Botswana, a former British colony in Southern Africa, is one of the most prominent countries in Africa. The country has a strong economy,uses one of the most advanced banking systems in the continent, and maintains a stable tradition of representative democracy. After becoming independent in 1966, Botswana developed into a middle-income country with the fourth highest gross national income in Africa. At present, the life standard in Botswana is similar to Mexico and Turkey. The government of Botswana stimulates country’s social and economic development by providing favorable investment conditions and applying low tax rates for economic activities in the country.
Taxation of companies
Since the tax system of Botswana operates on a territorial basis, companies in Botswana pay tax only on income that is derived from a source in Botswana. The Botswana companies are liable for four major taxes, namely, (1) corporate tax, (2) VAT, (3) customs duties, and (4) excise duties.A regular corporate tax rate for companies (residents and non-residents) in Botswana is 25%. A reduced corporate tax rate of 15% and no withholding tax are applied to qualifying Botswana Investment and Trade Centre companies. Moreover, investors who establish a company in Botswana can use the Development Approval Order (which is discussed below) that offers zero corporate tax for a period of 5 to 10 years.
A regular withholding tax rate of 15% is applied to income derived from:(1) royalties and management fees paid to non-residents;(2) interest paid to residents and non-residents; and (3) dividends paid to residents and non-residents. A reduced withholding tax rate of 10% is applied to entertainment fees paid to non-residents in Botswana.
A standard 12% VAT rate in Botswana applies to import of goods and services as well as any taxable supply made by resident persons registered for VAT purposes. However, supplies of services, such as financial, medical, educational, accommodation, and passenger transportation services, are exempted from VAT. Customs and excise duties in Botswana vary according to the type of the imported or exported goods to which the duties apply.
Tax incentives for companies
In order to boost country’s economy and attract foreign investment, the government of Botswana offers tax incentives for companies that carry business activities in certain economic sectors, such as mining, agriculture and financial sector.For example, companies that are accredited by the International Financial Services Centre (IFSC) pay a flat 15% corporate tax rate on profits derived from approved business activities, such as banking, accounting, investment advice, insurance, and other finance-related operations. The Development Approval Order (DAO), another tax incentive provided by the government of Botswana, offers zero-rate tax holidays for 5 to 10 years and educational grants for business projects that stimulate country’s economic and social development. DAO projects are aimed at reducing the consumer prices and involving Botswana citizens in entrepreneurial activities.
Taxation of individuals
Individuals in Botswana are taxed on Botswana-sourced income derived from (1) employment, (2) business activities, and (3) immovable property. Since Botswana employs a progressive tax system, the rates of personal income tax and capital gains tax depend on the amount of income received by an individual. The annual income of an individual that counts up to 36.000 Botswanan Pula (about 3.100 EUR) is not taxed. The maximum income tax rate of 25% applies to annual income and capital gains, which are greater than 144.000 Botswanan Pula (about 12.500 EUR).
In order to avoid double taxation, Botswana has signed double tax treaties with a number of countries, including Sweden, United Kingdom, India, France, Zimbabwe, and others.