LesothoTax Obligations Detailed

In Lesotho, employers navigate various tax obligations, including PAYE, withholding tax, and fringe benefit tax.

Employer Tax Obligations in Lesotho

Lesotho's tax system mandates several obligations for employers, primarily focusing on payroll taxes and compliance with the Lesotho Revenue Authority (LRA).

Pay-As-You-Earn (PAYE)

• Deduction: Employers deduct PAYE from employees' salaries based on a progressive tax system.
• Rates: The tax rates are 20% for income up to M69,120.00 per year and 30% for income exceeding M69,120.00 plus a fixed amount of M13,824.00. A tax credit of M10,824.00 per annum is available.
• Due Date: PAYE payments are due on the 15th of every month following the payment of salaries.

Withholding Tax (WHT)

• Applicability: Applies to payments made to residents and non-residents for specific services like contract work, technical services.
• Rates: Vary depending on the nature of service and residency status.
• Due Date: WHT payments are due on the 15th of each month.

Fringe Benefits Tax (FBT)

• Applicability: Levied on employers providing taxable fringe benefits to employees, excluding tax-exempt employers.
• Taxable Benefits: Benefits like accommodation, debt waivers, loans can be subject to FBT.
• Due Date: Quarterly payments are due within 14 days of the end of each quarter.

Other Employer Obligations

• Registration: Employers must register with LRA for various taxes.
• Compliance: Employers need to maintain accurate payroll records, file timely tax returns, and issue tax certificates (Form P16(b)) to employees annually.
• Income Tax Return Filing: The deadline for submitting the annual income tax return and final PAYE payment is June 30th.

Employee Taxes and Contributions

Income Tax

Lesotho applies a progressive individual income tax system with two tax brackets:

• 20%: On annual income up to M69,120.00.
• 30%: On annual income exceeding M69,120.00 plus a fixed amount of M13,824.00. An annual non-refundable tax credit of M10,824.00 is applicable.

Additional Information

• Tax Year: The tax year in Lesotho runs from January 1st to December 31st.
• Penalties: Failure to comply with tax regulations can lead to penalties.
• LRA Resources: The Lesotho Revenue Authority website provides detailed information and resources for employers.
• Professional Advice: Consulting a tax professional is advisable for complex situations.

Disclaimer: This information is for general guidance only and is current as of February 5, 2025. It is essential to consult with a qualified tax advisor for specific advice.

In Lesotho, employee tax deductions are determined by a progressive tax system with specified rates, thresholds, and allowable deductions.

Tax Rates and Thresholds

• Tax Year: April 1st to March 31st

• Taxable Income: Income above M4,400.00 per month is subject to tax.

• Tax Rates:

  • 20% on income from M4,400.01 up to M5,620.00 per month.
  • 30% on income above M5,620.00 per month.

• Tax Credit: A non-refundable tax credit of M920.00 per month (M11,040.00 annually) is applied. If tax liability is less than this tax credit the employee pays no income tax.

• Example: An employee earning M6,000.00 per month would have M480.00 taxed at 30%, resulting in M144.00, and M1,220.00 taxed at 20% resulting in M244.00, totaling M388.00 before credit. After the credit, the tax due is M388.00 - M920.00. Since tax liability cannot be negative no income tax is due.

Allowable Deductions

• Retirement Fund Contributions: Contributions to approved retirement funds are deductible up to 20% of the employee's gross income.

Pay As You Earn (PAYE)

• Employers are responsible for calculating, deducting, and remitting PAYE tax to the Lesotho Revenue Authority (LRA).
• PAYE is calculated based on the employee's total earnings, applicable tax rates, and allowable deductions.

Additional Considerations

• Fringe Benefits Tax (FBT): If an employer participates in the FBT system, fringe benefits included in the FBT are not part of the employee's taxable income. Otherwise, the fringe benefits provided to employees are included in their income and subject to PAYE.
• Terminal Benefits: Terminal benefits (severance pay, gratuity, superannuation fund payments) are exempt from income tax if they don't exceed 25% of the basic salary earned during employment and meet other specific criteria.

As of February 5, 2025. Tax regulations and rates are subject to change. Always consult the latest official resources for the most up-to-date information.

In Lesotho, Value Added Tax (VAT) is levied on most goods and services.

