Foreign pensions under attack from SARS

The tax proposal that could drive skilled professionals and retirees away.

Foreign pensions under attack by SARS. Picture: SARS.

The VAT hike wasn’t the only controversial tax proposal in the 2025 Budget 2.0. The National Treasury has announced its intention to tax withdrawals from foreign retirement funds. A policy change that threatens to drive away much-needed skills, capital, and investment.

Officials plan to implement this change within the current legislative cycle, giving South African tax residents with foreign pensions limited time to restructure their affairs.

This seemingly technical tax adjustment carries significant real-world consequences for foreign professionals considering moving to South Africa and South African expatriates returning home. Rather than incentivising skilled individuals and wealthy retirees to settle here, the government has chosen a path that could push them toward more tax-friendly destinations, depriving our economy of a critical economic boost.

A tax on returning talent and investment

Under current tax rules, foreign retirement lump sums, pensions, and annuities received by South African tax residents are exempt from taxation particularly when they relate to work performed abroad before relocating to South Africa. This exemption has long served as an incentive for experienced professionals and retirees to bring their wealth and expertise into the country.

This incentive now faces elimination.

The budget proposes closing what it labels a “loophole” but what is a common-sense policy used by many countries to attract capital and skills. If passed, the change will subject expatriates and returning South Africans to full taxation on their foreign-earned retirement income.

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A self-inflicted economic wound

South Africa already struggles to attract and retain the talent it desperately needs. According to Stats SA, 45,866 South Africans returned home in 2011, but by 2022, that number had plummeted to just 27,983. Despite our country’s scenic beauty, excellent private healthcare, and relatively low cost of living, South Africa received only 3,645 retirement visa applications in the last two years.

The South African government should be rolling out the red carpet for returning expatriates and foreign retirees, not increasing their tax burden. These individuals buy homes, provide crucial skills, launch businesses, and create jobs.

Other countries actively compete with these groups by offering favourable tax policies. Greece taxes foreign retirees at a flat 7% for 15 years, Israel provides a 10-year tax holiday on all foreign income while Mauritius offers zero taxation on foreign pensions. South Africa appears to be moving in the opposite direction.

A disconnect in policy

This proposed tax amendment directly contradicts Home Affairs’ efforts to attract foreign professionals. Recently, the department expanded the critical skills list and introduced a remote work visa to bring highly skilled workers to South Africa. Yet Treasury’s tax proposal aims to penalise the very individuals Home Affairs is working to attract. This mixed messaging erodes investor confidence and discourages talent from choosing South Africa as their home base.

What makes this policy even more perplexing is its minimal revenue potential. The budget review includes detailed revenue projections for other tax measures, but this change is so insignificant that it doesn’t even feature in the projections. It’s a policy shift that risks damaging the economy for negligible gain.

A window for tax planning

For South African tax residents with foreign pensions and retirement funds, the proposed amendments signal an urgent need to review their financial arrangements. While strategies exist to mitigate these changes’ impact, they require careful planning and expertise.

Those affected should consult with experienced tax practitioners who specialise in cross-border tax matters before the changes take effect. There is still time while the National Treasury intends to expedite this change within the current legislative cycle, the lack of support from GNU partners could delay the process.

Conclusion

South Africa’s tax policies must be designed to attract talent, capital, and investment—not drive them away. As the country grapples with a shrinking tax base, rising public debt, and a skills shortage, making South Africa an attractive destination for expatriates, skilled professionals, and retirees is more critical than ever. Unfortunately, this budget proposal seems likely to accomplish the opposite.

While there’s hope that the current deadlock in the Government of National Unity might lead to reconsideration of this tax proposal, South African tax residents with foreign pensions and retirement annuities must urgently seek advice to protect their wealth should these changes be implemented.