Be aware: a New tax on foreign paid pensions

 

By Bruce Cameron
Co-author to The Ultimate Guide to Retirement in South Africa

 

Proposed new tax on foreign paid pensions from next year.

If you are a South African resident and receive a foreign pension you are likely to be taxed on it from March 1, 2026 unless you can prove that tax payments were made on it in the country of source.

The submission to Parliament by National Treasury follows years of public debate and warnings that this would happen.

A resident is anyone (both a South African citizen and a non-citizen) who lives in South Africa permanently and is subject to the ‘residence- based tax system’. This measure will apply to both South African citizens, who earn a pension from a foreign country; or foreigners, who are considered tax residents in South Africa.

To be a resident you must live in South Africa for at least 91 days in a year and at least 915 days in total after a five-year period. You are not a resident if you leave the country for a period of 330 continuous days.

The taxation of foreign pensions is included in the 2025 Draft Taxation Laws Amendment which was tabled in Parliament last month.

 

National Treasury View

National Treasury says: ‘It is international practice that Double Tax Agreements (DTAs) should generally allocate taxing rights on pensions to the country where the individual is a tax resident.

‘For South African tax residents, this means South Africa has the exclusive right to tax foreign pensions. In principle, the foreign country should not levy tax on the pension if a DTA is in place. South African tax liability is determined in accordance with the domestic personal income tax tables, regardless of whether the foreign jurisdiction applies tax at a higher or lower rate.

‘In practice, however, some foreign jurisdictions may still impose a tax on pensions at source, even where the DTA provides taxing rights exclusively to South Africa. Where this occurs, affected individuals may claim a foreign tax credit in South Africa for taxes paid abroad, thereby preventing double taxation. The credit is limited to the amount of South African tax payable on the same income, ensuring that the pension is ultimately taxed at the applicable South African personal income tax rates.’

 

A summary

So, if:

• You receive a pension that is not taxed at the source country you will pay tax. This amount will be added to any earnings you have as a resident in South Africa and will be taxed on your new marginal rate of tax.

• There is no DTA you will be taxed, whether tax is paid at source or not. South Africa has double taxation agreements with most countries.

• There is a DTA you will need to declare the amount you receive and provide proof of payment of the taxation from the tax department of that country. But, remember you could still be taxed more if you are taxed at below your current taxation rate in South Africa.

 

You can object

The proposal on the tax treatment of foreign pensions for South African tax residents is currently open for public comment until 12 September 2025. As part of this process, the National Treasury will host taxpayer workshops to deliberate on the proposal as outlined in the 2025 Draft Taxation Laws Amendment Bill.

The purpose of the consultation is to ensure that the taxation of foreign pensions is approached in a fair and equitable manner, reflecting both the government’s perspective and the concerns of taxpayers. Stakeholder input will play an important role, as the finalisation of the tax policy design may consider some aspects from the data and insights collected during the consultation and participation processes.

Taxpayers who are affected, as well as those stakeholders with an interest in the proposal, are strongly encouraged to take part in the deliberations to ensure that their views are considered.

 

Tax can be complicated. For a lot more detail on this read the book, The Ultimate Guide to Retirement in South Africa. For more information on how to purchase the book go to Buy Now on the website  www.retirementplanning.co.za

 

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