What Was the Foreign Retirement Fund Exemption Under Section 10(1)(gC)(ii)?

Effective from 1 March 2017, Section 10(1)(gC)(ii) of the Income Tax Act No. 58 of 1962 exempted from normal tax any lump sum, pension or annuity received by a South African tax resident from a source outside South Africa, as consideration for services rendered outside the country under past employment.

This exemption was a significant relief provision for thousands of people, including:

• Worked abroad for many years and accumulated foreign pension savings
• Returned to South Africa and re-established tax residency
• Foreign nationals who retired in South Africa with offshore pension funds
• Retirees from international organisations such as the United Nations or World Bank

The exemption meant that even after returning to South Africa and triggering tax residency, the foreign pension income remained outside the South African tax net — as long as the services that generated it were rendered outside South Africa.

For context on how income tax works in South Africa generally, see our Income Tax South Africa 2026 guide.

Has the Exemption Been Removed? What the TLAB 2025 Changed

Legislative timeline of the foreign pension exemption removal:

National Treasury’s stated rationale was that the exemption led to instances of double non-taxation — where some DTAs gave South Africa the taxing right over foreign pensions, but the domestic exemption meant SARS collected nothing. The removal is intended to ensure South Africa exercises its treaty-granted taxing rights.

Who Is Affected by the Removal of the Foreign Pension Exemption?

Groups most affected:

• Returning South African expats: Those who worked in the UK, USA, Australia, Germany or other countries and accumulated local pension savings — now face SA tax on those payouts after becoming SA residents again
• Retirees already living in South Africa: Individuals receiving ongoing foreign pension payments who previously relied on the Section 10(1)(gC)(ii) exemption — their next tax return (July–November 2026) will require declaring this income
• Foreign nationals retired in South Africa: Foreign citizens who retired to South Africa, established tax residency, and receive pensions from their home countries
• International organisation employees: UN, World Bank and similar staff whose pension arrangements may have been structured around the old exemption
• Individuals who ceased residency and plan to return: If you are a non-resident planning to return and trigger residency, your foreign pension will be taxable from the date you become a SA tax resident

How Are Foreign Pensions Taxed in South Africa After 1 March 2026?

For a retiree with no other income receiving a foreign pension equivalent to R600,000 per year, the calculation is: R125,599 + 36% × (R600,000 − R530,200) = R125,599 + R25,128 = R150,727. After the primary rebate of R17,820: R132,907 annual tax (R11,076/month). Effective rate: 22.2%.

What Do Double Tax Agreements (DTAs) Mean for Your Foreign Pension?

South Africa has DTAs with over 76 countries. To check if your country has a DTA with SA and to access the treaty text, visit the SARS international agreements page. Look specifically for the pension article (usually Article 17 or 18).

What Are the Risks of Double Taxation for SA Expats?

How the double tax risk works in practice:

1. 1
   Pension taxed in source country

   Your foreign pension provider deducts tax at source — for example, UK PAYE on a British private pension or withholding tax in other countries.
2. 2
   Same income taxable in South Africa

   Without DTA protection, SARS also claims the right to tax this income at your SA marginal rate, since you are a SA tax resident.
3. 3
   Section 6quat credit applied

   You claim the foreign tax paid as a credit on your SA return. If you paid 20% in the UK and SA charges 36%, the net SA additional liability is approximately 16% on the pension income.
4. 4
   Residual double tax burden

   If the foreign rate exceeds the SA rate for that income, no additional SA tax is payable. If SA rate is higher, you pay the difference. Excess foreign tax credits cannot be refunded or carried forward in all cases.

For high net worth individuals this calculation should also factor in Capital Gains Tax (CGT) implications on any lump sum pension payouts, which are treated differently from regular pension income.

What Should Returnees and Retirees Do Now? (2026 Action Plan)

How Does This Affect Your Tax Residency Status?

Formally ceasing South African tax residency requires submitting a declaration of non-residency to SARS and completing the residency cessation process, which includes a deemed disposal CGT event on worldwide assets. You cannot selectively cease residency — it applies across all income types.

For small business owners considering offshore structures or the Turnover Tax system, also see our Turnover Tax South Africa guide for simplified tax options available to qualifying businesses.

Which Countries’ Pension Funds Are Most Exposed to South African Tax?

What Are the Key Dates and Next Steps for 2026?

Immediate next steps if you receive foreign pension income:

• Confirm SA tax residency status with a qualified practitioner
• Obtain the relevant DTA and identify the pension article for your source country
• Gather all foreign pension statements showing income received from 1 March 2026
• Calculate SA tax liability using 2026/27 brackets and deduct any Section 6quat credit for foreign taxes paid
• Register on SARS eFiling if not yet registered
• File your 2026 ITR12 return before the October/November 2026 deadline

Use our SA tax brackets guide to understand how your total income — including the foreign pension — will be taxed at each marginal rate.

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Frequently Asked Questions — Foreign Retirement Fund Tax South Africa