VAT Rates

• Standard Rate: 15% (applicable to most goods and services)
• Reduced Rate: 10% (specifically for electricity)
• Zero-Rated: 0% (for exports, basic food items like maize meal, bread, milk, and agricultural inputs)

VAT Registration

• Threshold: Businesses with an annual taxable turnover of LSL 850,000 (approximately USD 50,000 as of February 2025) are required to register for VAT. This applies to the past or next 12 months.
• Voluntary Registration: Businesses below this threshold can voluntarily register.
• Mandatory Registration: Even if turnover is below the threshold, businesses with a place of business in Lesotho but operating or supplying goods/services abroad must register. They will need a local fiscal representative and prior income tax registration.
• Registration Procedure: Businesses must apply to the Commissioner of Revenue Services Lesotho (RSL) and will receive a Tax Identification Number (TIN) upon approval. This TIN follows the format TN0000000-0.

VAT Filing and Payment

• Tax Period: Typically a calendar month, ending on the last day of the month.
• Filing Deadline: VAT returns must be filed within 20 days after the end of the tax period. VAT returns can be filed in several ways:
  • Physical submission to the Lesotho Revenue Authority
  • Online submission through the RSL Interim E-filing Solution.
• Payment Deadline: VAT payment is due at the same time as the return filing. Payments can be made at the Revenue Services Lesotho (RSL) offices in Maseru, and various banks such as Standard Lesotho Bank, Nedbank, FNB, and Post Bank.
• Required Documentation: Along with the filled VAT return, you will need to attach a detailed schedule of purchases and sales, supporting invoices, and other related transaction documents.

Exempt Goods and Services

The following are exempt from VAT:

• Financial services (certain types, such as long-term insurance and interest)
• Passenger transport
• Education
• Insurance
• Public postal services
• Unimproved land
• Water
• Medical and dental services (excluding certain professions like osteopathy)
• Leasing of immovable property to manufacturers under certain conditions

It is important to note that while these goods and services are exempt from VAT, this doesn't necessarily preclude other related taxes or fees.

General Information and Tips

It's crucial to consult official sources or a qualified tax advisor for the most current and specific VAT regulations in Lesotho. The information here is based on available sources and is considered accurate as of today, February 5, 2025, but may change due to legislative updates or other revisions. You can usually find more information on the RSL website or other governmental sites.

Keeping accurate records of all transactions is essential for VAT compliance. This includes maintaining invoices, receipts, and other supporting documentation related to purchases and sales. Using accounting software can also be beneficial for tracking VAT obligations.

The Lesotho Revenue Authority (LRA) is responsible for implementing, administering, and enforcing tax laws. Contacting them directly or consulting with a Lesotho based tax expert is always advisable for dealing with specific VAT scenarios or questions.

Lesotho offers various tax incentives to attract investment and stimulate economic growth.

Corporate Tax Incentives

• Reduced Corporate Tax Rate for Manufacturing and Agriculture: A 10% corporate tax rate applies to profits from manufacturing and agricultural activities within Lesotho. This is a significant reduction compared to the standard 25% corporate tax rate for other sectors.
• Zero Tax on Export Manufacturing Income: 0% tax on income generated from exporting manufactured goods outside the Southern African Customs Union (SACU). This encourages export-oriented manufacturing and promotes international trade.
• No Withholding Tax on Manufacturing Dividends: Dividends distributed from manufacturing income by resident companies to non-resident shareholders are exempt from withholding tax. This makes Lesotho an attractive location for foreign investors in the manufacturing sector.
• Reduced Withholding Tax on Manufacturing-Related Services: A 15% withholding tax applies to payments for external management/technical fees, interest, and royalties related to manufacturing income. This is lower than the standard withholding tax rates for other sectors.
• Depreciation Allowance for Mining Investments: A 100% depreciation allowance is available for investments in mining equipment, encouraging capital investment and development in the mining industry.

Value Added Tax (VAT) Incentives

• Zero-Rated Exports: Exports are zero-rated under Lesotho's VAT system, enhancing the competitiveness of Lesotho's products in international markets.
• VAT Exemption for Pipe Water: Pipe water is exempt from VAT, benefiting both businesses and consumers.

Other Incentives

• Training and Education Expense Allowance: A 25% allowance is available for training or tertiary education expenses, supporting workforce development and skills enhancement.
• Reduced Electricity Rate: Businesses benefit from a reduced electricity rate of 8%, lowering operational costs.

Individual Income Tax

• Tax Credit: As of April 1, 2024, the annual tax credit is M11,040. This credit is deducted directly from the calculated tax liability, reducing the overall tax burden for individuals.
• Tax-Free Threshold: The first M70,500 of annual income is taxed at 20%. Income above this threshold is taxed at 30%.

It is important to note: Lesotho's tax laws and regulations are subject to change. The information provided here is current as of February 5, 2025. For the most up-to-date and comprehensive details, consult with a tax advisor or refer to official government sources such as the Lesotho Revenue Authority (LRA) and the Lesotho National Development Corporation (LNDC). Additional incentives and programs may be available for specific sectors or regions, so further research is recommended.