Botswana eases trade investment
22-04-2010

WINDHOEK - Botswana has been robust in its approach to ease trade investment in the country.

So far the country has concluded 10 Double Taxation Avoidance Agreements (DTAA), and will soon sign with two more European countries and five SADC countries. BOPA reporter, Rebaone Tswiio examines a DTAA, using the latest Botswana-Lesotho Agreement.

On the surface value of DTAA, economists say it deepens the level of cooperation plus exchange of information between the tax authorities so as to combat tax evasion and avoidance.

It also gives impetus to a countrys efforts to attract foreign direct investment because it eases the monetary pressure of paying tax in two countries and removes the logistical or clerical burden of complying with at least two tax systems.

This means that Batswana doing business in Lesotho for instance are not taxed on the income they derive there plus in their home country. You cannot expect a businessman to pay tax on one income twice, Minister of Finance and Development Planning Kenneth Matambo said in an interview.

Simply put, under the Lesotho-Botswana agreement, if a Motswana does business in Lesotho, he/she will be taxed there except where his gains relate to immovable property located in Botswana or to property of a permanent establishment located in Botswana.

The scope of a permanent establishment has been extended to cover performance of services through employees as this is important for the countries importing services.

Lesotho in this case will have the primary right to tax dividends, interest and royalties derived from Botswana. However, Botswana also has the right to tax such income and the rate prescribed for such incomes is 10 per cent.

And since the standard withholding tax rate in such cases is 15 per cent, the lower rates under a DTAA benefits the investor in Botswana and in Lesotho.

There will be no tax in the source country on interest if the income accrued to government or local authority or an agency owned or controlled by government, reads part of the Botswana/Lesotho Agreement summary notes.

The DTAA also contains a special technical fees article which gives the right of taxation of income derived from consultancy and administrative services to the country where the income accrued.

However, Botswana may also tax the same income and give credit for the tax suffered in Lesotho.

There is also provision for transfer-pricing in relation to taxation of business income, royalties, dividends, interests and technical fees to take care of the transactions between the associated enterprises.

Therefore, where persons enter into transactions that are not at arms length and designed to avoid tax, the agreement provides that income that would have accrued in the normal course in the absence of such schemes should be taxed.

Botswana continues strive to expand her network of double taxation avoidance agreements so that we become an investment destination, Minister Matambo noted. BOPA