The two-percentage-point value-added tax (Vat) hike was not the only controversial tax proposal in the 2025 Budget That Never Was.
Quietly tucked away in the leaked version of the 2025 budget review was a policy change that could chase away much-needed skills, capital, and investment: the proposed amendments to the cross-border tax treatment of retirement funds.
This seemingly technical tax tweak has significant real-world consequences for foreign professionals moving to South Africa and South African expats returning home after working abroad.
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Instead of incentivising skilled individuals and wealthy retirees to settle in South Africa, the government has chosen to punish them with higher taxes – a move that could drive them elsewhere and deprive South Africa 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 if they relate to work done abroad before relocating to South Africa.
This exemption has long been an incentive for experienced professionals and retirees to bring their wealth and expertise into the country.
This incentive is now under threat.
The budget proposes closing what it calls a “loophole” – but what is actually a common-sense policy used by many countries to attract capital and skills.
If passed, the change will subject expats and returning South Africans to full taxation on their foreign-earned retirement income.
A self-inflicted economic wound
South Africa is already struggling 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 dropped to just 27 983.
Despite the 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 expats and foreign retirees, not increasing taxes on them. These are the people who buy houses, provide crucial skills, start businesses and create jobs.
Other countries are actively competing for these groups by offering favourable tax policies. For instance, Greece taxes foreign retirees at a flat 7% for 15 years, while Mauritius offers zero taxation on foreign pensions. Portugal’s Golden Visa programme has attracted billions in investment by offering favourable tax treatment to expats and retirees.
South Africa, on the other hand, seems to be heading in the opposite direction.
Policy disconnect, mixed messaging
This proposed tax amendment stands in direct contradiction to the efforts by the Department of Home Affairs 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 National Treasury’s tax proposal aims to penalise the very individuals Home Affairs is working to attract.
This mixed messaging not only erodes investor confidence but also discourages talent from choosing South Africa as their home base.
Perplexing
What makes this policy even more perplexing is that it’s unlikely to generate much additional revenue.
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 minimal 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 and restructure their financial affairs.
While there are opportunities to mitigate the impact of these changes, 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. With the revised budget set to be announced on 12 March, time is running out to implement strategies that could minimise tax exposure and protect wealth.
Clarity is called for
South Africa’s tax policies must be designed to attract talent, capital, and investment – not chase 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 expats, skilled professionals, and retirees is more critical than ever. Instead, this budget proposal seems likely to do the opposite.
There is hope that the current deadlock in the government of national unity results in this tax proposal being reconsidered and ultimately scrapped.
However, South African tax residents with foreign pensions and retirement annuities must urgently seek advice to protect their wealth if the changes are implemented.
Michael Kransdorff is CEO of the Institute for International Tax and Finance.
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