Foreign nationals who dispose of real estate in South Africa worth more than R2 million are often surprised when they have to pay significant tax on the income received on transfer.
Under South African law, the non-resident seller is required to withhold a percentage of the purchase price and pay it directly to the South African Revenue Service (SARS) as an advance to cover any potential tax liability.
This obligation to withhold amounts at prescribed rates arises under section 35A of the Income Tax Act and applies where the seller is a non-resident, as defined under South African tax law.
In practice, the provision is often misunderstood, especially in joint ownership transactions. SARS treats each individual joint owner as a separate taxpayer, regardless of whether the co-owners are spouses or otherwise related.
Without proper planning, withholding taxes can result in excessive withholding, restricted cash flow and delays in accessing foreign funds for the foreign seller.
Why SARS stops – and why it may be much more
The purpose of the withholding provision is to ensure that non-resident sellers settle their tax obligations before their money leaves the country. These may include capital gains tax and, where applicable, tax on rental income. This is where the chickens come home to roost for foreigners who own South African property that was not fully acquired properly, or who have rented out the property but never considered notifying SARS of their rental income.
Section 35A requires withholding at the following rates, depending on who owns the property being sold:
- 7.5% for individuals
- 10% for companies
- 15% for trusts
Although it is intended to act as an advance payment for capital gains tax (CGT), there is also a practical issue in how the withholding is calculated.
The withholding percentage applies to the full selling price, not the actual profit. This means that no consideration has been given to the original purchase price. Even where you sell the asset at the same price you bought it for, you still face the full withholding rate. Additionally, any improvement costs incurred over time, or applicable exemptions such as the primary residence exclusion, are not taken into account. In some cases, this may even apply where there is little or no taxable gain – the law equally applies where you sell assets at a loss!
The result is that a percentage of a foreign seller's total income may be withheld even where their actual tax liability is significantly lower or even where the final SARS liability is zero.
The R2-million limit: where transactions go wrong
Where the amount payable to a foreign seller is less than R2 million, no withholding is required. Although this appears straightforward, in practice it is often applied incorrectly.
In transactions involving multiple non-resident sellers, the limit is often assessed on the basis of the total purchase price of the asset, rather than the share attributable to each individual seller. This misinterpretation is not uncommon and often results in unnecessary stops.
SARS has clarified that “seller” should be interpreted at the individual level. The R2 million limit therefore applies per seller, not per transaction. This approach is consistent with broader South African tax principles, where liability is determined on an individual basis, even in cases involving spouses or jointly owned property.
Not to be confused with the R3-million capital gains tax exclusion
The withholding tax applicable when a non-resident sells a South African property for more than R2 million should not be confused with the R3 million capital gains tax exclusion applicable when selling a primary residence.
In the 2026 Budget, the CGT exemption was increased from R2-million to R3-million, with effect from 1 March 2026. For eligible sellers, this increases the tax-free share on capital gains (gains) on the sale of a “primary residence” in South Africa to R1-million.
It is important to understand when and how these different rules apply. Professional tax advice is essential to optimize tax relief under the exemptions available to non-resident sellers.
Getting it right: A calculation-first approach
When it comes to Section 35A, each transaction must be evaluated on its own facts, taking into account the ownership structure, residence status and underlying tax position of each seller.
In practice, this requires a full capital gains tax calculation before the transfer, rather than relying on the purchaser or carrier to automatically apply the prescribed withholding percentage under section 35A.
An experienced tax expert can assist in calculating the exact amount withheld. Where a reduced or even zero withholding amount may apply, the tax professional can apply to SARS for tax instructions for the non-resident seller early in the conveyancing process. This instruction ensures that the amount withheld is commensurate with the seller's actual tax exposure.
A Practical Example on S35A Withholding for Joint Owners
Two non-resident individuals jointly sell their South African property for R2 595 000, each receiving R1 297 500 of income.
In terms of section 35A, the R2-million threshold – unchanged since the 2026 budget speech – must be assessed per seller, and not against the total transaction value. Since each individual seller's income falls below the R2-million threshold, no withholding obligation arises in this example, even if the total purchase price exceeds R2-million.
When this provision is incorrectly applied to the full purchase price, the purchaser will have withheld 7.5% of the total price, resulting in R194 625 being paid unnecessarily to Sars.
This will impact cash flow of sellers and add administrative burden to recover outstanding amounts.
Obligation to withhold extends beyond the purchaser
Section 35A places the onus of prohibition on multiple parties.
In terms of the Act, a purchaser who fails to withhold when required is personally liable for the amount that should have been withheld, provided they knew “or reasonably should have known” that the seller was not resident.
SARS' external guidance on withheld amounts states that a conveyancer or property practitioner who knows, or reasonably should have known, that a seller is a non-resident, and fails to notify the purchaser in writing, is jointly and severally liable for the payment of the amount which the purchaser must withhold and pay to SARS.
Furthermore, a buyer who fails to pay the withheld tax within the period allowed for payment is liable for interest and penalties as prescribed by SARS.
How can foreign sellers avoid overpayments?
Section 35A should not be applied as a blanket bar without context.
Foreign sellers can avoid overpayments by not relying solely on the automatic application of the standard withholding percentage set by law. Before concluding a sale of South African property, it is important to obtain tax guidance and ensure that the amount withheld reflects the actual tax risk of the non-resident seller.
Written by Nicholas Botha, Tax Team Compliance and Processing Manager at Tax Consulting SA