The principal forms of business enterprises in Botswana are:
- A business may be conducted by individuals, partnerships, trusts, Botswana companies, or branches of foreign companies.
- A Botswana company may be public (name ends in Limited) or private (name ends in (Proprietary) Limited). All companies are governed by the Companies Act. There is no minimum equity capital requirement for companies.
- The private company is the most common vehicle for operating a business in Botswana. It may have a minimum of two members and one director, who must be a resident of Botswana.
- A subsidiary of a foreign company is regarded as Botswana company. The legal liability of the parent company is limited to the amount of capital committed (together with any guarantees provided).
- A branch of a foreign company is regarded as an “external company” if it establishes a place of business or owns immovable property in Botswana and only needs to register for tax purposes.
- Both a Botswana company and a branch operation are subject to the provisions of the Companies Act.
- A branch is obliged to lodge a certified copy of its Memorandum and Articles of Association (or other instrument defining its constitution) with the Registrar of Companies, as well as a sworn translation into English where appropriate.
- A branch is required to have an annual audit.
- Locally registered private companies do not require an audit unless one of the shareholders is a company, equity investment exceeds P50 000 or the number of shareholders exceeds 10.
TAXATION
A. BASIS OF TAXATION
- Income arising in Botswana is only liable to Botswana tax.
- All expenses incurred in the production of gross income are deductible in computing taxable income.
- Special deductions are available as follows:
- (i) Capital expenditure on a straight line basis on cost.
- (a) Building: a 25% initial allowance for new buildings used for industrial purpose or leased for such purpose; and a 2.5% annual allowance on all buildings (other than residential)
- (b) Plant and machinery:
- Heavy civil engineering plant used directly in construction 25%
- Aircraft and motorised road vehicles 25%
- Other self propelled portable plant of machinery used directly in manufacture or production 25%
- Other industrial plant or machinery used directly in manufacture of production 15%
- Computers 25%
- Other office machinery 10%
- Other plant and machinery 10% (including soft furnishings)
- (c) Implements and loose tools: replacement basis
- (ii) Training: 200% of the cost of training citizen employees on training approved by the Commissioner
- (iii) Donations: Donations, exceeding P1000 but limited to 20% of the total chargeable income, to an approved educational or sports institution.
- (iv) Pension Fund: Contribution to a Botswana approved pension funds of 20% of the employee’s wages or P9000 whichever is less.
- (i) Capital expenditure on a straight line basis on cost.
- Losses: Assessed loss from any source can be carried forward to be set off against future profits from the same source in chronological order. The carry forward is limited to 5 years. Mining and farming losses can be carried forward indefinitely
B. INDIVIDUAL TAXATION
1. RESIDENT INDIVIDUALS*
(i) TAX RATES
| Taxable Income Exceeding | Taxable Income Not Exceeding | Tax on Lower Amount | Rate on Excess |
| P | P | P | % |
| 0 | 20 000 | 0 | 0 |
| 20 000 | 35 000 | 0 | 5 |
| 35 000 | 50 000 | 750 | 10 |
| 50 000 | 65 000 | 2 250 | 15 |
| 65 000 | 80 000 | 4 500 | 20 |
| 80 000 | 7 500 | 25 |
- (a) is physically present in Botswana for not less than 183 days, in aggregate, in a tax year.
- (b) maintains a permanent place of aboard in Botswana and is present in Botswana for not less than 183 days including temporary absence for business, recreation or similar purpose.
- (c) physically present in Botswana and such period is continuous with a period for which he is treated as resident.
(ii) DEDUCTIONS
Pension or Retirement annuity contributions to a Botswana approved fund. The lesser of
- (a) Actual contribution,
- (b) 15% of total income excluding dividends interests and capital gains;
- (c) P9000
2. NON-RESIDENT INDIVIDUALS*
TAX RATES
| Taxable Income Exceeding | Taxable Income Not Exceeding | Tax on Lower Amount | Rate on Excess |
| P | P | P | % |
| 0 | 35 000 | 0 | 5 |
| 35 000 | 50 000 | 1 750 | 10 |
| 50 000 | 65 000 | 3 250 | 15 |
| 65 000 | 80 000 | 5 500 | 20 |
| 80 000 | 8 500 | 25 |
3. FRINGE BENEFITS FOR EMPLOYEES
The annual taxable benefit is as follows:-
- (i) Accommodation (according to the Townships Act) of accommodation provided less any rent paid by the employee.
