1. INTRODUCTION AND RECENT CHANGES IN LEGISLATION
Various vehicles exist for purchasers of immovable property. Transfer can be effected to a purchaser in his personal capacity (a natural person), a juristic person (a trust, a company or close corporation) and the choice depends on the specific requirements of the purchaser.

2. CONSIDERATIONS
The most important factors to be considered by the purchaser when selecting a suitable registration entity are briefly discussed hereunder.

2.1 TRANSFER DUTY
Two recent amendments to the Transfer Duty Act will have a significant influence on the selection of the mode of acquisition.

• Prior to 13 December 2002, transfer duty was payable where immovable property, as opposed to the member's interest, shares or beneficial interest in a property owning close corporation, company or trust, was acquired.
  
  Since the amendment to the Transfer Duty Act on 13 December 2002, transfer duty is now payable on the transfer of a member's interest, shares or beneficial interest in a Trust as well. Where the purchaser of the interest or shares is a natural person, transfer duty is charged on a sliding scale while an entity other than a natural person pays transfer duty at a flat rate of 10% of the purchase
  
  
  
• A change in the interpretation of the Act by the Receiver of Revenue has also curtailed the purchaser's ability to sign an agreement of sale personally whilst reserving the right 10 nominate another person or entity as purchaser usually with in a stipulated period from date of last signature. This had afforded the purchaser time to consider various options, e.g. to purchase a shelf close corporation/company or even to nominate a spouse whilst having the Receiver of Revenue construe it as a single transaction only.
  
  As a result of the Receiver of Revenue's stricter interpretation of nomination clauses, the purchaser will have to have a clear idea of the most suitable entity for acquiring ownership at the time of purchase as the nomination and acceptance thereof must take place on the same day on which the agreement was signed.
  
  If a purchaser elects either a close corporation or company as the preferred entity of acquisition, the agreement of sale may be signed by the Purchaser "on behalf of a company/close corporation to be formed." Once the company/close corporation is formed, it would have to ratify the decision to purchase the immovable property concerned. In this manner the "nomination" will not attract double transfer duty. Unfortunately the Trust Property Control Act specifically prohibits the acquisition of immovable property by a Trustee for a Trust to be formed.

2.2 VAT
Purchasers must keep in mind that no transfer duty is payable if the seller is registered as a VAT vendor on date of registration, in which event the seller is liable to pay the VAT, charged at 14% to the Receiver of Revenue.

2.3 PROTECTION FROM CREDITORS
This is an important consideration, especially where the purchaser will be trading.

2.4 ADMINISTRATIVE COSTS
Certain registration entities are more costly to administer than others.

2.5 CAPITAL GAINS TAX AND OTHER TAX CONSIDERATIONS
Whether capital gains tax, (CGT), estate duty or other taxes are payable and at what rate, depends on the entity selected.

3. WHICH ENTITY OF ACQUISITION TO CHOOSE?
The advantages and disadvantages of the different entities for owning property are considered hereunder to assist in the selection of a suitable option.

3.1 PURCHASING AS AN INDIVIDUAL IN YOUR PERSONAL CAPACITY
Transfer duty is paid on a sliding scale, which is lower than the rate of 10% charged in respect of other legal entities.

The first R1 million of any profit made on the sale of the property is exempt from CGT, provided the property in question constitutes the individual's primary residence. This applies to South African residents only. Twenty five percent of whatever profit is remaining after the R1 million exemption is then added to the individual's income for the year, and taxed at the applicable marginal rate of income tax, resulting in a maximum net CGT cost of 10%. This is the lowest rate of CGT possible.
On death of the individual, the value of immovable property will be subject to estate duty. An exemption of R1.5million is granted, but the remaining value is taxed at 20%.

An important consideration is that the property lies at risk of attachment by the purchaser's creditors. For this reason, trading individuals may elect to register property in another entity.

