Understanding FICA in South Africa: Strengthening Our Fight Against Financial Crimes

Did you know that South Africa has been taking significant steps to improve its anti-money laundering (AML) and countering the financing of terrorism (CFT) regulations? Let's dive into what the Financial Intelligence Centre Act (FICA) is all about and why it's essential for our economy.

What is FICA?

The Financial Intelligence Centre Act (FICA) is South Africa’s primary law to combat financial crimes like money laundering, terrorism financing, fraud, and tax evasion. First introduced in 2001, FICA has been amended over the years to align with global standards set by the Financial Action Task Force (FATF), an international body South Africa has been a member of since 2003.

Despite these efforts, according to the FATF’s 2021 mutual evaluation report, South Africa still has work to do in strengthening the implementation of these regulations. Realizing this, the government has been working to create a more efficient legal framework by continuously amending FICA.

Why is FICA necessary?

FICA is a crucial part of South Africa’s AML/CFT regime. It sets out the requirements for businesses to prevent money laundering and terrorism financing activities. The Financial Intelligence Centre (FIC) oversees these efforts, ensuring companies comply with the law and take appropriate measures to protect our financial system.

Who is regulated under FICA?

FICA applies to a wide range of businesses, including:

• Banks

• Casinos

• Exchange companies

• Brokers

• Attorneys

• Insurance companies

• Financial advisers

• Real estate agents

• Investment firms

• Dealers of precious metals

• Payment service providers

These institutions must implement effective AML policies to avoid penalties, including hefty fines and even imprisonment.

Why does FICA matter?

By adhering to FICA, businesses not only help protect themselves from being exploited for illegal activities but also contribute to a safer financial environment in South Africa. FICA’s risk-based approach allows companies to tailor their AML measures according to the risk level of their clients, ensuring a balanced and effective compliance strategy.

Stay informed and compliant!

Whether you’re a business owner, an employee, or just someone interested in South Africa’s financial laws, understanding FICA is crucial for fostering a safe and transparent economic landscape. Let's work together to strengthen our fight against financial crimes!

If you have any questions or need more information about FICA compliance, feel free to reach out or drop a comment below!

Selling a Property with Defects: An Analysis into the Voetstoots Clause

Disputes regarding property defects oftentimes arise during or shortly after transfer into the names of the Purchasers have taken place. This can be a frustrating experience for all parties involved, especially if you are not aware of your rights and obligations towards the other contracting party. The aim of this article is to educate prospective Sellers and Purchasers on the different types of property defects that exist as well as who is responsible for attending to these defects. This article will pay special attention to the Voetstoots clause, and the instances in which a Seller is not protected under this clause.

There are two types of property defects, namely latent and patent defects. A patent defect is not hidden and is usually obvious to the naked eye during a reasonable inspection of the property. Patent defects may include broken windows, damaged floors or leaking taps. In these instances, the parties can discuss the options of who will attend to the repairs. It can be negotiated between the parties that either the Sellers repair the defect, or they reduce the purchase price to enable the Purchaser to do the necessary repairs.

A latent defect is not readily revealed by a reasonable inspection of the property. Typical examples of latent defects are leaking roofs, dampness and/or structural defects in the foundation and faulty geysers, to name but a few. Buyers will often only discover these defects months, or even years after living in the property. Thus, should the latent defect matter trigger a dispute between parties, the common law position is as follows:

• If the Seller gives the purchaser an express written warranty that the property is sold free from any defects, and after the sale is concluded, the purchaser confirms that there is a defect, the Seller can be held liable for the repairs. For example, if the Seller declared in the agreement of sale that the roof does not leak and after the sale the Purchaser experiences leaks in the roof, the Seller is held liable as there has been a breach of contract.

• If the Seller misrepresents to the Purchaser regarding the property’s condition, the Seller can be held liable. For example, if the Seller is aware that the roof leaks and does not declare the same to the Purchaser, the Seller can be held liable, and the sale can be set aside, or the Purchaser may proceed with the sale and claim a reduction in the price for the damages.

One may ask, but what if the Seller did not know about the latent defect? The answer is yes, the Seller can be held liable if the latent defect existed when the sale was concluded between the parties. But why is there a voetstoots clause in the sale agreement, which is supposed to protect the Seller by informing the Purchaser that they are purchasing the property as-is (voetstoots)? The voetstoots clause does not protect the Seller and does not exclude the Seller’s liability if the misrepresentation is proven; hence if the Seller was aware of the latent defect and did not disclose same to the Purchaser, the Seller can be held liable.

The Consumer Protection Act, which came into effect on the 1st of April 2011, states the Purchaser has to be informed of all details regarding the property that they are purchasing. Once the Seller expressly states what condition the property is in and the Purchaser expressly accepts the current state of condition of the property before purchasing the property, the implied warranty of the property’s condition falls away. The effect of the CPA has been that the voetstoots clause does little to protect the Seller when it is comes to defects; hence the Seller is urged to declare all defects of the property to the Purchaser before concluding a sale agreement.

In the matter between Maloka v Vermeulen and Another the High Court confirmed that sellers who are aware of a latent defect are not protected by the voetstoots clause.

The facts of the case were as follows:

The Plaintiff approached the Court for an order granting her a reduction in the R2.3 million selling price of the property she purchased, with an additional order demanding the sellers pay for repairs done to the property. The Plaintiff viewed the property with an estate agent but was unaware of a damp problem which affected the bedrooms, kitchen, dining room, and other parts of the property. The Plaintiff said that she had noticed bubbling and peeling of the wall paint, especially in the main bedroom. She approached the sellers directly to enquire about the affected area, who said that there was no damp problem at the property.

