South Africans with foreign retirement funds and foreign nationals who become South African tax residents face a major shift from 1 March 2026.

This follows a proposal from the National Treasury, which wants to scrap the current exemption and give SARS taxing rights over foreign retirement income.

This was explained by Tax Consulting SA’s cross-border taxation legal manager, Delano Abdoll, and team lead, John-Paul Fraser.

Abdoll and Fraser stressed that retirement planning is a crucial financial component for South African expatriates and foreigners who see South Africa as their retirement paradise.

“National Treasury has penned the proposed amendment to remove the tax exemption on foreign retirement funds,” they said.

“This demonstrates that the 2025 National Budget Review announcement on the proposal was not just all talk and that the Finance Minister has put his money where his mouth is.”

Effective from 1 March 2017, section 10(1)(gC)(ii) of the Income Tax Act (the Act), subject to certain requirements, exempts from normal tax any lump sum, pension, or annuity received by a South African tax resident from a source outside South Africa.

This applies where the income was earned as consideration for foreign services rendered in terms of past employment.

South African tax residents are generally required to declare and pay taxes on their worldwide income.

For this reason, this section was designed to prevent double taxation on retirement funds already taxed in a foreign country or earned while an individual was not subject to South African tax.

The National Treasury’s Explanatory Memorandum to the Taxation Laws Amendment Bill, issued on 16 August, explained why it is seeking reform.

“In the 2013 Budget Review, it was noted that: South African residents working abroad and foreign residents working in South Africa regularly contribute to local and foreign pension funds, giving rise to a variety of tax issues,” Treasury said.

“While certain limited rules have long been in place, these rules are largely ad hoc. With overall retirement reform now in effect, cross-border pension issues need to be fully reconsidered.”

In the 2022 Budget Review, the Treasury announced that it would review the exemption of foreign retirement benefits in domestic tax legislation.

In the 2024 Budget Review, the Government acknowledged the need to enhance the rules that currently exempt South African residents’ lump sums, pensions, and annuities from foreign retirement funds for past employment outside South Africa. The aim is to ensure that these amounts are taxed fairly and consistently.

Reasons for the change

Abdoll and Fraser said the discourse around the retirement tax regime in South Africa since 2013 is evidence enough that the tax treatment of retirement funds has been a long-standing issue for the National Treasury and SARS.

The National Treasury identified two main issues with section 10(1)(gC)(ii) of the Act, as a blanket exemption.

“Firstly, the exemption may result in double non-taxation, particularly where the foreign jurisdiction does not tax the retirement income due to domestic law or tax treaty limitations.”

“In these cases, neither South Africa nor the foreign jurisdiction imposes tax on the retirement benefit. This undermines South Africa’s residence-based system of taxation and leads to revenue forgone to the fiscus.”

Secondly, the Treasury pointed out that, in instances where a DTA (Double Taxation Agreement) gives South Africa the sole right to tax foreign retirement benefits, it loses out on that right because it still allows an exemption under this section.

“As a result, the foreign jurisdiction, despite lacking primary taxing rights under the treaty, may choose to tax the retirement benefits because South Africa does not tax them.”

“This misalignment allows the foreign jurisdiction to benefit from taxing rights that South Africa does not exercise. The South African fiscus ultimately forgoes revenue that it is entitled to collect.”

To address these problems, the National Treasury proposed that section 10(1)(gC)(ii) of the Act be deleted in its entirety.

Abdoll and Fraser said the aim is to ensure that foreign retirement funds received by South African tax residents are appropriately taxed in accordance with South Africa’s residence-based taxation system.

The deadline to submit comments on the proposed amendments is 12 September 2025. These must be sent to the National Treasury’s tax policy depository and SARS.

“As retirement planning is a key principle of personal financial planning, South African expatriates and foreigners relocating to South Africa should consult qualified tax professionals experienced in cross-border taxation,” they added.

“With the legislative cycle progressing, it will also be a make-or-break for taxpayers to stay up to date on any changes that will affect their foreign retirement income and plan accordingly on a more urgent basis than they may have liked.”

Source: dailyinvestor