Botswana: Double Tax Treaties
Botswana has active double taxation agreements with Barbados, Mozambique, India, Namibia, South Africa, the United Kingdom, Sweden, Mauritius, Zimbabwe, France, Lesotho, Swaziland and the Seychelles. Double tax agreements with Russia, Belgium, Malawi, Tanzania, Zambia, China and Luxembourg are awaiting ratification. Discussions towards possible tax agreements are taking place with the following countries: Kenya, Angola, Nigeria, Uganda and Japan.
When the agreement with South Africa was signed in 2003, the IFSC's CEO Alan Boshwaen hailed it, saying SA was a key trading partner and the gesture would see an improvement in the profile of Botswana in the international financial services sector. "This is a welcome development as it gives certainty and predictability on tax treatment, both to SA companies seeking to domicile themselves in Botswana and to Botswana companies operating in SA. Our intention through the center initiative is to enable South African companies to have access to the relatively low tax and a stable environment on their doorstep as they expand north of the Limpopo", Boshwaen said.
In April, 2004, Botswana concluded and signed a double taxation treaty with Russia. "As Botswana continues to attract investors to help diversify the economy and develop international financial services capacity, a double taxation agreement will help to improve our international competitiveness and enhance our image with foreign investors," observed Finance and Development Planning Minister, Baledzi Gaolathe, of the agreement.
The deal between Botswana and Russia will lower the rates of taxation on dividends, interest, royalties and management fees in a bid to boost inward investment, Gaolathe explained.
Urging parliament to adopt the Botswana/Seychelles Double Taxation Avoidance Agreement in July, 2005, Botswanian Minister of Finance and Development Planning Baledzi Gaolathe, stated that such agreements will help support and encourage foreign investment.
Gaolathe told Parliament that the agreement covers taxes on income and provides for co-operation on avoidance of double taxation and prevention of tax evasion on income and capital gains.
The minister went on stress the importance of such agreements in the development of Botswana as an international financial services centre where firms will be conducting much of their business with foreign-based businesses.
Gaolathe explained that the Botswana/Seychelles agreement would also open up possibilities for mutual co-operation in the prevention of tax evasion, avoidance and fraud by providing for the exchange of information on taxpayers.
The DTA was due to enter into force in July, 2006, following the ratification of the agreement by lawmakers in both countries.
The Double Taxation Avoidance Agreement between Botswana and the United Kingdom was approved by lawmakers in the African state in January, 2006. The agreement was signed in Gaborone on 9 September 2005 and entered into force on 4 September 2006.
Gaolathe told Parliament that the agreement also facilitates close co-operation and exchange of information between the tax authorities and addresses the problem of international tax evasion and avoidance.
"Further, double taxation avoidance agreements are of great significance as part of efforts to attract direct foreign investment," said Gaolathe.
"In establishing their business, multinational companies worldwide consider the existence of double taxation avoidance agreements as a distinct advantage as it eliminates uncertainty about how their incomes will be taxed in the contracting countries," Gaolathe added.
The double taxation avoidance agreement is a re-negotiation of the 1977 agreement between the two countries and it seeks to replace the older one.
Gaolathe explained that the salient provisions of the new Botswana/United Kingdom Double Taxation Avoidance Agreement are: "An enterprise of the contracting state will be taxed in the other state in its business income, only if it carries on business in the other state through permanent establishment".
The scope of a permanent establishment has been extended, in the new agreement to cover construction, assembly and/or installations as well as services rendered through employees.
Also income derived from, as well as gains from sale of, immovable property will be taxed only in the country where the property is situated.
The same principle applies to gains from the sale of shares in a company whose assets consist substantially of immovable property located in one of the countries.
Dividends will be subjected to 5% withholding tax, if the company receiving such dividends holds at least 25% of the shareholding of the company paying the dividend, and 12% withholding tax on gross amounts where the share holding is below 25%.