During August 2021, National Treasury gave an overview of the 2021 draft Taxation Laws Amendment Bill proposed changes being considered for South Africa.

Changes include amongst others addressing loopholes in the tax system and the taxation of retirement funds.

Retirement annuities

An individual, upon retirement, is allowed to receive a maximum of one-third of the total value of the retirement investment as a lump sum. The remainder of the retirement interest must be utilised to purchase an annuity. These annuities are restricted and to increase flexibility the government proposes expanding the types of annuities an individual can acquire upon retirement.

Exit tax on emigration

Currently, when an individual ceases to be a South African tax resident before retirement, that individual‘s retirement fund savings may be subject to tax in the other country on payment of a lump sum or a monthly pension.

To avoid double taxation between South Africa and the new tax resident country, often a tax entry is entered into and may result in South Africa forfeiting its taxing rights.

To address this, it has been proposed that the tax legislation be changed to ensure that when an individual ceases to be a South African tax resident, investments in retirement funds are subject to tax in South Africa at the same tax rates applicable to either a withdrawal benefit or a retirement benefit.

Aneesa Khan | Finance Manager