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New laws targeting foreign retirement funds are still on the cards for South Africa, while SARS is also expected to crack down on local trusts.<\/p>\n
Recent commentary from law firms ENS and Wright Rose-Innes highlighted how changes in policy direction and stricter enforcement could have significant implications for taxpayers, trustees, and beneficiaries.<\/p>\n
One area under growing scrutiny is the tax treatment of foreign retirement benefits received by South African tax residents.<\/p>\n
Under current tax law, such benefits can be fully exempt from South African tax in specific circumstances.<\/p>\n
The exemption applies where a lump sum, pension, or annuity is received from a source outside South Africa as consideration for past employment performed outside the country.\u00a0<\/p>\n
For many South Africans who worked abroad and later returned home, this exemption has provided certainty that their retirement savings would not be taxed twice.<\/p>\n
However, this position came under threat during the 2025 draft tax legislation process.\u00a0<\/p>\n
National Treasury proposed deleting the exemption, which would have meant that South African tax residents would be taxed on foreign-sourced retirement benefits from 1 March 2026.\u00a0<\/p>\n
According to ENS, the government noted<\/a> that deleting the exemption would prevent double non-taxation of retirement benefits and allow South Africa to exercise its taxing rights under applicable double tax treaties.<\/p>\n Following strong public feedback, the proposal was withdrawn. However, the issue is far from settled.<\/p>\n ENS warned that the National Treasury made it clear that a renewed consultative process with stakeholders would follow, raising the expectation that revised proposals may still be introduced.<\/p>\n ENS cautioned that removing the exemption without careful design could create serious unintended consequences.\u00a0<\/p>\n \u201cIn our view, the removal of the tax exemption would result in significant issues which should be considered before this change is legislated,\u201d the firm said.<\/p>\n One of the main concerns is the risk of double taxation. ENS warned that many foreign retirement benefits are funded out of after-tax income, meaning that taxing them again in South Africa could unfairly penalise returning residents.<\/p>\n The firm also stressed that South Africa would need a comprehensive legislative framework to properly address foreign retirement benefits and ensure alignment with the taxation of benefits from local retirement funds.\u00a0<\/p>\n Without such a framework, taxpayers could face uncertainty, inconsistent treatment, and costly disputes with SARS.<\/p>\n Cracking down on Trusts<\/p>\n
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