March 8, 2005

Sanchia Temkin
Johannesburg

PURCHASERS of immovable property from foreigners in SA will be required to withhold taxes on the purchase price and pay them over to the South African Revenue Service (SARS), under new tax laws.

And conveyancers and estate agents who handle the registration of properties could find themselves saddled with the administrative task of paying the taxes over to SARS on behalf of their clients - prompting warnings of a possible hike in conveyancing fees.

The aim of the new legislation is to shift the burden of collecting taxes due from a nonresident seller of immovable property from SARS to the purchaser.

"Conveyancers and estate agents will be personally liable for the tax if they fail to inform the purchaser in writing that the seller is not a South African resident," said Brian Kew, a conveyancer at Werksmans Attorneys.

The new law could be difficult for conveyancers and estate agents to put into effect, he said.

Conor McFadden, an associate at commercial law firm Bell, Dewar & Hall, said that under the new provisions, where the seller was a nonresident, the purchaser was required to withhold 5% of the purchase price, 7,5% in the case where the seller was a company and 10% where the seller was a trust.

If the buyer failed to pay over any of the withheld amount, that person would have to pay interest of 10% of the amount as a penalty, McFadden said.

Ernie Lai King, a director at Werksmans Tax, said the current system of taxation for foreigners lacked proper administrative enforcement, and "many nonresidents are also not registering for tax purposes".

Lai King said the withholding of tax would not apply where the purchase price of the property exceeded R2m.

Provision has also been made for the seller to apply to SARS for a directive that no amount be paid or a reduced amount be withheld.

In these circumstances, SARS would have to consider whether security had been furnished for the payment of tax by the seller on the disposal of the property, and also whether the seller had any assets in SA that were sufficient to cover the tax liability.

If the buyer was aware that the seller was a nonresident and failed to withhold the tax, he or she would be personally liable for such tax.
 
The law gives the purchaser and the conveyancer the right to recover the amount that it had paid over to SARS - but it might be difficult to recover the outstanding taxes from the seller, said McFadden.

SARS also had the right to challenge the seller's non-resident status once the tax was paid, he said.