Global Mobility Services: Taxation of International Assignees - Lesotho

Transcription

1 Global Mobility Services: Taxation of International Assignees - Lesotho Taxation issues & related matters for employers & employees 2018/19

2 Last Updated: June 2018 This document was not intended or written to be used, and it cannot be used, for the purpose of avoiding tax penalties that may be imposed on the taxpayer. Menu

3 Country: Lesotho Introduction: International assignees working in Lesotho 4 Step 1: Understanding basic principles 5 Step 2: Understanding the Lesotho tax system 8 Step 3: What to do before you arrive in Lesotho 9 Step 4: What to do when you arrive in Lesotho 10 Step 5: What to do when you leave Lesotho 12 Appendix A: Rates of tax 13 Appendix B: Double-taxation agreements 14 Appendix C: Lesotho contacts and offices 15 Additional Country Folios can be located at the following website: Global Mobility Country Guides Global Mobility Country Guide (Folio) 3

4 Introduction: International assignees working in Lesotho PwC is the world's leading provider of professional services. The People and Organisation group works together with its clients to find solutions for the challenges they encounter when transferring people from one country to another. This brochure is intended to inform foreign nationals and their employers about tax, social security and immigration issues in Lesotho. This guide is not exhaustive and cannot be regarded as a substitute for professional advice addressing individual circumstances. Nevertheless, answers will be found to most of the questions raised by an expatriate or his/her employer. More detailed advice should be sought before any specific decisions are made about these issues. More information can be obtained from our Lesotho office specializing in People and Organisation, Global Mobility (see Appendix C). 4 People and Organisation

5 Step 1: Understanding basic principles The scope of taxation in Lesotho 1. A foreign national working in Lesotho will, in general, become liable to Lesotho tax on Lesotho income. The main taxes are: Income tax; Wage tax; Dividend tax; Capital gains tax. The tax year The tax year of assessment is for 12 months and is ending on the 31 st of March each year. Determination of residence An individual will be considered resident in Lesotho for tax purposes if they are present in Lesotho for more than 182 days in any consecutive 12 month period, or have a normal place of abode in Lesotho and are present in Lesotho for any part of the year of assessment. Capital gains tax for foreign nationals working in Lesotho Residents and non-residents are liable to capital gains tax on assets. In the case of resident taxpayers, capital gains tax is charged regardless of where the assets are located. Non-resident taxpayers are taxed only on Lesotho sourced capital gain. Capital gain is treated as ordinary income and is subject to income tax at the standard progressive rates of 20% or 30%. Ceasing tax residence The Lesotho Revenue Authority should be informed in writing when an immigrant working in Lesotho stops being a resident in Lesotho. The immigrant should get confirmation from the LRA that all his tax affairs are in order before leaving the country. The tax position of the spouse Spouses are assessed separately for tax in Lesotho. The Lesotho legislation will apply equally to the assignee s spouse, notwithstanding the fact that the spouse may not be employed or working in Lesotho. A spouse will be taxed separately in Lesotho on any income that the spouse earns in Lesotho. Short-term temporary employment Foreign nationals working in Lesotho on a temporary basis may not be subject to Lesotho taxation on their employment income provided certain conditions are met. The tax exemption is provided under a DTA and would therefore only apply where a DTA has been concluded between the foreign country concerned and Lesotho. Generally speaking, all of the following conditions must be met before the exemption would apply: The employee remains treaty resident in their home country, and The employee is not present in Lesotho for more than 182 days in a twelve month period beginning or ending during the fiscal year concerned, The remuneration is paid by the non-resident employer, and Global Mobility Country Guide (Folio) 5

6 The remuneration is not borne by a permanent establishment that the nonresident employer has in Lesotho. The wording of each DTA does vary from country to country and professional advice should be obtained before relying on any such exemption. Employee stock option plans and long term deferred compensation schemes The cross-border income tax issues arising from employee stock option plans can be extremely complex. 6 People and Organisation In most circumstances the employee is taxed on the value of the shares when the employee exercises the options given. The tax will be deducted by the employer by means of PAYE. When the shares are sold at a later stage, the individual will pay tax on the difference between the value when the option was exercised and the selling price. The taxable return will be added to other taxable income received and will be taxed according to the tax tables. We would recommend that professional advice should be sought prior to the exercise or vesting of any share options and/or the disposal of any shares acquired under an employee share option scheme. These provisions apply equally to residents and nonresidents. Taxation of residents Tax residents are subject to tax on their worldwide income and gains (subject to certain exemptions); whereas non-residents are subject to tax on Lesotho actual or deemed source income and gains arising on assets situated in Lesotho. The tax rate for individuals range from 20% to 30% and there is an annual tax credit of M The first M is taxed at 20% and the thereafter the taxable percentage is 30%.

