Botswana: Domestic Corporate Taxation
In Botswana, income taxes are levied on income that is actually derived or deemed to be derived from Botswana sources, including income accruals and specified capital accruals.
Legislation governing taxation is contained in the Income Tax (Amendment) Act 1995, the Income Tax (Amendment) Act 2005 and the Income Tax (Amendment) Act 2006, the latter of which removed all references to the current tax year.
The tax is payable annually on income accrued in each tax year ending on 30 June. In the case of a business where proper books of accounts are kept, the business accounting year may be substituted.
Tax is payable on taxable income, i.e., that part of the gross income remaining after deducting exempt income, allowable deductions and certain reliefs.
Resident companies pay company tax at 15% of taxable income plus 10% additional company tax, and are obliged to deduct withholding tax at 15% on all dividends distributed.
Resident Companies are those companies that either have their registered offices or places of incorporation in Botswana, or which are managed and controlled in Botswana.
Non-Resident Companies are those companies whose registered offices or places of incorporation are not in Botswana or which are managed and controlled from outside Botswana. Non resident companies pay tax at 30% of their taxable income.
Capital allowances are as follows:
- Plant and machinery: an annual allowance ranging from 10% to 25% of the cost can be claimed for plant and machinery. For convenience the rates are fixed at 10% for plant and machinery with long life, 15% for those with medium life and 25% for those with short life.
- Buildings: new buildings and improvements to existing buildings, used in an industrial business are entitled to an initial allowance of 25%. Industrial business includes a process of manufacture, a hotel business and the letting of a building for an industrial business.
- Buildings used in an industrial business and commercial buildings are entitled to an annual allowance of 2.5% of the cost. An allowance of P 5,000.00 is permitted in respect of the cost of erection of each dwelling to accommodate employees of any business other than the business of mining.
An employer can claim a deduction of 200% of the cost of training his Batswana employees on training approved by the Commissioner.
In the event that a business falls within the definition of "Manufacturing" and is approved by the Minister of Finance, it is entitled to additional tax relief, which is a reduction in corporate tax to 15%, i.e. 5% company tax and 10% additional company tax.
In considering the application for approval the Minister will have regard to:
- the number of citizens employed
- the training of citizens
- the replacement of non-resident employees with skilled citizens
- citizen management participation
- the level of citizen investment or opportunity thereof
Taxation of special entities
Under the Income Tax Amendment Act 2006, new definitions for investment company, investment income, securitization and special purpose vehicle were provided, including:
- Income accruing to Collective Investment Undertakings from the sale of shares and securities will be considered as part of their business income and not as disposal gains.
- Special purpose vehicles (SPVs) formed by Government for securitization of public assets and dividends distributed by these SPVs are tax exempt.
- The election period for setting off of group losses for BDC companies has been reduced from 6 years to setting off within the current tax year. BDC companies will now be able to elect within the current year to have current year losses set off against current year income of other BDC group members.