Are offshore pensions now taxable in SA?

A significant change is under consideration for South African tax residents who receive income from foreign pension funds. The National Treasury has put forward a proposal in the 2025 Draft Taxation Laws Amendment Bill (TLAB) to remove the long-standing tax exemption that currently applies to foreign lump sums, annuities, and pensions received by South African residents. At this stage, this change is only a proposal and has not yet been enacted into law.

The proposal responds to concerns that the open-ended exemption sometimes results in foreign pension income escaping tax in both South Africa and the source country, or prevents South Africa from exercising its rights under double taxation agreements. If the TLAB is adopted in its current form, the exemption would be scrapped and these foreign retirement payments would become taxable in South Africa starting from 1 March 2026.

South African tax residents who receive foreign pension benefits should note that this would bring such income into the South African tax net and remove the current exemption under section 10(1)(gC)(ii) of the Income Tax Act. The change aims to uphold South Africa’s residence-based taxation system and prevent revenue leakage caused by double non-taxation or the misapplication of taxing rights under tax treaties.

This proposal does not affect foreign social security payments (foreign state pensions), which remain exempt. However, for many South Africans who contributed to foreign pension funds while working abroad with after-tax income, these changes could result in effective double taxation since contributions were not previously deductible against South African tax.

The change is intended to apply to benefits received or accrued from 1 March 2026 onwards and only for tax years starting on or after that date. It is not retroactive.

Because the bill is still in draft form, the legislative process must be completed before it becomes law. South African tax residents receiving foreign pension income should monitor developments closely and consider seeking professional advice to understand how this proposed change could affect retirement planning and tax obligations in the future.

In short, the proposal represents a major shift in tax policy for foreign pensions but remains a proposal pending final approval. Taxpayers should watch for updates as the government reviews and possibly amends the draft bill.