Lesotho does not have a single code containing its laws. It draws them from a variety of sources including: the Constitution, Legislation, Common Law, Judicial precedent, Customary Law and Authoritive texts.
Lesotho has a dual legal system consisting of customary and general laws operating side by side. Customary law is made up of the customs of the Basotho, written and codified in the Laws of Lerotholi, whereas general law consists of Roman Dutch Law which is imported from the Cape and Lesotho statutes.
Letsie III (King), Tom Thabane (Prime Minister)
Maseru (0.12m people)
Other major cities
Teyateyaneng (0.08m people)
Mafeteng (0.06m people)
Hlotse (0.05m people)
Agriculture; livestock; manufacturing; and mining.
Sesotho and English
- Capital Markets
Maseru Securities Market (MSM)
MSM was launched during January 2016 and at this stage there are no listed companies.
Capital Market Regulations, 2014
Regulatory body or bodies
- The Central Bank of Lesotho – in respect of companies listed in term of MSM;
- The Registrar of Companies – in respect of Takeovers;
- The Registrar of Trade Marks – in respect of Intellectual Property.
- The Central Bank Act, 2000
- The Companies Act, 2011
- The Industrial Property Order, 1989
Corporate Governance Code
Lesotho does currently not have a Corporate Governance Code.
- Competition Regulation
In Lesotho there is no specific legislation which makes provision for Competition Regulations.
The Companies Act, 2008 regulates the procedures for mergers.
The Central Bank Markets Regulations, 2014 is also applicable in the case of a listed company.
A “merger” is where two or more companies make a proposal to merge with the intention to continue as one company, which may be one of the merging companies or may be a new company.
The content of the merger proposal, approval and registration of the merger proposal is regulated by the Companies Act, 2008.
In Lesotho there is no Competition Commission for the investigation, control and evaluation of restrictive practices, abuse of positions and mergers.
Impact of Regulatory Regime on Business
There is no financial threshold which are required to be met in the event of a notification.
The filing fee for the notice of merger is M150,00 and an extra M5,00 will be charged for each day of failure to file.
- Corruption / transparency
CPI Index score for 2017:
CPI Index rank worldwide for 2017:
Signatories to United Nations Convention Against Corruption (UNAC)?
Signatories to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions
Signatories to the African Union Convention on Preventing and Combating Corruption?
Lesotho’s independent judicial system is an effective means for enforcing property and contractual rights, and Lesotho has a written and consistently applied commercial law. The judicial system is, however, inefficient – courts are overburdened and cases can take years to resolve.
The legal system is a mixture of Roman-Dutch and English Common Law. There is no trial by jury.
Structure of the court system
The Supreme Court of Lesotho is the Highest Court in Lesotho. No other court may alter a decision of the Supreme Court of Appeal. Its decisions are binding on all courts of lower hierarchy.
The High Court of Lesotho is located in the capital, namely, Maseru. It has unlimited original jurisdiction to hear and determine any civil and criminal proceedings and the power to review the decisions or proceedings of any subordinate or inferior courts, court martials, tribunal, board or officer exercising judicial, quasi-judicial or public administration functions. Matters of a commercial nature are heard and determined by the Commercial Court, a division of the High Court. The Land Court, also a division of the High Court has jurisdiction to hear and determine land disputes. It has no criminal jurisdiction in any matter.
The Subordinate Courts or Magistrates Courts are lower courts and deal with less serious civil and criminal matters.
The Labour Court deals with matters relating to labour disputes, whilst the Labour Appeal Court hears and determines appeals from the Labour Court.
Further there are courts that function when the need arises i.e. court martials. Tribunals are also established for certain matters. Chief administer customary and tribunal disputes.
Perception of the local courts
Lesotho’s independent judicial system is an effective means for enforcing property and contractual rights, and Lesotho has a written and consistently applied commercial law. The judicial system is, however, inefficient – courts are overburdened with work and are inefficient and maladministered. Matters may take over a year to be finalised and in some cases even longer than a year.
