Introduction
This proposed change, still open for public comment until 12 September 2025, has raised concerns among tax professionals and retirees alike, as it could reshape financial plans built over decades.
South African expats and retirees who’ve been relying on their foreign pension funds as a tax-free safety net may soon face a major change. The South African Revenue Service (SARS) and National Treasury have proposed removing the foreign retirement fund exemption under Section 10(1)(gC)(ii) of the Income Tax Act. A move that could expose thousands of offshore pensions to local taxation.
1) What’s Changing : The End of the Foreign Pension Exemption
For years, South Africans could rely on certain foreign pension or retirement funds being exempt from local tax, even after returning to the country. These exemptions were protected by double tax agreements (DTAs) and domestic law.
However, under the draft Taxation Laws Amendment Bill (TLAB), SARS intends to remove this exemption entirely.
- If you become a South African tax resident again, your foreign funds or retirement pensions may be taxed locally now.
- Even those who planned years before under the old exemption rules could be caught now.
Tax experts warn that, this modification is one of the most significant change in South African tax law in the recent years.
2) Why Is SARS Doing This ?
South Africa faces a major fiscal deficit. Revenue collection is below the target and government expenses are increasing continues.
To close the gap, government is exploring new ways to increase tax revenue, including wealth taxes, digital VAT extensions and now foreign retirement funds.
According to tax consultant, this move seems from long-standing pressure since 2013 when similar discussions first began. The removal of this exemption is “not surprising but also incredibly desperate.”
3) Who Will Be Affected Most
This proposed change primarily affects :
- South Africans working or retired abroad with foreign pensions or retirement funds.
- Individuals who ceased tax residency but plan to return to South Africa in future.
- Foreign nationals retiring in South Africa with offshore pension funds.
If you trigger South African tax residency, even after spending several years abroad. Your foreign pension income could be taxable here, depending on what your DTA allows.
For example :
- The UK-South Africa treaty may still offer relief in some cases.
- But countries like the US or Australia have more complex rule, often apply double taxation if not planned carefully.
4) The Risk of Double Taxation
While double tax treaties (DTAs) are designed to prevent paying tax twice on the same income, they differ by country.
Some DTAs give exclusive rights of tax to one country (UK), while others share the right to tax like (US).
If your DTA doesn’t protect your pension clearly, you may :
- Pay tax where the pension is located.
- Pay additional tax in South Africa once you become a resident again.
This could destroy your retirement savings which people assumed that it’s secured.
5) How This Affects for Returnees and Retirees
South Africa Tax Consulting warns that this policy could discourage South Africans to return back home.
Many of them have managed their finances and life plans around South Africa’s previous laws, mostly assuming that their foreign pensions would remain untaxed locally.
Now, faced with possible double taxation.
- Early cash out their foreign pensions.
- Move their funds elsewhere.
- Delay or cancel plans to return to South Africa.
While the rule aims to increase revenue, it could instead reduce inflows from high net worth individuals.
6) Key Dates and Public Comment
The draft bill remains open for public comment until 12 September 2025.
The proposed effective date is 01 March 2026, giving less than a year to prepare affected taxpayers.
Tax professionals are urging foreign retirement interest persons to submit comments and seek specialist cross border tax advice before the law is finalized.
7) What Should You Do Now ? (Expert Advice)
If you hold or plan to receive foreign pension income, experts recommend :
- Submit Public Comment : Use the process before 12 September 2025.
- Check Your Tax Residency Status : If you’ve worked abroad, ensure you’ve formally ceased South African tax residency.
- Review Your Double Tax Agreement (DTA) : Articles 16–19 typically cover pension taxation rules.
- Consult With A Tax Expert : All practitioners are not specialized in local or international tax.
- Plan Early : Waiting til March 2026 could leave you with few options.
8) The Bigger Picture : South Africa’s Tax Evolution
This move follows a series of retirement reforms, including the two part retirement system introduced earlier in 2024.
It reflects a pattern : the government is increasingly focused on accessing funds that were once off limits, from foreign employment income to offshore savings.
While it aims to strengthen tax fairness, it may also complicate retirement planning for law abiding taxpayers who’ve already planned their financial futures.
Conclusion
The removal of the foreign pension fund exemption marks a turning point for South Africans abroad and retirees returning home.
If passed, this law will reshape how foreign retirement income is taxed, and could catch many off guard who thought their offshore savings were safe.