7 The following income is exempt from tax as per the Lesotho Income Tax Order: The first M500 of interest derived from one savings account by a resident individual who is not a minor, bearing in mind that the deposit is with a institution in Lesotho registered under the Financial Institutions Act of 1973, War pensions and gratuities paid by the Lesotho Government in respect of persons who retire before the enactment of the Lesotho Income Tax Order are exempt from income tax, The first M1 500 of a severance payment made under section 79 of the Labor Code Order 1992 is exempt from income tax in Lesotho, A scholarship payable in respect of tuition or fees for full-time instruction at an educational institution is exempt from income tax, Property income of an expatriate taxpayer is exempt to the extent that it is not Lesotho source income. Global Mobility Country Guide (Folio) 7

8 Step 2: Understanding the Lesotho tax system Employment income Fringe Benefit Tax Fringe Benefit Tax (FBT) is paid by the employer on behalf of employees. The employer is however allowed a deduction of the fringe benefit tax. Fringe benefit tax is imposed on the following fringe benefits: Car fringe benefit Housing fringe benefit Utilities fringe benefit Domestic assistance fringe benefit Meal or refreshment fringe benefit Medical fringe benefit Loan fringe benefit Debt waiver fringe Excessive superannuation contributions Structuring remuneration packages Remuneration packages may, subject to certain restrictions, be structured in a tax efficient manner as well as potentially reducing the cost of employment to the employer. The structure should take into account the policies and procedures of the international assignment policy of the employer as well as the provisions of the employment contract. The following benefits and allowances may be considered in a remuneration package: Relocation allowance; Cost of living allowance; Provision of accommodation; Tax equalisation; Home leave; School fees; Travel allowance and company car. Your PwC tax specialist may assist you in the structuring of a tax efficient remuneration package. Tax rates on employment income The following table shows the annual tax table in United States Dollars, and is charged on taxable income after allowable deductions (such as payments to approved pension schemes, or a US$700 annual tax exemption granted on bonuses). The taxable income must be gross of the value of any fringe benefits. Exchange controls Lesotho has exchange control regulations. The commercial banks in Lesotho are agents of the Central Bank of Lesotho (CBL) for certain foreign exchange purposes. Retirement fund contributions and medical aid fund contributions Pension and retirement annuities are allowed as a deduction at the time when the person is still making contributions and the person gets taxed at the time when payment is withdrawn/received from the fund. It is important whether the find is Lesotho based or not as it will have tax implications. We advice that advice should be obtained should this deduction being made. Medical expenses are not allowed as a deduction. 8 People and Organisation

9 Step 3: What to do before you arrive in Lesotho Immigration formalities in Lesotho A work permit or at least a notification to the Labor Commissioner is required for non-residents. No visa is required if a South African resident is working in Lesotho. This is governed by the Labor Code 1992 section 165. Should the provisions of section 165 of the Labor Code not complied with, the employer and employee will be guilty of an offence and on conviction is liable to a fine or six months imprisonment or both. The following types of visa can be obtained for business visitors: 72 hour visa: If you do not have a valid visa to visit Lesotho (and you are from a country where you cannot automatically get a visa to enter Lesotho) the Lesotho National Development Corporation can arrange for a 72 hour visa. (this visa is usually only available form certain manufacturing sectors). Single and multiple entry visas Citizens from certain countries can obtain business visas on arrival and others must apply for visas prior to arrival. For information, the Ministry of Foreign Affairs can be contacted. In order to take up employment in Lesotho, foreigners are required to be in possession of a valid work permit. In order to obtain a work permit you should: Complete the relevant application form Submit the application form to the Commissioner of Labor in the Ministry of Employment and Labor If the permit is approved, the applicant should go in person the Central Police Station in Maseru and a formal work permit will be issued In certain instances the foreigner might have its primary residence in Lesotho and a residence permit should be obtained. In order to obtain a residency permit, the following should be done: Complete the relevant application form Submit an application to the Immigration and Passport Services located in the Ministry of Home Affairs in Maseru. Business people who regularly travel between Lesotho and South Africa can apply for a six month border concession that will enable them to commute between the two countries without having to report to an immigration officer. This will only apply to land border posts and not when the immigrant flies to Lesotho. Currently this concession is suspended. Timing of departure and arrival Although it is not always possible to plan the date of departure from the home country and arrival in Lesotho, and vice versa, the timing of these events could have a significant impact on the tax position of an international assignee in both Lesotho and the home country. From a Lesotho perspective, it is important to time the arrival and departure to minimise the time for a person to be considered tax resident (or avoid becoming tax resident) as described above. Global Mobility Country Guide (Folio) 9