- (ii) Motor Vehicles The benefit ranges from P850 for vehicles costing P4 000 to P5 850 for vehicles costing P50 000. The benefit value for vehicles costing more than P50 000 is P5850 plus 10% of the cost in excess of P50 000 Adjustment is made where the employee meets part of the cost of maintenance
- (iii) Furniture: the benefit is 10% of the cost in excess of P5 000.
- (iv) Loans: the benefit is the difference in the interest payable at a commercial rate (currently 14%) and actual interest paid. Loans for education, medical or emergency needs are excluded
4. EXEMPTIONS
- (i) Expatriate employees on contract terms are entitled to
- (a) free passage to and from his country for himself and his family
- (b) a tax-free gratuity of 25% of his salary for the first 2 year contract, 27½% for the second contract and 30% for the third and subsequent contracts.
- (ii) For resident individuals
- (a) P1000 per annum of interest received from a bank or building society
- (b) medical expenses paid by the employer, including medical aid contributions
5. PAYE
A Pay-As-You-Earn system operates for all remuneration paid in cash. Tax on non-cash benefits are payable on assessment
C. CORPORATE TAXATION
Rates of Tax:
- Resident Company
- Basic Company Tax 15%
- Additional Company Tax 10%
- Approved Manufacturing Company
- Basic Company Tax 5%
- Additional Company Tax 10%
- Non Resident Company 25%
D. CAPITAL GAIN TAXATION
Gains arising on the sale of assets of a business, shares in or debentures of a company and residential properties (excluding one principal private residence) attract tax. While cost of immovable properties are indexed for inflation, only 50% of the gains is taxable in the case of shares or debentures. Capital gains is ring-fenced so that losses cannot be set-off against other income or vice versa.
Rates of Tax:
| Net Aggregate Gains Exceeding | Net Aggregate Gains Not Exceeding | Tax on Lower Amount | Rate on Excess |
| P | P | P | % |
| 0 | 10 000 | 0 | 0 |
| 10 000 | 35 000 | 0 | 5 |
| 35 000 | 50 000 | 1 250 | 10 |
| 50 000 | 65 000 | 2 750 | 15 |
| 65 000 | 80 000 | 5 000 | 20 |
| 80 000 | 8 000 | 25 |
E. WITHHOLDING TAXES
- (i) Dividends paid by all resident companies are subject to withhold tax at 15% on the gross dividends Note:
- (a). This withholding tax is available as a credit against the additional company tax..
- (b) Dividends paid to a parent resident company holding 20% or more of the shares does not attract withholding tax.
- (ii) Interest, commercial royalty and management or consultancy payments to non-residents are liable to withholding tax at 15% of the gross fees. This is the final tax. Royalties and management or consultancy fees must satisfy the wholly exclusively and necessarily incurred criterion to be tax deductible.
- (iii) Non-residents entertainers 10%
- (iv) Construction contracts: Payments are subject to 20% withholding tax on the non-material content. Where such a rate is considered excessive, the aggrieved party can apply for a variation of the rate. The Commissioner may if he considers it appropriate, agree to accept a guarantee instead of the withholding tax. This tax is an advance payment and is adjusted against the actual tax due when assessed, on filing a tax return.
- (v) Botswana has treaties which vary the withholding tax rates:
Dividends Interest Com.Roy Management Consultancy Fees Mauritius 10(a) 12 12.5 15 South Africa 15 15 15 Sweden (b) 15 15 15 15 U.K. 15 15 15 - (a) If the beneficial owner is a company holding at least 25% of the shares, the rate is 5%
- (b) If Botswana negotiates a lower rate with any other country, then such lower rate will apply to Sweden as well.
F. OTHER TAX RATES
- (i) Unapproved Pension Provident Funds: 7.5% on interest and aggregate gains
- (ii) Dividends accrued outside Botswana: 15% of gross income.
