BLS countries to sign anti-double taxation agreement

Staff Writer | Friday August 20, 2010 00:00

Presently, trade between the three countries is very low with Botswana importing goods and services worth a mere P26 million in 2009 from Swaziland and a measly P250,000 from Lesotho in the same year.

Central Statistics Office figures for April 2010 show that Botswana did not make any exports to Lesotho while goods and services worth P144,000 were exported to Swaziland.

According to the Government Gazette of last week, the Minister of Finance and Development Planning has entered into an agreement with Lesotho and Swaziland for avoidance of double taxation and prevention of fiscal evasion.

 Minister Kenneth Matambo is expected to present the agreement to the National Assembly in the last session of Parliament for the year in November.

The deal between Botswana and the two countries will lower the rates of taxation on dividends, interest, royalties and management fees in a bid to boost inward investment.

Botswana has active double taxation agreements with many countries, among them Namibia, South Africa, Mozambique, Zimbabwe, Mauritius, the Seychelles Barbados, India, the United Kingdom, Sweden and France.

The double taxation avoidance agreement will give certainty and predictability on tax treatment to Lesotho and Swaziland companies seeking to domicile themselves in Botswana and to local companies operating in the two countries.

As Botswana continues to attract investors to help diversify its economy and develop international financial services capacity, a double taxation agreement will help to improve the country's international competitiveness and enhance its image with foreign investors.

According to the Government Gazette, 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.

Minister Matambo has stressed the importance of such agreements in the development of Botswana as an international financial services centre where firms conduct much of their business with foreign-based businesses. The agreement is also expected to open up possibilities for mutual co-operation in the prevention of tax evasion, tax avoidance and fraud by providing for the exchange of information on taxpayers.

In establishing their business, multinational companies worldwide also 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.

The Government Gazette explains the salient provisions of the new Double Taxation Avoidance Agreement thus: 'The profits of an enterprise of a contracting state shall be taxable only in that state unless the enterprise carries on business in the other contracting state through a permanent establishment situated therein.

'If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other state but only so much of them as are attributable to that permanent establishment.'

Income derived from, as well as gains from the sale of immovable property, including incomes from agriculture and forestry, will be taxed only in the country where the property is situated.

According to the proposed agreement, dividends paid by a company which is a resident of a contracting state to a resident of another contracting state may be taxed in that other state.

'However, such dividends may also be taxed in the contracting state of which the company paying the dividends is a resident and according to the laws of that state, but if the recipient is the beneficial owner of the dividends and is a resident of the other contracting state, the tax charged shall not exceed 10 percent of the gross amount of the dividends if the  beneficial owner is a company which holds at least 25 percent of the capital of the company paying the dividends.' reads the Government Gazette.