10 Step 4: What to do when you arrive in Lesotho Registration as a taxpayer A foreign national rendering services in Lesotho is liable to register as a taxpayer with the local office of the LRA. This registration should take place as soon as possible after becoming liable for tax in Lesotho. Application forms are available from the LRA website and should be completed together with a certified copy of the passport. The application form is then submitted to the LRA Advice Centre where a Tax Identification Number (TIN) is immediately awarded to the individual. Employees' tax Employees' tax is income tax an employer must deduct from remuneration paid to an employee, and pay over to the LRA. All Lesotho employers paying remuneration have an obligation to account for employees tax. The tax deducted will be allowed as credit when the tax liability is calculated after year end. What to do at the end of the tax year Tax returns Individuals should collate all records necessary to complete the tax return including those forms detailing remuneration for the tax year. An income tax return should be submitted by every individual registered for income tax in Lesotho. The income tax return is available from the LRA website and should be submitted three months after year end, which is 30 June. The tax returns should be completed and submitted manually and cannot be completed and submitted electronically. Notice of assessment Lesotho is on a self assessment tax system. Any outstanding amount should then be settled to the LRA when your return is issued. Objections may be lodged against difference that might occur. Withholding tax The withholding tax rates could differ should there be a double tax agreement in place between the country of the one party and Lesotho. Withholding tax implications are as follows: Withholding tax is governed in terms of section 107 of the Income tax Order. Withholding tax is deductible at source from payments made to independent contractors, companies, organizations and any other person not exempt from tax. Withholding tax is applicable to service income rendered by: Resident contractors providing the following services: transport, construction, plant or equipment. 5% of the gross income is withheld; Non resident contractors: The tax rate applicable is 10% of the gross amount; Other service income that can be outsourced by a client to consultants, lawyers, doctors and technical experts. The rate applicable is 5% for residents of Lesotho and 10% for nonresidents; Other payments where withholding tax is applicable are as follow: Interest: For Lesotho residents 10% is withheld with an exemption of M 500 from a savings account. For non-residents 25% of gross is withheld and to a South African resident 10% is 10 People and Organisation

11 withheld according to the double tax agreement; Management charge, dividends, royalties and natural resource payments: The withholding tax applicable is 25% for non-residents. For South Africa it is 15% on dividends and 10% on management fees, royalties and natural resource payments according to the double tax agreement; International transport: Withholding tax is applicable if the owner of the vehicle, ship or aircraft is a resident of Lesotho. 5% is withheld and 10% if it is a non-resident. Social Security Lesotho has no official conceptual framework of social security but has a number of social security measures in place. Global Mobility Country Guide (Folio) 11

12 Step 5: What to do when you leave Lesotho Ceasing tax residence The Lesotho Revenue Authority should be informed in writing when an immigrant working in Lesotho stops being a resident in Lesotho. The immigrant should get confirmation from the LRA that all his tax affairs are in order before leaving the country. It is advisable to discuss the date of your departure with a tax adviser, as the timing can alter your tax liability. Furthermore, all reasonable steps should be taken to avoid the possibility of dual residence or double taxation after your departure. Any payments or bonuses received after departure in respect of Lesotho employment may be liable to tax in Lesotho under certain conditions. Planning for such payments, if any, should be undertaken with care. 12 People and Organisation

13 Appendix A: Income tax rates Personal income tax rates for 2018 Taxable income (M) Tax More than But not exceeding % % % Global Mobility Country Guide (Folio) 13

14 Appendix B: Double-taxation agreements Confirmed agreements Under negotiation South Africa Australia Namibia Mauritius China Swaziland United Kingdom India The Netherlands Malaysia USA 14 People and Organisation

15 Appendix C: Lesotho contacts and offices Contacts Hennie Smit Senior Manager Tel: Global Mobility Country Guide (Folio) 15

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