Pivotting Botswana for your African Growth
Botswana is a best fit to be your regional hub. You can direct your financial and investment flows to Southern African region using a holding company structure in Botswana. The holding company may not pay any tax depending on countries that you are ultimately investing and the nature of your business. So when you have a company to work for you as a hub, consider locating it in Botswana as an International Financial Services Centre Company (IFSCC). The Botswana IFSC offers a range of tax incentives to approved companies. These include, but are not limited to:
- Flat Corporate Tax rate at 15%
- No withholding tax on dividends, interest, royalties, management fees
- Unilateral credit for withholding tax suffered in other jurisdictions whether or not a Double Tax Avoidance Agreement exists
- Specified Collective Investment Undertakings (CIUs) managed by IFSC companies are tax exempt
To register as an IFSC company, the company must be registered in Botswana must make a formal application to the International Financial Services Centre Certification Committee through BITC. If the company meets criteria for IFSC certification, BITC will forward a recommendation to the Minister of Finance and Development Planning who will issue a certificate stipulating approved activities. ifsc activities now have a narrower definition (after having due regard to beps - base erosion and profit shifting - initiatives and internationally accepted practices. The following activities may be approved financial operations, broadly defined in the Income Tax Act, provided they are carried out by non-residents or IFSC companies:
- Banking and finance operations transacted in foreign currency
- Broking and trading of securities denominated in foreign currency
- Management and custodial functions related to CIUs
- Registrars and transfer agency services
- Accounting and financial administration
- Holding and administration of group companies
- Other operations within the scope shares, banking, finance and administration (but not business processing, software, intellectual property, etc..)
SPECIAL ECONOMIC ZONES
Botswana can offer you a faciliity inside one of her Special Economic Zones for you to have a warehouse for distribution or a manufacturing facility to satisfy the regional demand. Establishing businesses inside these zones will mean access to trained resources and infrastructure, tax saving, ease of securing permits, licences and registrations, etc.
DEVELOPMENT APPROVAL ORDERS (DAO)
You can seek DAO that you can seek from the Minister of Finance and Economic Planning for any favourable tax treatment that should specifically apply to your investment. The DAO provides special tax relief and/or education and training grants and is subject to the authority of the Minister of Finance and Development Planning. Zero-rate tax holidays for between 5 and 10 years can be obtained through the DAO. DAO Applications are evaluated against the following criteria:
- Job creation for Botswana citizens
- The company’s training plans for Botswana citizens
- The company’s plans to localise non-citizen positions
- Botswana citizen participation in company management
- Amount of equity held by Botswana citizens in the company
- The location of the proposed investment
- The project’s effect on stimulation of other economic activities
- The project’s effect on reducing local consumer prices
- Low general tax rate: resident companies pay company tax at 22% of the taxable income and the general rate of withholding tax is 7.5% on all dividends distributed.
- Manufacturing companies pay tax at 15% of taxable income – subject to approval.
- Development Approval Order – tax holiday (zero corporate tax) can be made available to investors for a period of 5 to 10 years.
- There are no foreign exchange controls in Botswana – hence free repatriation of profits, dividends and capital.
- Operational double taxation avoidance agreements with South Africa, United Kingdom, Sweden, France, Mauritius, Namibia, Zimbabwe and Russia.
- International Financial Services Centre (IFSC) accredited companies pay tax at 15% on profits from approved operations.
- Companies accredited by the Innovation Hub pay tax at 15% of profit.
You may sometimes believe that a strong Pula may not favour your manufacuting investment. You will always be able to speak to Botswana Investment and Trade Centre for any other type of intervention to avert the risk of exchange loss that you may end up with. As we stated at the start, even if you choose some other investment destination routing your funds through Botswana is likely to be more beneficial.