Botswana - Income Tax

Botswana - Income Tax

Taxation of international executives

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Tax returns and compliance

When are tax returns due? That is, what is the tax return due date?

30 September.

What is the tax year-end?

The tax year-end for individuals is 30 June of each year.

What are the compliance requirements for tax returns in Botswana?

Residents

Income tax payable by the individual employee on their annual gross income is generally recovered at the source under the PAYE salary deduction system and withholding taxes payable on certain categories of income. All individuals whose annual gross income exceeds BWP36,000 are required to register as taxpayers and submit  annual tax returns  no later than 30 September following the end of the tax year. Upon request, an extension is possible. Progressive tax rates (5 percent to 25 percent) apply. The first BWP36,000 is tax free. The highest marginal tax rate of 25 percent is applied to taxable income in excess of BWP144,000.

Non-residents

Non-resident individuals are required to register as taxpayers and to comply with all tax return and compliance obligations in the same way as residents as detailed earlier in relation to income from a Botswana source. Non-residents are, however, taxed slightly differently from residents in that there is no exemption from tax on the first BWP36,000 per year which is taxed at the rate of 5 percent.

Tax rates

What are the current income tax rates for residents and non-residents in Botswana?

Residents

Income tax table for 2016

Taxable income bracket Total tax on income below bracket Tax rate on income in bracket
From BWP To BWP BWP Percent
0 72,000 0 5.00% over BWP36,000
72,001 108,000 1,800 12.50% over BWP72,000
108,001 144,000 6,300 18.75% over BWP108,000
144,001 Over 13,050 25.00% over BWP144,000

Are there capital gains tax exceptions in Botswana? If so, please discuss?

Exemption from tax is restricted to gains on disposal of specified assets/property including shares traded on the Botswana Stock Exchange, shares in a Botswana registered public company as defined in the Income Tax Act, bonds, and debentures issued by the government, Bank of Botswana or statutory bodies, shares in an International Financial Services Company, principal private residence.

When are estimates/prepayments/withholding of tax due in Botswana? For example: monthly, annually, both, and so on.

Withholding tax is due within 15 days of the end of the month of deduction.

Non-residents

Income tax table for 2016

Taxable income bracket Total tax on income below bracket Tax rate on income in bracket
From BWP To BWP BWP Percent
0 72,000 0 5.00% over BWP0
72,001 108,000 3,600 12.50% over BWP72,000
108,001 144,000 8,100 18.75% over BWP108,000
144,001 Over 14,850 25.00% over BWP144,000

Residence rules

For the purposes of taxation, how is an individual defined as a resident of Botswana?

An individual is regarded as a resident of Botswana, if:

  • the individual’s permanent place of abode is in Botswana
  • the individual is physically present in Botswana for a period exceeding 183 days during a tax year (a tax year covers an annual period from 12 months from 1 July to 30 June)
  • he maintains a place of abode in Botswana and is physically present in Botswana for at least 183 days during the tax year or
  • he is physically present in Botswana for a period and such period is continuous with a preceding or succeeding period of physical presence where he is treated as a resident.

Is there, a de minimus number of days rule when it comes to residency start and end date? For example, a taxpayer can’t come back to the host country for more than 10 days after their assignment is over and they repatriate.

There is no such requirement. The test is based on the criteria stated above.

What if the assignee enters the country before their assignment begins?

There are no special requirements on arrival in the country.

Termination of residence

Are there any tax compliance requirements when leaving Botswana?

If the individual was registered as a taxpayer he will be required to file the final tax return, settle any outstanding taxes, and apply for tax de-registration. There are no requirements where the individual is not registered for tax. However, where the Commissioner General deems it necessary, he/she may at any time require an individual to submit a tax return for a tax year specified if he/she feels that the individual may leave Botswana permanently.

What if the assignee comes back for a trip after residency has terminated?

There are no implications on residency should an assignee come back to Botswana for a trip after termination of tax residency.

Communication between immigration and taxation authorities

Do the immigration authorities in Botswana provide information to the local taxation authorities regarding when a person enters or leaves Botswana?

Currently, KPMG in Botswana is not aware of such communication. However, the Commissioner General is free to obtain such information from any source he/she considers appropriate.

Filing requirements

Will an assignee have a filing requirement in the host country after they leave the country and repatriate?

