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income tax
The National Treasury has recently proposed to impose an income tax on retirement interest withdrawals for individuals who are no longer South African tax residents. This proposal has been reworked to avoid conflicts with existing treaties that could otherwise potentially result in double taxation.

According to current legislation, when an individual becomes a tax resident in another country, they are responsible for taxes in that country.  Where a tax treaty prevails between South Africa and that country, South Africa loses tax privileges on retirement interest withdrawals for that individual, while the taxpayer may take advantage of tax deductions for contributions to their retirement fund.

The new proposal outlines that if an individual is no longer a tax resident in South Africa, the interest on their retirement fund forms part of the assets that are subject to retirement withdrawal tax. Essentially, taxes would be incurred on interest earned on retirement funds, which was not the case previously.

The proposal recommended raising the pension fund interest value to be subject to a charge, in addition to the existing exit tax. This tax would be triggered when an individual ceases tax residency, though the payment obligation is only applicable when the monies are withdrawn.

After considering public comments on the draft tax bill, the Treasury noted that although the public understood the need for the amendment, they expressed concerns for the possibility of double taxation for retirement fund holders, due to current treaties.

Based on a similar predicament in the Netherlands and the fact that their government lost the legal challenge, the Treasury conceded to remove the amendment altogether. Yanga Mputa, Treasury’s chief director of legal tax design, stressed that this amendment should still be introduced in a manner that will not conflict with existing tax treaties. This will, however, be difficult to enact in domestic legislation. To correctly rectify the constrictions, treaties will have to be amended.

At MMS Group, we assist both individuals and businesses through professional income tax services. Should you require assistance or advice with your taxation matters, please contact our expert tax consultants.

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