G CAPITAL TRANSFER TAX (CTT)
- (i) CTT is levied on the capital value of any gratuitous disposal such as donations, inheritance etc. There are substantial exemptions for donation by individuals and inheritance.
- (ii) The tax is payable by the beneficiary
Rates of Tax:
- (a) Individual
Taxable Value Exceeding Taxable Value Not Exceeding Tax on Lower Amount Rate on Excess P P P % 0 100 000 0 2 100 000 300 000 2000 3 300 000 500 000 8 000 4 500 000 16 000 5 - (b) Companies Resident and Non Resident Companies 12.5%
H. TRANSFER DUTY ON IMMOVABLE PROPERTY
- (i) Agricultural Property
- (a) Transferee – Citizen 5% of market value
- (b) Transferee – Non-citizen 30% of market value
- (ii) Any other Property – 5% of market value Exemption: The first P20 000 is exempt if the transferee is a citizen
- (iii) There is no transfer duty on financial instruments
I. SALES TAX
- (i) Goods: Sales tax is levied on all consumables at 10% on
- (a) import, at the point of import; and
- (b) manufactured article, at the time of first sale.
Exemptions: Essential food stuff, books, medicine, machinery for industries and building materials are exempt.
- (ii) Services: All professional services are liable to sales tax at 10% of the gross fees. Gross fees includes disbursements other than those that has suffered sales tax.
J. BUDGET PROPOSALS (effective from 1 July 1998)
- (i) Mining Taxation: New mining undertaking (other than diamonds) will be taxed on a formula under which tax will be levied on a progressive basis depending on the profitability. The rate will vary from 25% to 55%. 100% of the exploration and development expenditure can be deducted in the year in which it is incurred. Existing companies can opt for the new scheme
- (ii) Civil penalties for delay in payment of withholding tax will be 1% per month of the tax due or P100 per day which ever is higher.
- (iii) Interest due on overdue taxes will be waived if payment is made on or before 31 March 1999.
- (iv) Penalties will not be levied on overdue returns submitted on or before 31st March 1999.
- (v) A non-remittable 1.5% interest per month will be levied on delayed payment of assessed tax.
- (vi) Resident companies must maintain their accounting records in Botswana. Non resident companies must make such record available in Botswana if so required.
Annual Allowance: The allowance is to be between 10% and 25% of the cost incurred and following are considered to be fair and reasonable annual rates having regard to the expected lives of the items listed.
- 1. Heavy civil engineering plant or machinery use directly in construction 25%
- 2. Aircraft and motorised road vehicles 25%
- 3. Other self-propelled portable plant or machinery used directly in manufacture or production 25%
- 4. Other industrial (including farming) plant or machinery used directly in manufacture or production 15%
- 5. Computers 25%
- 6. Other office machinery 10%
- 7. Other plant or machinery (including soft furnishings) 10%
INCENTIVES
Financial assistance is offered for medium scale projects in the private sector. The assistance is given by way of grants (which are exempted from income tax) as follows:
- Unskilled labour grant in respect of labour earning between the minimum wage and double the minimum wage, as defined in the Employment Act, may be claimed on the following basis:
- 80% reimbursement on wage bill in years 1 and 2
- 60% reimbursement on wage bill in year 3
- 40% reimbursement on wage bill in year 4
- 20% reimbursement on wage bill in year 5
- Training grants of 50% of the training costs of citizens during the first five years of the project. Grants may cover tuition, room and board, travel, materials and wages. Off-the-job training within the firm and/or training costing over R2 500 per trainee per year require prior permission.
- Capital grants of P1 000 per job created for non-citizen-owned or joint venture projects and P1 500 per job created for citizen-owned projects.
Capital grants are payable before the project commences. They are provided in the form of a bank account, which may be used only to cover the purchase of fixed assets or working capital.
INCENTIVE POLICIES
Financial Assistance Policy
The Financial Assistance Policy (FAP) was launched to encourage new and sustained growth in the Botswana economy by providing a series of grants to new and expanding productive or linking businesses and tourist operations. The aim of the policy is to assist businesses so that more employment is created in industries other than the traditional beef and mining sectors.