An assignee will have filing requirements only if Botswana-source income, which is not subject to final withholding tax, accrues to him.

Economic employer approach

Do the taxation authorities in Botswana adopt the economic employer approach to interpreting Article 15 of the OECD treaty? If no, are the taxation authorities in Botswana considering the adoption of this interpretation of economic employer in the future?1

No. There is no indication that this approach will be adopted in Botswana in the near future.

De minimus number of days

Are there a de minimus number of days before the local taxation authorities will apply the economic employer approach? If yes, what is the de minimus number of days?2

No.

Types of taxable compensation

What categories are subject to income tax in general situations?

As a rule, all types of compensation and remuneration received by an employee for services rendered in Botswana or deemed to have been rendered in Botswana constitute taxable income. These include, but are not limited to, the following:

  • basic salaries, wages, leave pay, and bonuses
  • fees, commissions, and so on
  • contractual gratuities
  • cash allowances (which include travelling, entertainment, or any other allowances)
  • non-cash benefits.

Tax-exempt income

Are there any areas of income that are exempt from taxation in Botswana? If so, please provide a general definition of these areas.

Within employment contracts, the following items are not taxed in the hands of the employee:

  • medical costs/health insurance paid by the employer
  • contributions by both the employer and employee to an approved retirement fund
  • provision of contractual free passage for the employee and immediate dependents between the place of employment and the place of recruitment
  • one-third of gratuity paid after completion of a minimum of two years' service
  • one-third of a retrenchment package received by an employee from his/her previous employer.

As a general rule, there are limited instances where individuals are exempt from taxation in Botswana. Such instances would include employees of diplomatic missions and employees of companies providing technical assistance to the government of Botswana where the agreement provides for exemption.

Expatriate concessions

Are there any concessions made for expatriates in Botswana?

One third of contractual terminal gratuity is tax free.

Salary earned from working abroad

Is salary earned from working abroad taxed in Botswana? If so, how?

Foreign employment income is normally not taxable in Botswana. However if the work is performed abroad during temporary absence from Botswana by a resident and for the employer in Botswana, the income may be taxed in Botswana.

Taxation of investment income and capital gains

Are investment income and capital gains taxed in Botswana? If so, how?

The first BWP36,000 of taxable income received by a resident individual in Botswana is not taxable. No such exemption is, however, applied on the taxable income of individuals not resident in Botswana.

Botswana bank and building society interest accruing to a resident individual in excess of BWP7,800 (exempt portion) is subject to 10% withholding tax which is a final tax. All other interest income of resident taxpayers is taxed at the normal resident individual tax rates.

Interest received by an individual from the following sources is, however, exempt from tax:

  • interest received from the Botswana Savings Bank, including interest on Botswana Savings Bank Certificates
  • interest received on national development bonds exempt under the National Development Bank Act
  • interest on bonds exempt under the Development Loan Act
  • interest on any subscription shares issued by any building society resident in Botswana
  • interest received by an individual from any banking institution or building society in Botswana limited to BWP7,800 per year.

Foreign dividends are subject to income tax at a rate of 15 percent. However foreign investment income (interest and capital gains) accruing to a non-citizen resident in Botswana is not subject to tax. Botswana dividends are subject to withholding tax at the rate of 7.5 percent. The rate may be varied by an applicable double taxation agreement. This is a final tax.

Commercial royalties, entertainment fees, and management or consultancy fees accruing to a resident from a source within Botswana are taxed as business income on assessment.

Interest commercial royalties, and management or consultancy fees paid by a resident to a non-resident are subject to withholding tax of 15 percent on the gross amount paid. Withholding tax rates may be varied by an applicable double taxation agreement. The tax so withheld is final.

Capital gains are taxed as per the rates shown in the following table.

Taxable income

Cumulative Percent Tax payable
0 18,000 0    
18,001 72,000 0 + 5.00% Over 18,000
72,001 108,000 2,700 + 12.50% Over 72,000
108,001 144,000 7,200 + 18.75% Over 108,000
144,001 and over 13,950 + 25.00% Over 144,000

Any capital gain realized by an individual in respect of the disposal of the following assets will be included in the calculation of the taxable income of the individual:

  • any property including residential property
  • any shares or debentures held in a company.

The capital gains realized by an individual on the following assets are not subject to tax and therefore will not be included in the calculation of taxable income of an individual.

