As Botswana expands its regional and international economic ties, many residents and companies earn income from outside the country. This could be consulting for a regional client, holding shares in a foreign company, or operating a branch abroad. Knowing how foreign income is taxed in Botswana is essential for compliance and effective tax planning.
1. Botswana’s Source-Based System
Botswana applies a source-based system of taxation, which means tax is levied on income that accrues in or is derived from a Botswana source, regardless of where the taxpayer resides. This is set out under Section 9 of the Income Tax Act (Cap 52:01).
Income earned entirely from outside Botswana is generally not taxable locally, unless the Act specifically deems it to have arisen in Botswana.
2. When Foreign Income May Be Taxable
Foreign income can still be taxed in Botswana if it has a clear connection to the country. Under Section 11, some income that appears foreign-sourced may be deemed to have accrued in Botswana.
For example:
- Services performed in Botswana, even if paid from abroad
- Income received by a Botswana branch of a foreign company
These rules ensure that income linked to activities in Botswana is taxed locally, even when the payer is outside the country.
3. Residents and Non-Residents
Tax treatment differs depending on whether a person or entity is resident in Botswana. Residents are taxed on income that accrues in or is derived from Botswana. Foreign income is generally excluded unless it has a Botswana connection under Section 11. While Non-residents are taxed only on income sourced from Botswana
4. Treatment by Type of Income
Employment Income
Income is taxed based on where the work is performed, not where the employer is located. Under Section 11(b), any payment for services rendered or work done in Botswana is deemed to have accrued locally.
- Services performed entirely outside Botswana are not taxable.
- Services performed partly in Botswana are taxable in proportion to the work done locally.
Example:
A Botswana resident works for a South African company. She spends ten months in South Africa and two months working from Gaborone. The salary for the ten months abroad is not taxable, but the portion earned while working in Botswana is taxable.
Dividends from Foreign Companies
Foreign dividends are not automatically exempt. They are taxable only if they are considered to accrue to a Botswana resident. Taxpayers can claim a foreign tax credit for any tax already paid abroad under Sections 61–64. Withholding tax provisions may also apply when payments involve non-residents.
Interest and Royalties
When a Botswana resident earns interest or royalties from outside Botswana, the key question is whether that income is considered to have accrued in or derived from Botswana.
Under Section 9(1) of the Income Tax Act, Botswana only taxes income that arises within Botswana. Therefore, foreign-sourced interest or royalties are not taxable in Botswana unless they are deemed to have a Botswana connection under Section 11.
For example:
•If a Botswana resident has an investment or loan outside Botswana and earns interest from that foreign borrower, such interest would generally not be taxable in Botswana, because it does not arise from a Botswana source.
•Similarly, royalties received from a foreign company for intellectual property used entirely outside Botswana would not fall within Botswana’s taxable income.
If the foreign payer has a business presence or permanent establishment in Botswana, or if the income is effectively connected to activities carried out in Botswana, then it may be deemed Botswana-sourced and therefore taxable. Relief for any tax paid abroad is available through the foreign tax credit.
Business Profits
Business income earned by a Botswana resident company or individual from activities conducted entirely outside Botswana is generally not taxable locally, provided the income has no connection to Botswana.
The question of whether foreign income has a Botswana source is addressed under Section 11 of the Act, which lists situations where income is deemed to have accrued in Botswana. If none of those situations apply, the income remains foreign-sourced and is excluded from Botswana’s tax base.
A key concept here is that of a permanent establishment (PE) or taxable presence. While the term is more often used in Double Taxation Avoidance Agreements (DTAAs), the idea helps determine when business activity in Botswana becomes taxable. If a business operates entirely outside Botswana and does not maintain a branch, office, or place of management in Botswana, its profits from those activities are not subject to Botswana income tax.
5. Relief from Double Taxation
If income earned by a resident from abroad is also taxed in the foreign country, Botswana provides relief to avoid double taxation. This relief is available through the foreign tax credit provisions in Sections 61 to 64 of the Income Tax Act. These sections allow taxpayers to offset tax already paid in a foreign country against Botswana income tax, subject to certain limits and calculations.
Where Botswana has a Double Taxation Avoidance Agreement (DTAA) with the foreign country, the DTAA may further prevent double taxation by allocating taxing rights between the countries. Botswana currently has DTAAs with countries such as South Africa, the United Kingdom, Sweden, France, Mauritius, and India, which may impact how certain types of foreign income are treated for tax purposes.
In practice, a Botswana resident earning foreign income would first determine whether the income is taxable in Botswana (based on Sections 9 and 11). If it is taxable locally but has been taxed abroad, the taxpayer may then claim a foreign tax credit. If a DTA applies, its provisions may provide additional relief or exemptions
6. Compliance and Disclosure
Even if foreign income is not taxable in Botswana, it should be reported in the annual tax return. Accurate records such as contracts, invoices, and bank statements are important for verifying the source of income and demonstrating correct treatment to BURS.
Failure to provide correct information or supporting documentation can attract penalties under Section 118 of the Income Tax Act
7. Key Takeaways
- Botswana taxes income based on source, not residence.
- Foreign income is not taxable unless it has a connection to Botswana.
- Foreign tax credits and DTAAs help prevent double taxation.
- Accurate disclosure and record-keeping are essential for compliance.
Final Thought
As global work and investment expand, understanding the tax treatment of foreign income is increasingly important. For individuals working remotely or businesses operating across borders, knowing which income is taxable in Botswana and which is exempt ensures compliance and supports effective tax planning.
