Income Tax in Botswana

Individual - Taxes on personal income:

The Botswana tax system operates on a territorial basis, and income is taxable in Botswana if the source is within Botswana. Income for services performed outside Botswana is deemed to be from a Botswana source if the services are incidental to employment in Botswana.

A resident is taxable on all income from a Botswana source in accordance with the PIT rates.

A non-resident is taxable on earned income in accordance with the PIT rates, but pays withholding tax (WHT) only at the rate of 15% for interest, commercial royalties, and management and consultancy fees, 7.5% for dividends, and 10% for entertainment fees, where such income is of Botswana origin.

Personal income tax rates:

Resident individual taxpayers:

Taxable Income (BWP*)	Tax Rate (%)
Over 0 but not over 36,000	0
Over 36,000 but not over 72,000	5
Over 72,000 but not over 108,000	12.5
Over 108,000 but not over 144,000	18.75
Over 144,000	25

* Botswana pula

Non-resident taxpayers:

Taxable Income (BWP*)	Tax Rate (%)
Over 0 but not over 72,000	5
Over 72,000 but not over 108,000	12.5
Over 108,000 but not over 144,000	18.75
Over 144,000	25

Income determination:

Employment income:

Expatriate employees are taxable on salary and on any overseas allowances, wherever payment is made. Living and housing allowances, tax reimbursements, and the value of benefits, such as free accommodation and the use of motor vehicles, are included in taxable income. All employment income is subject to pay-as-you-earn (PAYE). However, airfares and medical costs borne by the employer for the employee, spouse, and dependent children, and provided in the terms of the employee's contract, are not taxable.

For individuals' contracts of employment signed on or after 1 July 1999, any gratuities paid are taxable to the extent of two-thirds of such gratuity. The remaining one-third is tax free. The percentage parameters are still 25% of gross salary for the first contract, 27.5% for the second contract, and 30% for the third and subsequent contracts. Contracts normally run two to three years.

Capital gains:

Capital gains for individuals are considered to be from a separate source and are taxed on the basis of a separate table.

Dividend income:

The gross income of a resident citizen individual includes any dividend income from an investment made outside Botswana. Dividend income from a foreign source is taxed at 15%.

Dividends payable by a Botswana resident to a non-resident is subject to 7.5% WHT.

Interest income:

The gross income of a resident citizen individual includes any interest income from an investment made outside Botswana. Interest income in such cases is included in the individuals' gross income and taxed accordingly.

Interest income for any resident individual accruing from any banking institution or building society in Botswana is exempt from tax up to a limit of BWP 7,800. Interest payments to residents are subject to 10% WHT. Where a resident individual has paid WHT on interest that accrued from a bank or building society, this shall be the final charge to tax, and the interest shall not form part of the assessable income of that resident individual.

Interest payable by a Botswana resident to a non-resident is subject to 15% WHT.

Royalty income:

Commercial royalties payable by a Botswana resident to a non-resident are subject to 15% WHT.

Fee income:

Management and consultancy fees payable by a Botswana resident to a non-resident are subject to 15% WHT. Similarly, entertainment fees are subject to 10% WHT.

Individual – Residence:

To be a resident of Botswana for a tax year normally means the individual has a permanent place of abode in Botswana and is physically present in Botswana for not less than 183 days in that tax year or the previous tax year.

Tax administration:

Taxable period:

Botswana has a fiscal year ending on 30 June.

Tax returns:

All individuals are separately taxed (i.e. separate filing of returns by a husband and wife is required). All individuals need to submit a tax return unless the annual income is less than the tax threshold of BWP 36,000. The tax return is due for submission on or before 30 September.

Payment of tax:

A PAYE system, under which income tax is withheld from remuneration payable (including non-cash benefits) to employees, is in operation.

Corporate - Taxes on corporate income:

Botswana has a source-based taxation system.

Corporate income tax (CIT) is charged at a single flat rate of 22%. Manufacturing companies having the approval from the Minister of Finance for a special tax rate will be charged at the rate of 15%.

International Financial Services Centre (IFSC) profits:

IFSC companies are currently taxed at a flat rate of 15%. Companies must apply for a certificate to be classified as IFSC companies, which deal only in specified services and only with non-residents.