  • Property, except land and buildings, which is owned by a business and on which a capital allowance under the Income Tax Act of Botswana has been granted.
  • The principal private residence of an individual where such property has been owned for at least 5 years. This applies only where no similar exemption was granted during the five years immediately preceding the date of disposal.
  • Shares and debentures held, for at least 1 year, in a Botswana resident public company or traded on the Botswana stock exchange.
  • Shares in an International Financial Services Centre company.

Dividends, interest, and rental income

See above regarding dividends and interest income.

Rental income is classified as business income. Any rental income, less expenses necessarily incurred wholly and exclusively in the production of such rental income is taxed at the individual rate. Chargeable business income is aggregated together with employment and investment income for purposes of determining the marginal tax rates applicable. However, business/investment losses cannot be off-set against employment income. Rental income from properties used for business will be subject to 10 percent withholding tax. This is a provisional tax credited on assessment.

Gains from stock option exercises

Residency status Taxable at:
  Grant Vest Exercise
Resident N N Y
Non-resident N N Y

Other (if applicable)

N/A N/A N/A

Foreign exchange gains and losses

This is not normally an issue as income is translated at rate of exchange prevailing on the date of accrual/payment. Any foreign exchange gains or losses are taxable or deductible when realized.

Principal residence gains and losses

Gains on the disposal of a principal private residence will be subject to income tax.

However such gains are exempt from tax if the property so disposed was owned for at least 5 years and no similar exemption was granted in the immediately preceding five years.

Capital losses

Assessed capital losses fall away unless utilized in the following tax year.

Personal use items

See fringe benefits.

Gifts

Gifts received in relation to services rendered constitute remuneration subject to income tax.

Additional capital gains tax (CGT) issues and exceptions

Are there additional capital gains tax (CGT) issues in Botswana? If so, please discuss?

A disposal of shares in a company whose principal assets consist of immovable property is deemed to be a disposal of the underlying property. 

Are there capital gains tax exceptions in Botswana? If so, please discuss?

Exemption from tax is restricted to gains on disposal of specified assets/property including shares traded on the Botswana Stock Exchange, shares in a Botswana registered public company as defined in the Income Tax Act, bonds, and debentures issued by the government, Bank of Botswana or statutory bodies, shares in an International Financial Services Company, principal private residence.

Proceeds from the disposal of shares in a company holding Botswana mineral rights or an interest in Botswana mineral rights, mining or prospecting information or any Botswana mining or prospecting rights is taxed as business profits and not capital gains.

Pre-CGT assets

Gains on disposal of any property are taxable.

General deductions from income

What are the general deductions from income allowed in Botswana?

The items, which are allowable as a deduction in the calculation of income tax payable by an individual, depend on the nature of the income and the trade.

Expenses of a revenue nature which are wholly, exclusively, and necessarily incurred in the production of assessable income, and which are not specifically prohibited, are to be deducted in the computation of taxable income.

No deduction from taxable income is allowed for the following expenditure items:

  • domestic or private expenses
  • any amount not wholly, exclusively and necessarily expended for the purpose of producing assessable income
  • any capital withdrawn or expenditure or loss of a capital nature
  • any tax imposed under the Income Tax Act of Botswana
  • any income tax charged in a country outside of Botswana
  • any contribution to a superannuation fund, which is not an approved superannuation fund as defined under the Income Tax Act of Botswana.

The Income Tax Act of Botswana does not make provision for any personal allowances. However, individuals are entitled to the following deductions.

  • An individual taxpayer is allowed a deduction up to a maximum of 15 percent of his/her chargeable income (other than investment income) in respect of contributions made by him/her to an approved superannuation fund.
  • Other expenses necessarily incurred to carry out or perform a profession, such as vehicle running costs for a sales representative and professional subscriptions to organizations necessary for the fulfilment of duties as a lawyer or chartered accountant.

Tax reimbursement methods

What are the tax reimbursement methods generally used by employers in Botswana?

An employer is required to reconcile individual employees PAYE calculations and effect refunds/additional deductions through the payroll, as long as such reconciliations do not result in a refund due from the tax authorities. In such cases, employees may prepare and submit returns to obtain the refunds.

Calculation of estimates/ prepayments/withholding

How are estimates/prepayments/withholding of tax handled in Botswana? For example, Pay-As-You-Earn (PAYE), Pay-As-You-Go (PAYG), and so on.