Productive businesses are included in the scheme with the objective of replacing products with local production. Linking businesses are those service sectors that provide support to eligible productive businesses. Tourism projects are defined as organisations established for the purpose of providing, promoting or facilitating tourism in Botswana in return for financial reward. Certain additional quality standards also apply to tourist operations which are stipulated by the Department of Tourism.
Some business and industries are specifically excluded and these include: Entertainment (including Casinos); Shops and Wholesalers; Brewing and Distilling; Construction; and other non-linking service sector industries. The amount and type of assistance potentially available depends upon the size of the proposed project.
The following table gives the current bands used to categorise projects:
Scale Investment in Fixed Assets Small . less than P 75,000 Medium over P 75,000 less than P2,000,000 Large over P2,000,000 . Small Scale Projects
Grants to small scale operations can be up to 90% of projects with initial investment of less than P50,000; an additional 40% of any initial investment in excess of P50,000 is available, but the total initial grant is subject to an overall maximum of P50,000.The factors that affect the percentage of initial investment that is awarded are:
- location of business;
- gender of owner; and
- employment creation;
Expansion grants can only be used to provide further fixed assets and can only be awarded after twelve full months of operation. Individual small scale projects will only be awarded up to two expansion grants as long as the total of all grants received does not exceed P150,000.
Large and Medium Scale Operations
The criteria governing medium scale projects also apply to large scale projects. However large and medium scale projects in beef production, and large scale mining and mineral processing projects are specifically excluded from receiving assistance under the FAP.
Small and Medium sized projects must yield a real economic rate of return of at least 6% to be considered and there are three types of assistance available:
- Capital Grants
Are a minimum of P1,000, and a maximum of P1,500 per job created. The amount of the Capital Grant is capped at a specific percentage of total investment in fixed assets which varies depending upon the location of the project.- Unskilled Labour Grant
Reduces over a five year period from a maximum of 80% reimbursement of unskilled labour wage bill in years one and two to 20% in year five.- Training Grant
50% of the training costs below P2,500 per trainee per year will be paid during the first five years. Prior permission must be sought if FAP is to be used to fund internal off the job training, or external training in excess of P2,500 per employee. Award of training grants will be subject to the achievement of predetermined targets for improved productivity.There is a limit to the assistance available under ii) and iii) above of 50% of the value added to Batswana over the five year period. The Value Added is defined as “Sales Revenue minus tradeable inputs minus transfers to non citizens”. In addition if the project ceases within the five year period of FAP assistance, the Government reserves the right to recover a proportionate amount of the unskilled labour grant.
No assistance will be granted retrospectively to projects more than six months old at the date of the application, and there is a limit of one successful application per twelve month period.
Investment Promotion
Botswana has ratified a World bank Convention, which established the Multilateral Investment Guarantee Agency 9MIGA). MIGA offers investors protection against inconvertibility or transfer of currency, expropriation, breach of contract and war and civil disturbance.
Priority Development Centres
Selibi-Phikwe, a town in the east of Botswana has been designated as a priority centre for regional industrial development.
EXCHANGE CONTROL
- (i) Individuals and companies can operate foreign currency accounts with local banks without limit.
- (ii) Forward exchange contracts can be made without restrictions
- (iii) Companies can borrow up to P2 million from external sources.
- (iv) Non-resident controlled companies can obtain credit facilities up to debt to equity ratio of 10:1. Reference to Bank of Botswana is required for amounts above P1 million.
VISA REQUIREMENTS
A visa is needed for entry into Botswana by all persons except nationals of countries which have concluded visa abolition agreements with Botswana.
These countries are:
- Austria, Belgium, Denmark, Finland, France, Germany, Greece, Iceland, Irish Republic, Italy, Liechtenstein, Luxembourg, Netherlands, Namibia, Norway, San Marino, South Africa, Sweden, Switzerland, United States, Uruguay, Western Samoa, Yugoslavia.
- Also, all Commonwealth countries except Ghana, India, Mauritius, Nigeria, Pakistan and Sri Lanka.
