South Africa Considers Taxing Foreign Pension Benefits. A proposal to withdraw the long-standing tax exemption on foreign retirement income for South African tax residents has triggered major concern among tax professionals and investors.
At recent public hearings before Parliament’s Standing Committee on Finance on the draft 2025 Taxation Laws Amendment Bill (TLAB) and Tax Administration Laws Amendment Bill (TALAB), industry groups cautioned that the move could undermine South Africa’s attractiveness to skilled expatriates and wealthy retirees.
If passed, the amendment will take effect 1 March 2026, giving the South African Revenue Service (SARS) the authority to tax pension income earned outside the country by:
- South Africans returning home with offshore retirement savings
- Foreign nationals who become South African tax residents
Stakeholders argue that this could reverse retirement migration into the country — directly affecting property, hospitality, and leisure markets that rely heavily on foreign spend.
Tax experts warn of unintended damage to economic inflows
John-Paul Fraser, who leads Cross-Border Taxation at Tax Consulting South Africa, told lawmakers that their firm has seen a surge in enquiries from retirees reconsidering South Africa as a destination. Some are already exploring alternative low-tax jurisdictions, particularly Mauritius.
“We are seeing people asking whether they should leave earlier or simply not return if their pension will be taxed,” he said during the hearing.
Professional bodies further noted that foreign retirees contribute significantly to:
• VAT from local spending
• Private healthcare demand
• Property investments
• Tourism revenue from visiting friends and family
Removing the incentive could shrink these indirect tax streams — potentially offsetting the revenue gain SARS expects to earn.
A shift that disrupts long-term retirement planning
Since 2017, Section 10(1)(gC)(ii) of the Income Tax Act has ensured pensions earned outside South Africa are exempt from normal tax — provided they were taxed abroad or earned during non-residency.
Fraser warned that removing this exemption represents financial retrospectivity:
“People structured their retirement under rules that protected offshore pension income. Changing this at the point of retirement places them at severe financial risk.”
The Association for Savings and Investment South Africa (ASISA) echoed the concern, warning that affected pensioners may have no legal avenue to compensate income losses, especially where visas restrict work.
No revenue data to support the repeal, stakeholders claim
ASISA also challenged the absence of economic analysis from National Treasury or SARS:
- Unknown: number of taxpayers currently using the exemption
- Unknown: potential revenue that will be generated
- Unknown: level of secondary economic loss if retirees exit or avoid return
Without reliable modelling, stakeholders argue that the policy may cost more than it collects.
Business and skills attraction strategy at risk
The policy could contradict other government initiatives aimed at:
- attracting foreign-trained South Africans back home
- bringing in high-net-worth migrants
- boosting private capital inflow
Fraser warned the committee that the reform may be interpreted globally as anti-investment:
“We cannot request foreign skills and capital on one hand and penalise them through aggressive taxation on the other.”
Stakeholders propose compromise options
Industry groups are not rejecting reform entirely — but want a targeted approach to prevent abuse while protecting genuine pensioners.
Proposed alternatives include:
- Retain exemption for individuals who retire before 29 February 2026
- Provide partial annual exemptions, similar to foreign employment income rules
- Distinguish legitimate retirement benefits from avoidance structures
- Grandfather existing retirement arrangements under previous rules
These measures, they say, would still combat double non-taxation without triggering a mass exodus of retirement capital.
Next steps: Lawmakers to review submissions
Parliament will now evaluate stakeholder comments before finalising the amendment.
Tax experts expect further consultation, noting that the reform represents a major shift in how South Africa taxes global income.
If implemented without adjustment, analysts warn that the policy could:
• Reduce foreign spending in the domestic economy
• Lower VAT and tourism receipts
• Pressure pensioner welfare systems
• Damage confidence in South Africa’s fiscal stability
