Foreign pension tax exemption in South Africa safe…for now

Retirees with foreign pensions who are tax resident in South Africa have been given a reprieve. Following strong public feedback, the National Treasury has withdrawn its proposal to remove the tax exemption on foreign pension income, ensuring retirees can continue to enjoy the financial benefits for now.

The Treasury had sought to end the exemption to address “double non-taxation” – cases where neither the foreign country nor South Africa taxes the pension income, resulting in lost revenue for the fiscus. The amendment has now been abandoned, with the Treasury conceding that more consultation is needed.

Foreign pension tax exemption remains

Under Section 10(1)(gC)(ii) of the Income Tax Act, South African residents can continue receiving foreign pensions, annuities, and lump sums earned from past employment abroad tax-free. 

This provision ensures that income paid from outside South Africa for work performed abroad is not taxed twice.

South African residents who previously worked overseas and contributed to foreign retirement funds, therefore, remain eligible for these tax-free benefits while resident in South Africa. 

It’s worth noting that foreign personal pensions, where contributions are not linked to employment, are treated differently and remain outside the scope of this exemption.

Similarly, social security payments remain exempt under Section 10(1)(gC)(i) of the Act. 

Why the withdrawal is good news

Treasury’s decision reflects strong stakeholder feedback and highlights the value of the exemption:

• Encouraging retirees and expats to stay or return: South Africa remains an attractive retirement destination.
• Supporting economic contribution: Retirees contribute to property, local spending, and tax revenue, strengthening the economy.
• Avoiding financial disruption: Retirees can continue enjoying their retirement benefits without sudden changes.

What Treasury plans next

National Treasury will engage in broader consultations to ensure future policy balances revenue protection with retiree and expat interests.

This will ensure:

• That any future changes are carefully considered and fair.
• That South Africa’s competitive advantage as a retirement destination is maintained.
• There will be an opportunity to plan ahead with expert guidance before any potential adjustments.

What retirees should do now

Even with the exemption in place, proactive planning ensures you continue to benefit:

• Stay informed: Track Treasury updates and trusted financial commentary.
• Check your residency status: Ensure your tax residency aligns with exemption benefits
• Consult experts: Cross-border wealth specialists can help safeguard your income and advise on potential future changes.

South African retirees can continue to enjoy their foreign pensions tax-free, giving both financial security and peace of mind. By understanding the benefits and planning wisely, you can make the most of your retirement income while Treasury undertakes further consultations.

Secure your retirement income and start building your future beyond borders. Get in touch with our expert advisers on +27 (021 657 1540 (SA) or +44 (0) 20 7759 7519 (UK) or at [email protected]