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Lesotho

Country Name: Kingdom of Lesotho
Currency: Lesotho Loti (LSL), pegged to the South African Rand (ZAR)
Primary Tax Authority: Lesotho Revenue Authority (LRA)
Key Legislation:

  • Income Tax Act
  • Value Added Tax (VAT) Act
  • Customs and Excise Duty Act
  • Investment and Promotion Law

Fiscal Authority Allocation

Centralized Fiscal System:
Lesotho operates a centralized tax system, with the Lesotho Revenue Authority (LRA) under the Ministry of Finance responsible for administering and collecting taxes, including corporate income tax (CIT), personal income tax (PIT), value-added tax (VAT), and customs duties. Municipal taxes are limited.

Corporate Income Tax (CIT)

Standard Rate: 25%
Lesotho imposes a flat corporate income tax rate of 25% on resident companies and foreign companies with a permanent establishment in Lesotho. A reduced CIT rate of 10% applies to manufacturing and farming businesses that export to markets outside of the Southern African Customs Union (SACU).

Corporate Forms and Taxation:

  1. Resident Companies: Taxed on worldwide income.
  2. Non-Resident Companies: Taxed only on Lesotho-sourced income.

Exemptions and Incentives:

  • Investment Incentives: Lesotho offers tax incentives for companies in priority sectors such as manufacturing, agriculture, tourism, and technology. These include reduced CIT rates, VAT exemptions, and customs duty exemptions for capital equipment and raw materials.
  • Export-Oriented Businesses: Companies that export to markets outside SACU are eligible for a reduced 10% CIT rate.

Goods and Services Tax (GST) / Value-Added Tax (VAT)

Standard Rate: 15%
Lesotho imposes VAT at a standard rate of 15% on most goods and services. VAT is applied to both domestic production and imports.

Reduced Rates:
Certain essential goods and services, such as basic food items, electricity, and water, are subject to a reduced VAT rate of 9%.

Exemptions:
Healthcare, education, financial services, and exports are exempt from VAT. Exports are zero-rated, allowing businesses to reclaim VAT on inputs used in export production.

Personal Income Tax (PIT)

Progressive Rates:
Lesotho applies a progressive personal income tax system to residents’ worldwide income and non-residents’ Lesotho-sourced income.

Resident Tax Rates for 2023 (Annual Income):

  • Up to LSL 67,440: 20%
  • Above LSL 67,440: 30%

Non-Resident Tax Rate:
Non-residents are taxed at a flat rate of 25% on Lesotho-sourced income.

Deductions and Allowances:
Deductions are available for social security contributions, medical expenses, and charitable donations.

Additional Mandatory Contributions

Social Security Contributions:
Lesotho does not have a national mandatory social security system. However, some employers offer private pension and healthcare schemes.

Withholding Taxes

  • Dividends: 10%
  • Interest: 10%
  • Royalties: 10%
    Lesotho imposes withholding taxes on payments to non-residents. These rates may be reduced under Lesotho’s double taxation agreements (DTAs).

Transfer Pricing Rules

Lesotho follows the arm’s-length principle for transactions between related parties. Companies must ensure that related-party transactions are conducted at market value, and transfer pricing documentation is required for significant transactions.

Special Tax Regimes

  • Export-Oriented Manufacturing: Export-oriented manufacturing companies are eligible for a reduced CIT rate of 10%. These companies benefit from VAT exemptions on imported raw materials and customs duty relief on capital equipment.
  • Investment Incentives: Lesotho’s investment incentives include reduced CIT rates, tax holidays, and VAT exemptions for companies investing in priority sectors such as agriculture, tourism, and renewable energy.

Other Taxes

  • Customs Duties: Lesotho, as a member of the Southern African Customs Union (SACU), applies customs duties in line with SACU policies. The rates vary depending on the type of goods, with essential goods subject to lower rates or exemptions.
  • Excise Taxes: Excise taxes are levied on alcohol, tobacco, petroleum products, and luxury goods. Rates vary depending on the product.
  • Capital Gains Tax: Capital gains from the sale of property or shares are taxed at a rate of 25%.

Double Taxation Agreements (DTAs)

Lesotho has signed double taxation agreements (DTAs) with several countries, including South Africa, Mauritius, and the United Kingdom. These agreements help reduce withholding taxes on cross-border income and prevent the double taxation of income earned in Lesotho and other jurisdictions.

Local Taxes

Local governments may impose minor municipal fees and property rates, but most major taxes, including CIT, PIT, and VAT, are centrally administered by the Lesotho Revenue Authority (LRA).

Compliance and Reporting

Annual Filing:
Corporate tax returns must be filed by the end of the third month following the end of the financial year. Personal income tax returns are generally due by June 30th. VAT returns are filed monthly or quarterly, depending on the business’s turnover.

Penalties for Late Filing:
Penalties for non-compliance or late filing include fines and interest on unpaid taxes. Interest is charged at 1.5% per month on overdue tax amounts, with additional penalties for underreporting or tax evasion.

Recent Developments

Promotion of Renewable Energy:
Lesotho is increasingly promoting investment in renewable energy projects, especially hydropower and solar energy. Tax incentives, including reduced CIT rates and VAT exemptions, are available for companies investing in green energy projects.

Manufacturing and Export Incentives:
To attract foreign investment, particularly in the textile and apparel sectors, Lesotho offers tax incentives, including a reduced 10% CIT rate for export-oriented manufacturers. These incentives are part of the government’s broader strategy to diversify the economy and reduce reliance on imports.

Focus on Digital Taxation:
Lesotho is working on modernizing its tax system, including measures targeting the digital economy. New tax policies aimed at regulating e-commerce and digital transactions are expected to be introduced to improve compliance.

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