The South African Revenue Service (SARS) and the National Treasury have released draft legislation for public comment that proposes changes to local tax laws, with a particular focus on foreign retirement funds.
Specifically, the proposal seeks to amend current laws by removing an exemption, thereby allowing South Africa to tax these funds.
This change will affect South Africans who have worked overseas and built up foreign retirement funds, as well as foreign nationals who have become South African tax residents.
SARS has proposed that these funds become taxable from 1 March 2026, in line with applicable double taxation agreements.
The changes were proposed in the Draft Taxation Laws Amendment Bill, 2025.
Tax experts at Tax Consulting SA note that the proposed change is particularly concerning, as South Africa is a popular retirement destination for foreigners.
Since retirement planning is a cornerstone of personal financial management, South African expatriates and foreigners moving to South Africa “need to urgently be aware that SARS intends to claim taxing rights over their foreign retirement funds,” the firm said.
Under existing tax laws, cross-border retirement funds benefit from an exemption that excludes lump sums, pensions, or annuities received or accrued by taxpayers outside South Africa from normal taxation.
This is for funds accrued through foreign services rendered in past employment.
Since South African tax residents are generally required to declare and pay tax on their worldwide income, the exemption was introduced to prevent double taxation on retirement funds already taxed abroad or earned while the individual was not a South African tax resident.
However, Tax Consulting SA highlighted that concerns over these exemptions date back to 2013, when the Budget Review identified various tax-related issues.
Amid ongoing pension fund reforms in South Africa, the government has deemed it an appropriate time to update the rules “to ensure these amounts are taxed fairly and consistently.”
Issues with Current Legislation
National Treasury said that there are two key issues with the current exemption.
“Firstly, the exemption could lead to double non-taxation, especially when the foreign jurisdiction does not tax the retirement income because of its domestic laws or limitations under a tax treaty,” it said.
In such cases, the retirement benefit is not taxed by either South Africa or the foreign jurisdiction. This weakens South Africa’s residence-based taxation system and results in lost revenue.
“Secondly, when a double-tax agreement gives South Africa the sole right to tax such retirement benefits based on residence, retaining the exemption means South Africa forfeits this right.”
As a result, the foreign jurisdiction—despite not having primary taxing rights under the treaty—may opt to tax the retirement benefits because South Africa does not.
“This misalignment enables the foreign jurisdiction to exercise taxing rights that South Africa does not, resulting in the South African fiscus forfeiting revenue it is entitled to collect,” the experts noted.
In the Explanatory Memorandum to the Taxation Laws Amendment Bill, 2025, the National Treasury has proposed fully removing the exemption.
This aims to ensure that foreign retirement funds received by South African tax residents are taxed in accordance with the country’s residence-based tax system.
The deadline to submit comments on the proposed amendments is 12 September 2025.
These must be sent to:
- National Treasury’s tax policy depository at:
2025AnnexCProp@treasury.gov.za
- SARS at:
2025legislationcomments@sars.gov.za
Source: BUSINESSTECH
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