Non-citizens taxpayers being the ones who suffer a much higher tax of 30% than citizens have obviously embarked on a mission to find new avenues that can legally minimize their tax bill when acquiring immovable property. As alluded to above, the transfer duty laws seem to favor the citizens as they get to pay the duty at 5%, further no transfer duty is applicable on citizens if the property is acquired from a VAT registrant. Accordingly, the big question that usually arises from non-citizens is whether they can form a trust and reduce the tax, as the Act provides that trusts are not natural persons or companies, which puts their tax rate at 5%.
The divergent views
Individual non-citizens who intend to own an immovable property may find the 30% tax burden to be too steep. For instance, if one purchases a house at P1m, they must prepare to part away with P300 000 in taxes. Accordingly, the Act provides that any other entity not being an individual or company pays tax at 5%. Now, the big question is whether non-citizens can form private trusts in which they are the beneficiaries. Effectively, they would have the trust to acquire immovable property. Consequently, trusts are neither individuals nor companies therefore rendering such entities to be liable to duty at 5% on the acquisition of immovable property. The fact that the beneficiaries are non-citizens is inconsequential as such disqualification is not provided by the law. On the other hand, it is apparent that the intention of the legislature was to impose a transfer duty at 30% on noncitizens. Accordingly, putting the applicability of 5% duty on trust whose beneficiaries are non-residents in question. Let us turn to the law for guidance.
The rules of law
Based on precedent court rulings, where a provision in an Act makes it sound improper or absurd, reference should be given to the intention of the legislature. Consequently, if such rules are followed, non-citizens may find it difficult to escape the 30% transfer duty as it will be impossible to use trusts to acquire property and pay tax at 5%. This is based on the fact that the intention of the legislature is clearly for non-citizens to pay a higher tax i.e., at 30%.
In that same vein it is also vital to highlight another court ruling which stated that, ‘If the person sought to be taxed comes within the letter of the law, he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the Crown, seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however, apparently within the law the case might otherwise appear to be. In other words, if there be an equitable construction, certainly such a construction is not admissible in a taxing statute, where you can simply adhere to the words of the statute.’ Simply put, this ruling means that non-citizens can still form private trusts and use them to transfer immovable property and enjoy a much lower rate of 5% as trusts are neither individuals nor companies.
As highlighted above, non-citizens can form trusts and legally use them to acquire immovable property at 5%. However, this may be practically impossible as the tax authorities may challenge the arrangement. The intention of the legislature is paramount in this instance. Therefore, it is imperative that professional guidance is sought before one concludes such transactions to avoid adverse tax implications.
Well folks, I hope that was insightful. As Yours Truly says goodbye, remember to pay to Caesar what belongs to him. If you want to join our Tax Whatsapp group, send me a text on the cell number below