In recent years, the tax treatment of foreign pensions in South Africa has been a topic of growing interest, particularly among expatriates, retirees, and internationally mobile individuals. Currently, foreign pensions received by South African tax residents are specifically exempt from tax under Section 10(1)(gC)(ii) of the Income Tax Act.
South African tax law operates on a residence-based system, meaning that tax residents are generally taxed on their worldwide income. However, Section 10(1)(gC)(ii) of the Income Tax Act provides an explicit exemption for foreign pensions, ensuring that these payments are not subject to tax in South Africa. This exemption applies whether the pension is received as a lump sum or in periodic payments.
Why Are Foreign Pensions Not Taxable in South Africa?
The rationale behind this exemption is that a pension is a form of savings that a person accumulates in a foreign country. If an individual earns income abroad and invests it in a share portfolio before moving to South Africa, any capital they withdraw from that portfolio is not subject to tax—only dividends and realised capital gains are taxable. Similarly, foreign pensions represent previously earned income that has been set aside, and thus, the withdrawals are not considered taxable income.
Conversely, contributions to a South African pension or retirement annuity receive a tax deduction, which reduces the amount of tax paid upfront. As a result, when a taxpayer draws on their South African pension or retirement savings, it becomes taxable because they already received the tax benefit when contributing to the fund.
This distinction is the primary reason why foreign pensions are not subject to tax in South Africa, while South African pension schemes are. It all comes down to how contributions into the fund are treated from a tax perspective.
What is changing?
The 2025 Budget Speech confirmed the government’s intention to amend the cross-border tax treatment of retirement funds, addressing what has been described as a “loophole” in the current system.
While leaked budget review documents had suggested imminent changes, the final announcement clarified that no immediate amendment would take place. Instead, the government intends to remove the non-taxable status of certain foreign retirement fund withdrawals within the next 12 months. We hope it follows a consultative process with stakeholders.
The proposal appears to suggest the withdrawal of Section 10(1)(gC)(ii) of the Income Tax Act, which currently exempts certain foreign retirement fund payments from taxation in South Africa. If implemented, this change would mean that Double Taxation Agreements (DTAs) would apply instead, potentially altering the tax treatment for individuals receiving foreign pension income.
Will the DTA’s come to the rescue?
Many countries have DTAs to prevent individuals from being taxed twice on the same income. DTAs play a crucial role in determining whether a foreign pension could be taxed in South Africa or whether the taxing rights remain with the country from which the pension originates. South Africa has signed DTAs with multiple countries, and these agreements typically provide clarity on where different types of income—including pensions—should be taxed.
In most cases, DTAs allocate the taxing rights of pensions to the country where the person is tax resident. For example, a South African tax resident receiving a UK pension would generally not be taxed in the UK and because of the section 10(1)(gC)(ii) would not be subject to tax in South Africa either. If section 10(1)(gC)(ii) was to change then the DTA’s generally would not provide much relief from a South African perspective.
So what now, are there solutions?
You should consult with a professional on what your options are and how to navigate through these changes but the steps we see would be the following:
- Check the DTA with the Relevant Country – If you receive a foreign pension, review the applicable DTA to confirm which country has the taxing rights.
- Consider Financial Planning Strategies – If you are able to move those pension funds into some alternative structure that would potentially be more tax advantageous.
- Consider your tax residency status, this change only affects South African tax residents.
- Watch for updates from us and – The South African Revenue Service (SARS) continues to refine tax policies, and while foreign pensions remain exempt today, future amendments could alter this position.
Conclusion
We strongly oppose the idea that retirement savings should be taxed differently from other forms of capital, such as unit trusts, share portfolios, or money market investments. The proposed amendment does not distinguish between capital and gains—treating all pension withdrawals as taxable income. This is fundamentally unfair, as the South African government did not provide tax relief when these contributions were originally made abroad.
This policy risks discouraging skilled professionals and retirees from choosing South Africa as their home. Many countries actively attract retirees by offering tax exemptions or reduced rates on foreign pensions. South Africa should be doing the same, encouraging capital inflows that boost local spending, VAT collection, and job creation. Instead, this proposal could have the opposite effect, making South Africa less attractive to internationally mobile individuals.
If you receive a foreign pension and are unsure about your tax obligations, we strongly recommend consulting a tax advisor with expertise in cross-border taxation to ensure compliance and explore possible tax-saving strategies.
[Author: Michael Rushby]