Mining profits:

Mining profits, other than profits from diamond mining, are taxed according to the following formula:

Annual tax rate = 70 minus (1,500/x), where x is taxable income as a percentage of gross income.

The tax rate shall not be less than the flat CIT rate of 22%.

Diamond mining:

Diamond mining is usually taxed in terms of an agreement with the government of Botswana.

Corporate - Income determination:

Inventory valuation:

Inventories are valued at cost less such amounts, if any, that the Commissioner General believes are reasonable as representing the amount by which the value of such stock has been diminished because of damage, deterioration, obsolescence, or other cause. Although not expressly excluded by legislation, last in first out (LIFO) has not been accepted in practice by the tax authorities.

Capital gains:

Gains from disposal of specified capital assets (immovable property and marketable securities, including shares in private companies) are included in taxable income in the hands of the corporate taxpayer. Acquisition costs of immovable property are subject to a 10% compound annual addition for inflation for the period from acquisition to 30 June 1982, and thereafter to an inflation addition based on the increase in the consumer price index to the date of sale. For other gains, no inflation allowances are granted, but the taxable gain is set at 75% of the total gain.

Currently, the sale of any shares, units, or debentures of a resident company is exempt from tax under any of the following circumstances:

·        The resident company whose shares are being sold is a public company.

·        The shares, units, or debentures are traded on the Botswana Stock Exchange.

·        The company has released for trading 49% or more of its equity on the Botswana Stock Exchange.

This exemption only applies if the shares, units, or debentures were held by the taxpayer for a period of at least one year prior to the date of disposal.

The aggregate amount of capital losses is offset against the aggregate amount of capital gains in the same tax year. Any excess of loss is deducted from aggregate gains over losses accruing in the succeeding tax year only. Capital losses cannot, in any circumstances, be deducted against other income.

Dividend income:

Dividend income from local sources is not subject to tax.

Interest income:

In the case of a resident company, interest income is included in gross income and taxed at the CIT rate. In the case of a non-resident company, interest income is subject to withholding tax (WHT), which constitutes a final tax.

Royalty income:

Royalty income is included in gross income and taxed at the CIT rate. In the case of a non-resident company, royalty income is subject to WHT, which constitutes a final tax.

Partnership income:

Partnership income is taxed in the hands of the partners, in proportion to their share in the partnership.

Foreign income:

Resident corporations are not generally taxed on a worldwide income basis. However, interest and dividend income from a foreign source is taxed in the hands of the resident company on an accrual basis. Relief is given for any WHT imposed on such income.

Corporate residence:

If a company's registered office or place of incorporation is in Botswana or if the company is managed and controlled in Botswana, then the company is considered a resident of Botswana.

Permanent establishment (PE):

PE has been defined in the Income Tax Act only in the limited context of interest, commercial royalty, and management or consultancy fee. However, PE is defined in all the double taxation agreements (DTAs) that Botswana has entered into with other contracting states. The definition of PE in the DTA follows the definition in the Organisation for Economic Co-operation and Development (OECD) Model Tax Convention on Income and Capital.

Tax administration:

Taxable period:

Botswana has a fiscal year ending on 30 June. However, a business may select its own accounting year, which may end on a date other than 30 June. This accounting year is accepted for the computation of the company’s taxable income.

Tax returns:

Botswana requires self-assessment, which means that the return submitted constitutes the assessment. The system is one that requires all taxpayers to file tax returns in standard format (providing information relating to taxable income earned) within four months after the financial year-end of the company.

Payment of tax:

Under the self-assessment tax procedures, if the tax payable for a tax year exceeds BWP 50,000, then estimated tax is required to be paid in equal quarterly instalments over the period of 12 months ending on the company’s financial year-end date. Accordingly, the first quarterly payment should be made within three months of the beginning of the financial year and the balance quarterly payments at three monthly intervals thereafter. The final (balance) payment, if any, is to be made within four months from the end of the financial year, when submitting the return.

Where the tax is less than BWP 50,000, then the tax is payable within four months from the company’s financial year-end date.

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Note: Information placed here in above is only for general perception. This may not reflect the latest status on law and may have changed in recent time. Please seek our professional opinion before applying the provision. Thanks.