Cross-border tax experts, pension fund administrators and foreign retirees in South Africa, have called on National Treasury to reassess the proposed removal of the foreign pension tax exemption. They warn it could trigger socio-economic fallout and deter individuals from relocating or returning to South Africa after years abroad.

This was the resounding sentiment at the virtual workshop hosted by National Treasury and the South African Revenue Service (SARS), with over 200 key stakeholders in attendance.

The workshop served to discuss public comment submissions received on the 2025 draft Taxation Laws Amendment Bill (2025 draft TLAB) and the 2025 draft Tax Administration Laws Amendment Bill (2025 draft TALAB). 

Foreign Fund Targeting?

The proposal in the draft amendments, published on 16 August 2025, entails imposing a tax obligation on South African tax residents who have worked abroad and accumulated foreign retirement funds, or in the case of foreign nationals who become South African tax residents, on their foreign retirement funds. This proposed amendment to remove the tax exemption is set to come into effect on 1 March 2026. 

Workshop attendees emphasised the need for more research on the wider economic implications, and proper data to support this proposed amendment.

Treasury stated two main issues identified with section 10(1)(gC)(ii) of the Income Tax Act, as a blanket exemption: 

1.      The exemption can lead to double non-taxation, especially where foreign countries do not tax retirement income, resulting in lost revenue for South Africa and undermining its residency-based tax system. 

2.      In cases where tax treaties grant South Africa exclusive taxing rights, the exemption means this right is not exercised, allowing foreign jurisdictions to step in and collect tax that should accrue to the South African fiscus.

‘If We Have to Leave, We Will’

Attendees mentioned examples of foreign retirees who moved to South Africa reliant on the exemption. Advisors said recently they heard many clients saying that if they have to move to protect their foreign pensions, they will do that and opt for lower tax rate jurisdictions.

Almost 60% of a specific wealth management firm’s foreign retirees in South Africa said they would pack their bags for lower tax jurisdictions if the proposed deletion of the foreign pension exemption became law.

Besides what foreign retirees contribute to the economy in terms of employment and investment, friends and family from overseas frequently visit during the year – spending in excess of R20,000 per day on local hospitality, accommodation, and transport. This will also come to an end if the foreign retirees leave South Africa due to the removal of tax-exempt benefits they enjoyed.

Experts also warned that foreign retirees could face significant and unplanned tax consequences, while they also cannot earn in South Africa due to the conditions of visas they hold.

The proposal comes at a time when more and more countries use tax incentives around foreign pensions aimed at attracting international capital and skills. More than 61% of those have a tax exemption approach driving retiree choices. 

Policy Should Not Be Misaligned with Government’s Own Objectives

It was noted that the proposed removal of the tax-exemption on foreign pensions for South African tax residents, may be misaligned with visa enhancing initiatives by the Department of Home Affairs (DHA). While the DHA has introduced new visa categories to attract people to South Africa, the proposal by National Treasury and SARS can drive many away.

Complex Legal and Practical Challenges

John-Paul Fraser, Team Lead: Cross-Border Taxation at Tax Consulting South Africa, warned of unintended consequences and practical difficulties should the exemption be removed in its entirety. Many will find it hard to restructure their foreign pensions and early withdrawals may attract penalties from fund administrators. This while retirees are already at a vulnerable stage.

He noted that South Africans abroad who want to return home, will rethink their options. “We expect a decline in those expatriates returning as they are worried about tax on their foreign pensions in future. We have received many enquiries in this regard since the proposed amendments were published.”

There is also concern over the retrospective effect on South African expats who return home under a new dispensation while they planned for their foreign pensions to remain exempt.

Others pointed out that Double Tax Agreements (DTAs) which provide for relief are already complex and vary significantly between countries.

Stakeholders Speak Up 

Stakeholder suggestions during the workshop include:

• Retain current tax exemption in full.
• If withdrawn, there should at least be grandfathering for retirees currently receiving pensions under the exemption.
• Implement a monetary threshold for exemption.
• Align National Treasury policy with DHA’s pro-immigration visa strategy.
• Conduct a full socio-economic impact study.
• Release a consultation paper before progressing the legislation.

Treasury officials reiterated that they continue to consider all public comment submissions and that the workshop serve as a fact-finding mission about the impact of the proposed law amendments. It will be presented to the Minister of Finance and Parliament and follow the legal process.

Written by Tax Consulting SA