PROS:

• Lowest rate of transfer duty and CGT
  
• First R1 million of profit is exempt from CGT, if primary residence
  
• No auditors or accounting officer's fees

CONS:

• R1 million exemption does not apply to non residents
  
• R1 million exemption does not apply to second or further properties
  
• The properties may be attached by creditors. Estate duty payable on death

3.2 PURCHASING AS A PRIVATE COMPANY
Companies purchasing immovable property pay transfer duty at a rate of 10% of the purchase price. Purchasers of shares in a residential property owning company now have to pay transfer duty, as set out in 2.1 above. Furthermore, should the company later dispose of the property, the company will pay CGT on 50% of all profit earned from the sale of the property which will be included in the company's taxable income and taxed at a flat rate of tax of 30% resulting in an effective tax rate of 15% of the capital gain.

Further, in order for the shareholder to acquire the profit realized on the sale of the company's asset, the company will have to declare a dividend which will attract secondary tax at the rate of 12.5%.

A significant benefit of this option is that the number of shareholders [which can include trusts, close corporations and companies] in a private company is limited to 50, as opposed to a close corporation, which is limited to 10 natural persons only.

A company is a separate legal entity and the shareholder's assets may only be attached to cover debts incurred by the company if the individual had stood surety for the company.

At the time of acquisition of the immovable property, the agreement of sale can be signed on behalf of a company "about to be formed" and the contract ratified by the company after its formation - thereby effectively allowing nominations at the time of signature without the entity being in existence or named at the time of signature.

As a company is prohibited from providing financial assistance to a purchaser for the purpose of or in connection with the purchase of shares in that company, no bond may be registered over the company's property to finance the acquisition of shares.

A company's financial statements are required to be audited.

PROS:

• Separate legal entity
  
• Number of shareholders only limited to 50
  
• Need not be in existence at time of signing agreement,

CONS:

• Higher rate of transfer duty and CGT than payable by individuals
  
• Dividends taxable
  
• No bond may be registered over company property to pay for acquisition of shares therein
  
• Annual audit is required

3.3 PURCHASING AS A CLOSE CORPORATION
Close Corporations face exactly the same transfer duty, CGT and tax implications as companies do. A close corporation, like a company is also a separate legal entity.

Only an accounting officer is required instead of an auditor, thereby reducing administration costs.

Like a company, a close corporation can ratify a contract signed by an individual prior to its formation.

Membership is limited to 10 natural persons.

PROS:

• Separate legal entity
  
• Lower administration fees
  
• Need not be in existence at time of signing agreement

CONS:

• Higher rate of transfer duty and CGT than payable by individuals
  
• Profits taxable
  
• Ownership restricted to 10 natural persons

3.4 PURCHASING AS A TRUST
Transfer duty is payable at a rate of 10% when a trust acquires immovable property. Trusts attract the highest rate of capital gains tax - 50% of all profits gained on sale of trust assets are included in the trust's taxable income and taxed at the rate of 40%, resulting in a net capital gains tax cost of 20% of the capital gain.

Trusts play an important role in estate planning as the property held thereby does not form part of an individual's estate on death, and accordingly there are estate duty savings.

A cost incentive is that trusts are not required by statute to be audited.

Since trusts are separate legal entities the trust assets cannot be attached by creditors of the beneficiaries, unlike shares or members' interest in a Close Corporation, which provides a safe option to protect assets from attachment.

Unlike close corporations and companies however the trust must be in existence at the date of signature of the agreement as one cannot act as a trustee for a trust in the course of formation.

PROS:

• An effective estate planning tool
  
• Assets protected from attachment
  
• No audit is required

CONS:

• Highest rate if CGT
  
• Higher rate of transfer duty payable than by individuals
  
• Individuals must be in existence at the time of signing agreement of sale

CONCLUSION
The decision on the appropriate entity for the acquisition of immovable property is not a decision to be taken lightly. The information above provides a brief guideline and it is recommended that the purchaser consult an attorney prior to signing an agreement of sale in order to obtain expert advice having regard to the purchaser's personal circumstances.