The South African Revenue Service (SARS), in collaboration with the National Treasury, has published the Draft Taxation Laws Amendment Bill 2025 for public consultation. Among the proposed changes is the removal of the long-standing exemption on foreign retirement funds, a shift that could have significant implications for South African expatriates and foreign nationals residing in South Africa.
If enacted, the new rules will take effect from 1 March 2026, meaning foreign retirement benefits will become taxable in South Africa, subject to applicable double taxation agreements (DTAs).
Who will be impacted?
The proposed legislative changes are expected to affect two main groups:
- South African expatriates who have accumulated retirement savings while working abroad.
- Foreign nationals who relocate to South Africa and become tax residents.
For both groups, the removal of the exemption means that previously untaxed or exempt income streams may now fall within SARS’s taxing rights.
Currently, under South African tax law, retirement income from foreign sources, such as pensions, annuities, or lump sum withdrawals can qualify for an exemption. This rule was initially introduced to prevent instances of double taxation, particularly where retirement benefits had already been taxed abroad or were earned before an individual became a South African tax resident.
Why is SARS Making this change?
National Treasury has highlighted two major concerns with the existing exemption:
- Double non-taxation
In some cases, foreign jurisdictions either do not tax retirement income under domestic law or are restricted from taxing it by treaty provisions. Where this applies, neither South Africa nor the foreign jurisdiction imposes tax, resulting in “double non-taxation” and a loss of potential revenue to the South African fiscus. - Loss of taxing rights under tax treaties
Even in cases where a double taxation agreement gives South Africa the exclusive right to tax retirement benefits based on residence, South Africa effectively forfeits these rights by maintaining the exemption. This can allow a foreign jurisdiction without primary taxing rights to impose tax, leading to inconsistencies and reduced revenue for South Africa.
By removing the exemption, SARS and National Treasury aim to bring greater fairness and consistency to the tax system while aligning it more closely with South Africa’s residence-based model of taxation.
Context: Pension Reform in South Africa
The proposed amendment does not come in isolation. South Africa has been undergoing a process of pension fund reform for several years, with the goal of modernising retirement savings regulation and improving oversight of cross-border funds.
As early as 2013, the Budget Review flagged issues with exemptions for foreign retirement funds, suggesting that they created opportunities for tax avoidance and undermined South Africa’s ability to collect revenue. With pension reform underway, Treasury views the removal of these exemptions as part of a broader effort to ensure retirement benefits are treated fairly, consistently, and in line with international standards.
What this means for Expatriates and Foreign Nationals
For South African expatriates who return home after working abroad, this change may alter the way their foreign retirement savings are treated for tax purposes. Similarly, foreign nationals relocating to South Africa for work or retirement may find that their overseas pensions or retirement annuities are subject to South African tax.
The impact will vary depending on the terms of double taxation agreements between South Africa and the country where the retirement savings were accrued. In many cases, the presence of a DTA may help mitigate the risk of double taxation, but affected individuals will need to review their personal circumstances carefully.
Tax experts have cautioned that this proposal is particularly important for expatriates and foreigners planning their long-term financial futures in South Africa, as retirement income forms a cornerstone of personal financial planning.
Key Takeaways
Stakeholders, including individuals,
businesses, and advisory firms, are invited to provide feedback on the proposed amendment. Written submissions must be submitted by 12 September 2025 to both:
- National Treasury’s tax policy depository: 2025AnnexCProp@treasury.gov.za
- SARS legislation comments: 2025legislationcomments@sars.gov.za
The proposed changes mark a significant shift in South Africa’s approach to taxing foreign retirement funds. By eliminating the exemption, SARS and National Treasury aim to strengthen the country’s residence-based tax system, close revenue gaps, and ensure greater fairness in how retirement income is treated.
Expatriates, foreign nationals, and businesses involved in global mobility should review these developments closely and seek professional advice where necessary to understand the potential impact on retirement planning and compliance obligations.
South Africa - Global Insights
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