Shortly after, but before the purchase of the property, Plaintiff noticed that the damp on the walls had been repaired. Upon moving into the property, Plaintiff noticed the true extent of the damp issue, with the discolouration of the carpets and the smell of damp evident. The sellers denied that they were aware of a damp problem and that the house was sold to her “voetstoots” in any event. They also denied that she had approached them regarding the damp problem.

An expert witness at the trial testified that the defects shown in their report were all caused by incorrect design and construction of the property and that the inherent damp issue manifested itself soon after the first year of rains on the property. The expert witness believed that the sellers knew about the damp problem.

The Court said that the damp problem was a latent defect of the property and that the sellers must have known about the issue. The Court also found that the sellers’ failure to inform the purchaser of the defect was equivalent to deliberately withholding knowledge of the damp issue, which could be seen as fraudulent non-disclosure on the part of the sellers.

Ultimately, the sellers were not protected by the voetstoots clause and were ordered to pay just under R415,000 to the purchaser – in line with a quotation given by a contractor to fix the problem.

A note for Sellers

Don’t just assume that prospective buyers will find defects themselves, especially because certain latent defects cannot necessarily be seen by the naked eye. It is also important to note that the voetstoots clause is not a foolproof defence, and it is advised to not rely on it too heavily as it will not automatically protect you from liability. Avoid all doubt by thoroughly inspecting your property, annex to the sale agreement a written list of all defects you find or know about, then get the buyer to sign it in acknowledgment.

Disclaimer

This article is intended for general information purposes only and is not intended to stand alone as legal advice. Always consult a qualified property law practitioner on any specific problem or matter.

Transfer Duty or VAT: Which form of taxation is applicable to your property transfer?

When a sale agreement is concluded between a seller and a purchaser, there are a few charges that may arise in addition to the purchase price.

This article focusses specifically on taxation in respect of the sale of immovable property.

The South African Revenue Service (SARS) has enforced taxation through two means:

1. VAT

2. Transfer Duty

What is Transfer Duty and when is it payable?

Transfer Duty is a tax levied on the value of immovable property and is payable by the person acquiring a property. The general rule of thumb is that if a transaction is exempt from VAT, then Transfer Duty is payable on the purchase price. When a purchaser is not a registered VAT vendor, and the purchase price is more than the R 1 100 000 (one million one hundred thousand rand) threshold as stipulated by SARS, then Transfer Duty is payable. It is important to note that VAT and Transfer Duty are mutually exclusive, which means that only one or the other can be applicable in a single transaction.

Transfer Duty is calculated by means of a tiered scale, based on the purchase price of the immovable property, as shown below:

Purchase Price (In Rand)	Transfer Duty Payable (In Rand and %)
1 – 1 100 000	0%
1 100 001 - 1 512 500	3% of the value above R 1 100 000
1 512 501 - 2 117 500	R 12 375 + 6% of the value above R 1 512 500
2 117 501 – 2 722 500	R48 675 + 8% of the value above R 2 117 500
2 722 501 – 12 100 000	R97 075 +11% of the value above R2 722 500
12 100 001 and above	R1 128 600 + 13% of the value exceeding R12 100 000

The Transfer Duty Act lists several exemptions where Transfer Duty is not payable:

• Property acquired by the government

• Property that is subject to VAT

• Property transferred as an inheritance from a deceased estate; and

• Property transferred as a result of divorce

When is VAT payable?

If the seller is registered for VAT and sells immovable property in the course of his or her business, VAT will be payable to SARS. A vendor is a person who runs a business and whose total taxable earnings per year exceed R 1 000 000.00 (one million rand). Such person must be registered for VAT. A further stipulation is that the property being sold must be related to his or her business from which he or she derives an income. Generally, the agreement of sale will stipulate whether the purchase price includes or excludes VAT. If the agreement makes no mention of the payment of VAT and the seller is a VAT vendor, it is then deemed that VAT is included and the seller will have to pay 15% of the purchase price to SARS.

It is the seller’s responsibility to pay the VAT to SARS, unless the agreements stipulate otherwise. When a seller is not registered for VAT, but the purchaser is a registered VAT vendor, the purchaser will pay transfer duty and may then claim it back from SARS after registration of the property transfer. This is known as a ‘notional input tax credit’.

When is a property zero-rated for VAT?

SARS offers the benefit of zero-rating commercial property transactions where both the seller and the purchaser are VAT vendors, provided that they comply with additional requirements.

Where a VAT vendor sells a property, which forms part of his or her enterprise, to another VAT vendor as a going concern, the sale is zero-rated for VAT purposes. In order for a sale to be a going concern for VAT purposes, the following requirements must be met:

• The seller and purchaser must both be VAT vendors

• The property must consist of an enterprise or part of an enterprise that is capable of operating separately

• The parties must agree in writing that the supply is a going concern

• The parties must agree in writing that the enterprise is an income-earning activity on the date of transfer

• The assets necessary for carrying on the enterprise must be included in the sale; and

• The parties must agree in writing that the sale includes VAT at the zero-rate

SARS have the authority to demand that the full VAT amount be payable if the application for zero VAT rating is unsuccessful. It is therefore important that a clause be inserted in the agreement of sale which states that the purchase price will increase to cover the potential addition of VAT to the sale price.

Conclusion

It can be quite confusing understanding when VAT is payable on the transfer of immovable property and when Transfer Duty is payable. The aim of this article was to make the process of selling or buying a property and the taxation relating thereto a bit clearer. Should you require any further information regarding the applicable taxation during the transfer of property, kindly contact our experienced Conveyancing and Property Law team.

Disclaimer

This article is intended for general information purposes only and is not intended to stand alone as legal advice. Always consult a qualified property law practitioner on any specific problem or matter.