the Reserve Bank when, in future, he sells the property and wishes to return the funds to the foreign country.

  2. CAN MONEY BE BORROWED IN SA TO PURCHASE PROPERTY?
    Non-residents purchasing a property in South Africa may borrow up to a maximum of 50% of the purchase price from a South African financial institution. The remaining 50% of the purchase price will therefore need to be made up of foreign funds that the non-resident transfers to a South African account.

    The total loan amount granted by a bank however remains within the bank’s discretion. A bank will generally require proof of the non-resident’s income as well as compliance with South African anti-‘money laundering’ legislation (the Financial Intelligence Centre Act), which involves the furnishing of proper identification and the submitting of certified copies of documents (such as a passport and proof of residential address). In addition, and subject to certain exceptions, if the purchaser is married under the laws of a foreign country, his spouse will also be required to sign the mortgage bond documentation. Banks moreover require that a non-resident opens a non-resident account to which the loan repayment instalments are to be made. The non-resident can fund the repayments from abroad or, if the property is leased, from rentals so received. If the monthly instalments are made up of rental collected by the non-resident, the bank must be furnished with a copy of the lease agreement.

    NOTE: Foreigners who work in South Africa on the strength of a work permit, are not regarded as ‘non-residents’ by the South African Reserve Bank. They are considered to be residents for the duration of the period of their work permit and they are therefore not restricted to a minimum of a 50% loan.

  3. WHEN A NON-RESIDENT SELLS THE PROPERTY, CAN THE MONEY BE TAKEN OUT OF SA?
    Yes, the proceeds from the sale of the property can be taken out of the country (repatriated) when the non-resident sells the property. Any sums still owing under a mortgage bond over the property must be paid as the sale transaction is registered so that only the net proceeds will be repatriated. Similarly, if a non-resident owns property together with a South African resident, only the non-resident’s portion may be repatriated and will be limited to the amount representing the non-resident’s share in the property.

    NOTE: Such repatriation of funds attracts South African Exchange Control Regulations which means, amongst other things, that the Reserve Bank will investigate the initial source of the non-resident’s investment in South Africa. Therefore, the non-resident must take care to retain documentation of the initial purchase and transfer into his name of the property so that these are available when the property is subsequently sold. The documents to retain are all the “Deal Receipts”, a copy of the agreement of sale and the conveyancer’s final statement of account. When the non-resident sells the property, these documents must be submitted to the Reserve Bank before the repatriation of the proceeds will be allowed.

    Furthermore, if a foreigner takes up permanent residency in South Africa and signs a Declaration and Undertaking at a South African bank (namely declaring whether they are in possession of foreign funds and undertaking not to place same at the disposal of anyone resident in the Republic), they will be considered a resident for Exchange Control purposes and accordingly will only be able to repatriate funds within five years of their immigration. Thereafter they will be considered to be a South African citizen and subject to the same regulations and limitations. Finally, the repatriation of funds will be subject to capital gains tax, which we discuss in the next paragraph.

  4. DOES A NON-RESIDENT PAY SOUTH AFRICAN INCOME TAX?
    Whilst South Africans are taxed on their worldwide income, non-residents are liable to the South African tax authorities only in respect of income earned from a South African source. For example, if a non-resident rents his property out, the rental income will be subject to South African income tax and the non-resident is obliged to register as a South African taxpayer. Rest assured that because of a number of ‘double taxation’ agreements with other countries, the non-resident will not be taxed here and in another country on the same income.

    Capital Gains Tax (CGT) The non-resident is liable for payment of tax on the gain made on selling the property (capital gains tax). For property registered in the name of an individual, 25% of the profit will be taxed at the individual’s marginal income tax rate (the maximum marginal rate is currently 10%), meaning that the maximum rate payable in respect of CGT will be of 10% of the capital gain. Whilst South African residents in certain circumstances enjoy a rebate in that CGT is only paid on the portion of the profit that exceeds R1,5 million, non-residents are excluded from this relief and must pay CGT on the full amount of the gain repatriated.

    Withholding Tax Because some foreign buyers in the past avoided paying CGT when they sold their property, new legislation was passed which obliges any buyer of a property sold by a non-resident for R2 million or more, to retain a percentage of the purchase price and pay it to the South African Revenue Services within 40 days of the transfer. (If the non-resident seller is an individual, the amount retained is 5%. If the seller is a non-resident company the amount is 7% and if the seller is a non-resident trust the amount will be 10%.).

    This is referred to as ‘withholding tax’ and is a provision for the non-resident’s CGT liability. The non-resident can avoid the money being withheld by approaching Revenue Services beforehand and obtaining a Directive.