SARS is coming after these retirement funds with new laws
The South African Revenue Service (SARS) and the National Treasury have published new draft laws for public comment that will change up local tax laws, with a key target being foreign retirement funds.
Specifically, the taxman wants to change the current laws to remove an exemption that will allow South Africa to tax these funds.
This will impact any South Africans who have worked abroad and accumulated foreign retirement funds, or foreign nationals who have become tax resident in South Africa.
SARS is now proposing that these funds become taxable, subject to applicable double taxation agreements, from 1 March 2026.
The changes were proposed in the Draft Taxation Laws Amendment Bill, 2025.
According to tax experts at Tax Consulting SA, this proposed change is especially concerning, given that South Africa is a very popular retirement destination for foreigners.
As retirement planning is a key principle of personal financial planning, South African expatriates and foreigners relocating to South Africa, “need to urgently be aware that SARS now wants taxing rights on their foreign retirement funds,” it said.
Under the current tax laws, cross-border retirement funds are subject to an exemption that excludes lump sum, pension or annuity received by or accrued by taxpayers outside South Africa from normal tax.
This is for funds accrued through foreign services rendered in past employment.
As South African tax residents are generally required to declare and pay taxes on their worldwide income, this exemption was designed to prevent double taxation on retirement funds already taxed in a foreign country or earned while an individual was not subject to South African tax.
However, Tax Consulting SA noted that there have been concerns about these exemptions dating back as far as 2013, when the Budget Review flagged a variety of tax issues related to them.
Given that South Africa has been undergoing comprehensive pension fund reform, the government has found it a suitable time to enhance the rules “so that these amounts are taxed fairly and consistently”.
Problems with the current laws
National Treasury said that there are two key issues with the current exemption.
“Firstly, the exemption may result in double non-taxation, particularly where the foreign jurisdiction does not tax the retirement income due to domestic law or tax treaty limitations,” it said.
In these cases, neither South Africa nor the foreign jurisdiction imposes tax on the retirement benefit. This undermines South Africa’s residence-based system of taxation and leads to revenue forgone to the fiscus.
“Secondly, in instances where a double-tax agreement grants South Africa the exclusive right to tax such retirement benefits based on residence, South Africa forfeits this right by maintaining the exemption.”
As a result, the foreign jurisdiction, despite lacking primary taxing rights under the treaty, may choose to tax the retirement benefits because South Africa does not tax them.
“This misalignment allows the foreign jurisdiction to benefit from taxing rights that South Africa does not exercise. The South African fiscus ultimately forgoes revenue that it is entitled to collect,” the experts noted.
In the Explanatory Memorandum to the Taxation Laws Amendment Bill, 2025, National Treasury has proposed that the exemption be deleted in its entirety.
This is to ensure foreign retirement funds received by South African tax residents are appropriately taxed in line with South Africa’s residence-based system of taxation.
The deadline to submit comments on the proposed amendments is 12 September 2025.
These must be sent to:
- National Treasury’s tax policy depository at [email protected]; and
- SARS at [email protected]
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