A house in Lisbon, an apartment in London, or a holiday villa in Mauritius may seem an attractive hedge against rand volatility. But buying property in another country isn’t just about finding a view you like and wiring the deposit. For South Africans, the transaction occurs at the confluence of exchange control rules, tax law, and the rules of the country where the property is located.
Let’s start with the money
South African residents may transfer funds offshore within the Reserve Bank’s annual allowances. The single discretionary allowance allows transfers of up to R1 million per calendar year without the need to apply for a tax-clearance. There is also a foreign investment allowance of up to R10 million subject to a SARS Approval of International Transfer (AIT) tax-compliance PIN. These allowances are normally per person, not per property, and transfers have to be through an authorized dealer, like a bank.
The origin of the money matters. Under the anti-money-laundering and Financial Intelligence Center Act, banks will have to see proof of identity, tax compliance and the source of the money. Don’t ever structure a property purchase around informal payments or unreported offshore accounts.
Property is not immigration
Buying a house doesn’t automatically give you residency, a work permit or citizenship. Immigration-by-investment programs are in a constant state of flux, with some countries ditching property-based routes altogether. Before you sign, find out if you are buying as a non-resident, if local approval is required and if foreign ownership is restricted.
Rules can be very specific. For example, Australia has heavy restrictions on foreign purchases of established residential dwellings, while Canada’s federal ban on many foreign residential purchases has been extended to 2027, subject to exemptions. Other markets may allow ownership, but only by a locally registered company or with limitations on the type and location of land.
You may spend more than the price
And the purchase price is just the start. This includes transfer taxes, stamp duty, registration fees, legal fees, agent’s commission, currency conversion costs, insurance, property management and ongoing local taxes. In some markets, the total costs of transactions can be 5-15% or more.
Also, don’t just use the agent recommended lawyer, find a local independent lawyer. The solicitor will need to check title, zoning, planning permissions, outstanding taxes, building compliance and any secured debt on the property. A survey and independent valuation are particularly important for older buildings and off-plan developments.
Understand the South African tax position
South African tax residents are generally taxed on worldwide income and capital gains. Rental income from an offshore property must usually be declared to SARS, converted into rand using an acceptable exchange rate. When the property is sold, South African capital gains tax may apply, even if the sale proceeds remain offshore.
Tax paid in the foreign country may qualify for relief under the Income Tax Act or an applicable double-tax agreement, but relief is not automatic and is subject to limits. The foreign country may also impose inheritance, wealth or estate taxes.
The safest approach is to model the full cost, with a South African tax adviser, local property lawyer and authorised dealer, before making an offer. The best overseas property is not the one with the most spectacular brochure. It is the one whose ownership, taxation and exit strategy you understand completely.