Now, we know the VAT increase got everyone talking after the 2025 Budget 2.0, but there is also another tax proposal that’s causing quite a stir around the world: the government’s plan to tax withdrawals from foreign retirement funds. This move could potentially discourage skilled professionals and retirees from coming to, or returning to, South Africa in the long term. And, because they’re aiming to get this implemented pretty quickly, those of you with foreign pensions might feel a bit rushed to get your financial affairs sorted.
This change, while it might seem like a small technical tweak to a large system, actually has big implications for people considering moving here, or for South Africans returning home after living and working abroad. Instead of making South Africa more appealing to talented individuals and those looking to retire here, this proposal might tip the scale for them toward countries with more favourable tax laws. Which would be a real shame, as we’d be missing out on a valuable boost to our economy.
Tax proposal on foreign pensions = tax on returning talent and investment
The current tax system encourages the return of talent and investment by exempting foreign retirement funds earned abroad from South African taxation. This has been a significant drawcard for experienced professionals and retirees, for many years.
However, this incentive is now under threat.
The government is framing it as closing a South Africa tax loophole but really, it signals the termination of a practical policy that many countries use to attract skilled people and investment. If this proposal goes through, those returning to South Africa will face full taxation on their retirement income earned abroad.
Tax implications for foreign pensions South Africa, more than a potential setback for our economy
Let’s face it, South Africa already has a hard time attracting and keeping the talent we need. Stats SA’s figures show that the number of South Africans returning home has declined significantly over the past decade. Despite our beautiful scenery, great private healthcare, and relatively affordable living, South Africa is not seeing as many retirement visa applications as we’d like.
This is where we should be rolling out the welcome mat for those returning expats and foreign retirees. They buy homes, bring valuable skills, start businesses, and create jobs. Other countries are actively competing for these folks, offering attractive tax incentives. Look at Greece, Israel, and Mauritius, for example. South Africa seems to be heading in the opposite direction.
Tax on foreign retirement funds in South Africa – mixed signals
It’s a bit of a contradiction. The South African Department of Home Affairs seems to be working hard to attract foreign professionals, expanding the critical skills list and introducing the remote work visa. Yet, this tax proposal seems to penalise the very people they’re trying to attract. These mixed signals just create uncertainty and make people think twice about choosing South Africa.
Here’s what’s really getting people worked up, though: this proposal isn’t expected to bring in much revenue. The budget review barely mentions it which means we’re risking damaging our economy for what seems like a very win.
Mitigate foreign pension tax in South Africa: time for smart tax planning
If you’re a South African tax resident with foreign pensions and retirement funds, now’s the time to take a good hard look at your financial situation. There are strategies to find that can minimise the impact of these changes, but you’ll need expert advice and careful planning.
It’s best to connect with a tax professional who specialises in cross-border tax before these changes come into effect. There’s still a bit of time, and there’s a slim chance that the current political situation might lead to a rethink of this proposal, but it’s always best to err on the side of caution with these things.
Our tax policies should be designed to bring talent, capital, and investment to South Africa, not push them away. With a shrinking tax base, rising debt, and a skills shortage, we need to work harder to make South Africa an attractive destination. This proposal, unfortunately, seems to be doing the opposite.
While there’s always the optimistic approach of hoping for a legislative change of heart, it’s really important for those South Africans with foreign pensions to get some professional advice to protect their wealth, just in case these changes go through.
What can South Africans do to avoid being taxed by SARS on their foreign pensions?
At this stage, while it’s still theoretical, South Africans with foreign pensions living and working abroad must seriously consider establishing non-resident tax status. This is the most clear-cut way to terminate tax ties with SARS and requires clear demonstration of your intent to permanently reside outside South Africa. SARS will consider various factors, including your physical presence outside the country, the establishment of a permanent residence elsewhere, the severing of significant financial ties with South Africa, and obtaining tax residency in your new country of residence.
Read more:
- Tax emigration – how to become a non tax resident of South Africa.
- Breaking tax residency with SA: when to apply the physical presence or ordinary residence test.
In addition, it is advisable to get clued up on Double Tax Agreements, and how they might apply to your situation. South Africa has DTAs with many countries, which are designed to prevent double taxation by allocating taxing rights between nations. Therefore, it is vital to carefully examine any specific DTA between South Africa and your country of residence to accurately determine which country has the right to tax your pension income.
FinGlobal: cross-border tax and financial planning specialists for expats
Dealing with taxes in two countries can be a lot to manage. To avoid problems with tax authorities, it’s best to get professional help. FinGlobal has experts in international financial planning and cross-border taxation who can clarify your South African tax status, simplify your taxes, and handle the paperwork for you. We can help with everything from tax emigration from South Africa, to tax refunds and retirement annuity withdrawals.
If you’d like to discuss your tax situation and see how FinGlobal can help protect your foreign pensions from South African taxes, leave your contact details below, and we’ll be in touch.
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