PAYE is withheld by the employer and must be remitted no later than 15 days after the end of the month in which the deduction took place.

Pay-as-you-go (PAYG) withholding

Currently, there is no PAYG in Botswana.

PAYG instalments

See PAYG Withholding.

When are estimates/prepayments/withholding of tax due in Botswana? For example: monthly, annually, both, and so on.

Withholding tax is due within 15 days of the end of the month of deduction.

Relief for foreign taxes

Is there any Relief for Foreign Taxes in Botswana? For example, a foreign tax credit (FTC) system, double taxation treaties, and so on?

Relief is provided both in the domestic law and in the double taxation agreements. Such relief is equal to the foreign tax paid subject to a maximum of Botswana tax on the relevant income.

General tax credits

What are the general tax credits that may be claimed in Botswana? Please list below.

There are no general tax credits.

Sample tax calculation

This calculation assumes a married taxpayer resident in Botswana with two children whose three-year assignment begins 1 January 2013 and ends 31 December 2015. The taxpayer’s base salary is USD100,000 and the calculation covers three years.

  2013
USD
2014
USD
2015
USD
Salary 100,000 100,000 100,000
Bonus 20,000 20,000 20,000
Cost-of-living allowance 10,000 10,000 10,000
Housing allowance 12,000 12,000 12,000
Company car 6,000 6,000 6,000
Moving expense reimbursement 20,000 0 20,000
Home leave 0 5,000 0
Education allowance 3,000 3,000 3,000
Interest income from non-local sources 6,000 6,000 6,000

Exchange rate used for calculation: USD1.00 = BWP49.60.

Other assumptions

  • All earned income is attributable to local sources.
  • Bonuses are paid at the end of each tax year, and accrue evenly throughout the year.
  • Interest income is not remitted to Botswana.
  • The company car is used for business and private purposes and originally cost USD50,000.
  • The employee is deemed resident throughout the assignment.
  • Tax treaties and totalization agreements are ignored for the purpose of this calculation.

Calculation of taxable income

Tax year ended 30 June 2013
BWP
2014
BWP
2015
BWP
2016
BWP
Days in Botswana during year 183 365 365 183
Earned income subject to income tax        
Salary 480,000 960,000 960,000 480,000
Bonus 96,000 192,000 192,000 96,000
Cost-of-living allowance 48,000 96,000 96,000 48,000
Net housing allowance 57,600 115,200 115,200 57,600
Company car 28,800 57,600 57,600 28,800
Moving expense reimbursement 0 0 0 0
Home leave 0 0 0 0
Education allowance 14,400 28,800 28,800 14,400
Total earned income 724,800 1,449,600 1,449,600 724,800
Other income 0 0 0 0
Total income 724,800 1,449,600 1,449,600 724,800
Deductions 0 0 0 0
Total taxable income 724,800 1,449,600 1,449,600 724,800

Calculation of tax liability

Tax year ended 30 June 2013
BWP
2014
BWP
2015
BWP
2016
BWP
Taxable income as above 724,800 1,449,600 1,449,600 724,800
Botswana tax thereon 158,250 339,450 339,450 158,250
Less: 0 0 0 0
Domestic tax rebates (dependent spouse rebate) 0 0 0 0
Foreign tax credits 0 0 0 0
Total Botswana tax 158,250 339,450 339,450 158,250

1Certain tax authorities adopt an ‘economic employer’ approach to interpreting Article 15 of the OECD model treaty which deals with the Dependent Services Article. In summary, this means that if an employee is assigned to work for an entity in the host country for a period of less than 183 days in the fiscal year (or, a calendar year of a 12-month period), the employee remains employed by the home country employer but the employee’s salary and costs are recharged to the host entity, then the host country tax authority will treat the host entity as being the ‘economic employer’ and therefore the employer for the purposes of interpreting Article 15. In this case, Article 15 relief would be denied and the employee would be subject to tax in the host country.

2For example, an employee can be physically present in the country for up to 60 days before the tax authorities will apply the ‘economic employer’ approach.

3All tax information is summarized by KPMG, the Botswana partnership and member firm of KPMG International based on the Income Tax Act (Chapter 52:01) of Botswana as amended together with the Departmental Guidance Notes issued by the Botswana Unified Revenue Service.

© 2016 KPMG, the Botswana partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.

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