Lesotho Individual Tax Guide

Worldwide Personal Tax and Immigration Guide 2021–22

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Lesotho ey.com/globaltaxguides

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EY 2nd Floor Spitskop Building 86 Kellner Street Westdene, Bloemfontein, Free State 9301 South Africa Executive contacts Emile du Toit Rofhiwa Netshiswinzhe Orle Breed

+27 (11) 772-3000 Email: emile.dutoit@za.ey.com +27 (51) 406-3500 Email: rofhiwa.netshiswinzhe@za.ey.com +27 (51) 406-3500 Email: orle.breed@za.ey.com

A. Income tax Who is liable. Citizen residents and permanent residents are tax-

able on worldwide income, except for employment income if it is sourced and taxed abroad.

Tax-resident expatriates are taxed on worldwide income.

However, expatriates are not taxed on property income derived from foreign sources or on income derived from disposals of investment assets generating foreign-source income.

Nonresidents are taxable on Lesotho-source remuneration income only.

Income subject to tax

Employment income. All compensation from sources within or deemed to be within Lesotho is taxable. Compensation includes salaries, wages, overtime or leave pay, commissions, directors’ fees, bonuses, gratuities, certain benefits in cash or in kind, allowances, gifts, pensions and retirement benefits. Compensation does not include fringe benefits, and employers are subject to tax on them.

War and disability pension benefits and amounts received from agricultural activities are tax-exempt.

Self-employment and business income. Any individual who earns self-employment or business income from a source within Lesotho or a source deemed to be within Lesotho is subject to tax in the year the income is earned.

To be taxable, self-employment or business income must arise from a source in Lesotho or a source deemed to be within Lesotho. Business income is defined as all profits or gains arising from a business, including capital gains. Business income is calculated by subtracting exempt income and allowable deductions from gross income.

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Investment income. Interest is taxable. The first LSL500 of interest income received by a resident individual from a single savings account is exempt from tax.

Resident individuals are not subject to tax on dividends.

Other investment income, including the profit or loss on the sale of an investment asset, is taxed with other income at the rates described in Rates.

Foreign-source income from employment in a foreign country derived by a resident individual is exempt from income tax if the income is chargeable to tax in the foreign country.

Capital gains and losses. Gains or losses derived from the sale of business and investment assets are included in the normal taxable income of an individual. Gains or losses derived from the sale of personal assets are not included in taxable income, provided they are not used in the production of income subject to tax.

Deductions

Deductible expenses. Expenses directly related to employment are deductible, but no deductions are allowed for personal expenses, including clothing and commuting, income tax, expenses incurred that are capital in nature, gifts, fines and insurance premiums paid to nonresident insurers.

Business deductions. In general, expenses incurred in earning taxable income are deductible, except for expenses of a capital nature.

In general, interest is taxed with other income at the rates set forth in Rates.

Tax credit. The law provides for an individual to be granted a non-

refundable tax credit. A tax credit is a rebate or relief granted by law to individuals who have taxable income for the income tax year. It is directly subtracted from the tax amount after applying the applicable marginal tax rates to the chargeable income. The nonrefundable tax credit is currently LSL840 per month or LSL10,080 per year.

Foreign tax relief. A resident taxpayer is entitled to a foreign tax credit against his or her liability to Lesotho income tax with respect to any foreign income tax borne directly or indirectly by the resident on foreign-source income subject to Lesotho tax.

Rates. The tax rates for residents are set forth in the following

table.

Taxable income Exceeding Not exceeding LSL LSL

0 64,200

64,200 —

Rate %

20 30

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The following categories of income derived by nonresidents are subject to withholding tax.

Type of income

Withholding tax rate (%)

Dividends, interest, royalties, natural resource payments and management fees Payments for services Payments to resident contractors Interest paid to residents

25 10 5 10

Relief for losses. Losses may be carried forward indefinitely and

offset against income of a similar nature in subsequent years.

B. Other taxes Lesotho does not impose net worth, estate or gift taxes.

Fringe benefit tax. Fringe benefit tax is imposed on the employer,

based on the employer’s fringe benefit taxable amount (the value of non-monetary benefits provided to employees). A fringe benefit is a monetary or non-monetary benefit derived from employment that does not form part of an employee’s normal salary or wage. Non-monetary fringe benefits are also referred to as benefits in kind. In summary, benefits in kind refer to earnings, other than in cash, that are received or due to an employee by virtue of his or her employment relationship with the employer. If fringe benefits are received or enjoyed by an associate of an employee, the fringe benefit tax applies.

C. Social security Lesotho does not impose any social security taxes.

D. Tax filing and payment procedures The income tax year in Lesotho runs from 1 April to 31 March for individuals. Tax returns must be filed within three months after the end of the tax year or of the financial year if the financial year is different from the tax year.

Employers are required by law to withhold taxes from remuneration paid to their employees on a monthly basis and to remit these taxes to the tax authorities.

Married persons are taxed separately, not jointly, on all types of income.

E. Double tax relief and tax treaties Double tax relief in the form of a tax credit is available in the absence of an applicable double tax treaty.

Lesotho has entered into double tax treaties with Botswana, Eswatini, Mauritius, South Africa and the United Kingdom.