Following
the passing of the Income Tax Amendment
Act 1999 and the Bank of Botswana Act 1999,
Botswana constituted an International Financial
Services Centre (IFSC), whose focus is on
the provision of financial services to clients
who are domiciled in other countries. The
IFSC is modelled on the highly successful
Dublin IFSC which has acted as a regional
magnet for many types of financial services
company. Fiscal incentives are provided
to both financial and non-financial institutions
to encourage them to establish in the IFSC
to provide qualifying services.
The
government announced in February, 2006,
that the IFSC regime would be extended to
holding companies and companies in the BPO
and call centre sectors; and to mutual funds.
In addition, disposals of shares in IFSC
companies will be exempt from tax in future.
The
Bank of Botswana is responsible for supervision
of IFSC companies and of Undertakings for
Collective Investment, which were brought
under the IFSC regime by the Collective
Investment Undertakings Act 1999.
In
July, 2004, Botswana's Finance and Development
Planning Minister, Baledzi Gaolathe announced
a relaxation of the rules for IFSC companies,
which had previously only been permitted
to transact business with non-resident and
other IFSC companies. To avoid transfer
pricing abuses, it was decided that income
from approved transactions with resident
companies should be subject to the same
rate of corporate tax as applies to non-IFSC
companies.
By
2007, a total of 39 companies were accredited
to the IFSC across a range of sectors, including
cross border banking, investment funds,
financial advisory services, ICT services
and group shared services, as well as administration.
These companies have employed about 250
qualified Batswana professionals in areas
such as accountancy, banking, funds administration,
IT, financial analysis, human resources
and administration. A further eight companies
commenced operations in 2008/9, during 2009/10
five companies were certified, a decrease
by 38% on the previous year. By 31 March
2010, the total number of Botswana IFSC
certified companies stood at 35 with overall
capital employed of BWP8bn, an increase
of 33% on the previous year.
IFSC companies include Metcash Africa, Brait's
African Alliance fund managers, plus Zimbabwe's
Econet Wireless and Wilderness Safaris who
have set up administrative operations in
the IFSC.
In
April, 2005, Botswana's parliament passed
an International Insurance Bill, which seeks
to regulate offshore insurance and related
services, to be offered through the IFSC.
Tabling
the bill, finance and development planning
minister Baledzi Gaolathe said companies
operating under the IFSC were restricted
to conducting non-domestic business in non-Pula
currencies.
"Therefore
to be licensed to do business under the
IFSC, insurance companies cannot be regulated
and supervised under the Insurance Industry
Act of 1987, because it is concerned solely
with insurance companies serving only the
local or domestic market, hence the need
for the proposed bill," he explained.
The
International Insurance Regulations were
in enacted in March 2007 following the promulgation
of the International Insurance Act 2005.
The Act allows for the conduct of international
insurance and related services through a
regulatory authority with specific responsibilities
and powers. The regulations now cater for
the establishment of reinsurance and captive
insurance companies.
The
Non-Bank Financial Institutions Regulatory
Authority Bill was enacted in 2006. The
new Authority will regulate all non-bank
financial institutions once it is fully
operational, including insurance companies,
brokers and agents, pension funds, pension
fund administrators, asset managers, collective
investment undertakings, organized exchanges,
security dealers, investment advisors, and
specialized financiers. Banks that operate
in the IFSC will continue to be regulated
by the Bank of Botswana. The new regulatory
body was created to plug gaps in the old
supervisory framework.
In
November 2008 IFSC projected that the eight
recently accredited companies would invest
over P700 million over the next financial
year in accordance with their approved business
plans. At
the time, Botswana IFSC companies has a
cumulative capital employed of P4.1 billion,
which represents an increase of 30% from
the previous year - despite the on going
global financial crisis.
"Much
of the growth is a result of continued investment
by the promoters and significant capital
injection by leading financial services
multinationals," the parastal's CEO
Alan Boshwaen says in the Botswana IFSC
2008 annual report. The addition of these
companies brought to 45 the total number
of companies accredited with Botswana IFSC.
The new members are expected to contribute
significantly to the growth of the country's
financial sector. "Some of these companies
have investments that we anticipate will
incite the growth of nascent sectors,"
Boshwaen said.
Investec
Frontier Property Investment Company (IFPICO)
represents a significant milestone in the
development of the investment funds sector.
The fund will raise US$500 million to be
invested in property across Africa.
ZimRe,
a re-insurance company, is the first company
to be accredited to the Botswana IFSC in
accordance with the International Insurance
Act of 2005.
Boshwaen
said that the Botswana IFSC was involved
in three projects strategically aligned
to the new economic diversification roadmap
laid out by the Business Economic Advisory
Council (BEAC). These are the establishment
of a new IFSC Legislative Framework, an
Integrated Financial Services Cluster and
the implementation of a BPO and Call Centre
Industry Stimulation Plan.
The
new Botswana IFSC Legislative Framework
aims to create modern, flexible legislation
to position the country as the medium- to
long-term preferred offshore financial services
centre for sub-Saharan Africa.
The
framework is intended to allow for more
domestic economic linkages and make it easier
for Botswana IFSC companies to leverage
domestic assets and to invest in strategic
sectors such as diamond financing.
Boshwaen
said that a discussion document outlining
specific constraints and proposed resolutions
in the Income Tax, Banking Act, Collective
Investment Undertaking Act and the Companies
Act had been submitted to the Ministry of
Finance and Development Planning.
However,
in delivering his maiden State of the Nation
address in November 2008, President Ian
Khama said there are concerns that the tax
system in Botswana is complicated and is
a disincentive to investors. "We are
thus in the process of reviewing the tax
system with the aim of simplifying it,"
the President said. "In addition, we
will continue to seek double taxation agreements
to reduce the cost of doing business in
Botswana."
The
proposed legislative framework is expected
to call for a flexible and appropriate legislation
for establishment and administration of
various forms of investment businesses;
exchange liberalisation, free repatriation
of profits and capital; a reliable tax regime.
At the moment Botswana offers confidentiality
of Global company information and banking
secrecy is enshrined in the law –
this is seen as one of the attractions for
financial and investment sector businesses.
The
review of Botswana's IFSC laws was undertaken
during the course of 2009 and represents
the first comprehensive evaluation of the
IFSC legislation since its inception in
1999.
In
the 2010 budget, the Minister of Finance
and Development Planning announced that
the two-tier corporate tax system would
be replaced by a single company tax rate
of 25% of profits (reduced to 22% in the
2011 budget). Companies designated as manufacturing
and International Financial Services Centre-registered
will be taxed at 15%, with a final 7.5%
withholding tax on dividend distributions.
These changes are effective July 1, 2010.
The
corporate tax incentives and specific benefits
available to Botswana IFSC companies were
unchanged by the 2010 and 2011 budgets.
Also
in 2010, the Non Bank Financial Institutions
Regulatory Authority (NBFIRA) began a consultation
on the proposed annual levy fee structure
for asset managers, management companies,
micro lenders, stockbrokers and IFSC-accredited
companies.
The
NBFIRA has been tasked with regulating all
non-banking financial entities in Botswana,
including pensions funds, asset managers,
micro lenders, insurance and collective
investment undertakings.
Botswana The International
Financial Services Centre
The
benefits which Botswana seeks from the development
of an active International Financial Services
Centre are:
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