South Africa Plans to Tax Foreign Pensions

In a move that could have far-reaching consequences for many South African expatriates returning to the country after working abroad, the National Treasury has proposed to remove the current tax exemption for foreign pensions as part of the controversial 2025 budget.

The current position on taxing foreign pensions

At present, section 10(1)(gC) of the Income Tax Act provides an exemption for pensions and annuities received from foreign retirement funds, where the benefits are attributable to services rendered outside South Africa. This provision has allowed many South African tax residents—particularly those who worked abroad for extended periods—to draw down on their offshore retirement savings without incurring additional tax in South Africa.

How South Africa is proposing to tax foreign pensions

In the 2025 Budget Review, National Treasury states that:

“South Africa’s current rules exempt lump sums, pensions and annuities received by South African residents from foreign retirement funds for past employment services rendered outside South Africa. However, in cases where South Africa is granted taxing rights in terms of its tax treaties, this may result in double non-taxation. It is proposed that these rules be reviewed, and any changes will be included in the 2025 legislative cycle.”

This is a clear indication of Treasury’s intention to amend the law to bring foreign pensions within the South African tax net. If enacted, this change would effectively end the long-standing exemption that many retirees have relied upon in planning their retirement income.

Who could be affected by South Africa's tax changes?

Pensioners enjoying the beauty of South Africa

This development has the potential to affect:

• Returned South African expatriates who are receiving retirement income from foreign pension funds.

• Foreign Retirees, who have chosen to settle in South Africa.

  
  

Although South Africa’s double tax agreements (DTAs) with various countries may still offer relief in some cases, they are not uniform and will not necessarily shield all foreign pension income from South African tax. Even where relief is available, the administrative complexity of claiming foreign tax credits and complying with both jurisdictions' requirements can be burdensome.

More info on South Africa's proposed foreign pensions tax

Here is a recent article in Moneyweb, where I explore the policy and practical implications of these proposed changes in more detail:

👉 Foreign pensions now under attack from SARS