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Africa Tax Landscape

Botswana

30 Dec 2022

Botswana's tax landscape overview highlights the country's tax landscape together with other regulatory considerations of setting up an entity in Botswana.

Doing business in country

Overview of tax system (residence versus source)

Botswana operates a source-based system of taxation. Taxation scope is restricted to income accrued or deemed to have accrued from a source within or deemed to be within Botswana.

A company accredited to the Botswana International Financial Services Centre is taxable on worldwide income. Certain payments to non-residents are deemed to be from a Botswana source and are subject to a 15% final withholding tax. The rate may be reduced by an applicable tax treaty.

These include payments of management or consultancy fees, interest, royalties and entertainment fees. Dividends paid by a Botswana resident company to residents or non-residents are subject to a final withholding tax at the rate of 10%.

Type of companies that can be set up (e.g., Close corporation, Partnership etc.,)

The following types of companies can be registered in Botswana:

  1. Private company - This company has up to 25 shareholders. 
  2. Public company - There is no restriction on the number of shareholders and shares are offered to the public for subscription. It is usually listed on the Stock Exchange.
  3. Company Limited by Guarantee -The company does not declare dividends or distribute profits to its members. This is usually utilised as a vehicle for donor-funded projects.
  4. A Close Company - This is a company with no more than 5 individual members. 
  5. An external company - This is a branch of a non-resident company registered.
Requirements for locals to own shares/stake in the company

No.

Implications of physical presence versus online presence

Under domestic law physical presence in Botswana creates tax presence from day one. However, where there is an applicable treaty, presence is established through the creation of a permanent establishment as provided in the tax treaty.

There are no provisions specific to online business activities. Botswana tax will arise where the income source is Botswana or deemed to be Botswana.

Process of opening a bank account

The process differs from bank to bank.

Corporate income tax

Viable option from a tax perspective (branch versus subsidiary)

Subsidiaries are treated as a legal entities where as a branch is a Permanent establishment regulated by the Bilateral agreements.

Process of registering and setting up a branch or subsidiary

Subsidiaries are registered with CIPA (Normally done through secretaries ) and BURS (through tax agents/advisors). Branches are registered with BURS.

Lodging of tax returns with the local Revenue Authority

Four months following the year-end.

Corporate tax rate for branches and subsidiaries

Subsidiaries will be taxed at 22% (Resident rate) and Branches at 30%(non-resident rate).

Tax rules on repatriation of after-tax profits for branch and subsidiary

Branches are charged Tax on the profits repatriated and Credits are allowed to the extent of SAT paid. Subsidiaries usually repatriate profits by management fees or dividends and are charged withholding tax upon payment.

Withholding taxes applicable

Withholding taxes are applicable on management, dividends, interest payments, royalties, rental, livestock and commission.

Capital gains tax implications

Capital gains are calculated on movable and immovable assets , company shares, residential property and assets of International Financial Services Centre Company situated in Botswana.

In case of immovable property, purchase costs are indexed to compensate for inflation at rates prescribed by Botswana Unified Revenue Authority (BURS) prior to determining capital gains which is then taxed at rates as above.

Value-Added Tax (VAT)

VAT rate applied

14% (currently 12% (3 July 2022-31 Jan 2023).

Imposition of VAT

Liability of VAT arises only when a person carries on a taxable activity. Taxable activity is defined as an activity which is carried on continuously or regularly by any person in Botswana, whether or not for profit, that involves the supply of goods or services to another person for consideration. A taxable supply is any supply of goods or services by a VAT-registered person in the course or in furtherance of a taxable activity.

These are defined to include a wide range of business transactions, including importing or exporting, trading, manufacturing, providing professional services, entertainment or personal services, provision of electricity, gas or water supplies, and goods or services provided by clubs or societies. Taxable supplies do not include hob by activities, private sales of personal or domestic goods, services provided by an employee to an employer for a wage or salary, and exempt supplies.

Botswana's Input VAT operates on an Invoice Basis. This means that Input Tax can only be claimed on the basis of a Tax Invoice. Output tax must be declared on the earlier of Payment or an Invoice. Payment of VAT payable is due on the 25th of the following month

System of submitting VAT returns (manual versus automated)

Automated (Leghetho Live system and CMS system).

What are the export requirements that must be adhered to?

All exports are zero-rated and must be accompanied by export documents (SAD, manifests).

VAT registration requirements

Compulsory registration is P1 million turnover and P500 000 voluntary registration (12 months period).

VAT on electronic services

The standard VAT rate is 16% for general supplies and the provision of goods. Some of the electronic services include websites, software updates, transfer of copyright among others.

VAT registration requirements for the registration of a Group/Branch

Compulsory Registration is P1 million turnover and P500 000 voluntary registration (12 months period).

VAT refunds for non-residents

Refunds are paid to all VAT registered Persons where the Input Tax claims are higher than the Output VAT.

Recordkeeping requirements

Records must be kept for a minimum of 8 years. The Administrative Act is still in discussion to centralise the administrative requirements.                                                     

Employees Tax

Tax year for Individuals

From 1 July -30 June. (Personal Returns due 30 Sep).

Is employees’ tax is collected from employers via payroll?

Yes.

Collection of Unemployment Insurance Fund (UIF) and Skills Development Levy (SDL)

No.

Should employers register and file returns with both the Revenue Authorities?

Not applicable.

When is the monthly submission and payment of the EMP201 tax return due for each month following the collection?

15th of the month following the deduction.

Submission of the employee's tax reconciliation return?

Not applicable.

Method of calculating individuals tax

It is filed using tax tables but not updated yearly.

Labour law registration requirements for employers

All employees are regulated by the Employment Act.

System of submitting employees' tax returns (manual versus automated)

Automated.

Transfer pricing

Transfer pricing documentation guidelines or regulations

Yes.

Transfer pricing documentation materiality limits or thresholds in relation to transactions or revenue

Transfer pricing documents should be submitted for all related transactions exceeding P5m.

Statutory deadline for submitting transfer pricing documentation

Yes. The document is to be submitted 4 months after year-end.

Penalties imposed for non-submission and/or incomplete documentation.

There is no specific transfer pricing penalties, however general penalties, under the domestic TP laws and regulations, may apply.

It is good to note that the Income Tax Act has provisions related to the underpayment or under declaration of income earned in Kenya.

International tax

Tax nexus (Permanent Establishment)

Yes all PE are required to comply with the local laws and the DAT will regulate on how to treat the PE.

Effective Management

Assessed on a case-by-case basis.

Controlled Foreign Company

Yes. Thin capitalisation rule, interest will be limited to 30% of the EBITA should there be any loans.

Exchange control

There are no exchange control laws in Kenya, however, there are restrictions on the deductibility of interest and foreign exchange losses for thinly capitalised CFCs. The Finance Act, of 2021 replaced the thin capitalisation rules with EBITDA-based interest limitation on the deductibility of interest expenses for CFCs, effective 1st January 2022.

The thin capitalisation rules however still apply to the deductibility or deferral of foreign exchange losses. Deemed Interest is applicable on interest-free borrowings received by foreign-controlled entities in Kenya at a rate prescribed by the Commissioner of Domestic Taxes.

The Finance Act, 2022 also introduced new legislation with regard to the applicability of withholding tax on deemed interest arising from a bearer bond issued to non-residents outside Kenya of at least 2 years. The Finance Act, 2022, amended the Income Tax Act, to include a preferential tax regime within the scope of Transfer Pricing, effective 1st January 2023.

This will apply to foreign jurisdictions which do not have a framework for the exchange of information with Kenya, among other criteria specified in domestic law.

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