Effectiveness of the court system
The Courts in Lesotho are governed by relevant Rules for the different courts. Judgments delivered by the Court of Appeal of Lesotho are of high quality.
The courts are however maladministered and are inefficient. Litigation in Lesotho may take anything from one year and longer to be finalised due to the latter problems. Judgments in the High Court may take some time to be delivered and matters that appear on the roll may not always proceed as scheduled.
The President of the Court of Appeal of Lesotho is appointed by the King on the advice of the Prime Minister. The Justices of Appeal are also appointed by the King acting in accordance with the advice of the Judicial Services Commission after consultation with the President.
The Chief Justice of the High Court is appointed by the King in accordance with the advice of the Prime Minister. The puisne Judges are appointed by the King in accordance with the advice of the Judicial Services Commission.
The King may in consultation with the Judicial Services Commission appointed persons to be Magistrates or acting Magistrates in the Subordinate Courts.
Judges are required to be fit and proper persons and the criteria for to be disqualified to be appointed as a Judge is found in the Constitution of Lesotho.
Arbitrations are governed by the Arbitration Act of 1980 (The “Act”) and arbitration agreements concluded between the parties. The Act is based on the UNCITRAL Model Law and is outdated.
Arbitration agreements are binding on the parties and can only be terminated by consent of all the parties thereto. The court may on application and on good cause shown set aside an arbitration agreement; order that a particular dispute, referred to in the arbitration agreement, be referred to arbitration, or order that the arbitration agreement shall cease to have effect.
Enforcement of arbitral awards
Awards made by an arbitrator are final and binding. They are not subject to appeal unless the arbitration agreement provides otherwise.
Each party shall abide by and comply with the award in accordance with its terms. According to the Arbitration Act, arbitration awards shall carry interest from the date of the award and at the same rate as a judgment debt.
Arbitration awards may be made an order of court.
Lesotho is a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and the requirements in this convention should be met to enforce a foreign arbitral award by applying to the High Court of Lesotho.
Enforcement of foreign judgements
A foreign judgment is not directly enforceable in Lesotho. The procedure to follow is for the foreign judgment to be placed before the court in Lesotho for it to be recognised and thereafter to enforce it in Lesotho as a judgment of the Lesotho High Court.
Foreign judgments can be enforced by making use of the common law or in terms of the Reciprocal Enforcement of Judgments Proclamation of 1922.
In terms of the Reciprocal Enforcement of Judgments Proclamation, judgments obtained in the High Courts in England, Ireland or Scotland can be enforced by use of the Proclamation. The proclamation has also been extended to include Botswana, Swaziland, Zimbabwe, Zambia, Tanzania, Malawi, Kenya, New Zealand, Australia and Uganda.
To have a judgment recognised in terms of the common law or the Proclamation, one has to prove the necessary requirements.
- Foreign investments
Foreign Investment Rules
Foreign investment is actively encouraged in all areas of the economy, apart from certain small-scale business which are reserved for Lesotho’s citizens. It is Government policy that, once established, foreign investors should enjoy the same rights and protections as national investors.
There is no Investment Law. Instead, a licensing regime and established practice, supplemented by investment treaties, governs conduct towards the entry of foreign investors.
In terms of the Trading Enterprises Order 1987 and the Trading Enterprises Regulations 1999, as amended, all trading enterprises must be licensed. Certain business in the micro-economic sector is reserved for only Basothos.
Under the Mines and Minerals Act No.4 2005, diamond mining is subject to the licensing regime for large-scale mines and no foreign ownership restrictions apply in this case.
Lesotho is committed to non-discriminatory treatment of foreign investors who are legally established in the country. The SADC Protocol affords fair and equitable treatment to foreign investors from all countries including non-members of SADC.
Subject to foreign exchange control rules, Lesotho’s policy is that foreign investors may access foreign exchange for day-to-day business purposes and can remit capital and profits overseas. Investors may hold foreign currency accounts in local banks. Lesotho has acceded to Article VIII of the IMF charter which provides for foreign exchange convertibility of current account transactions.
Maseru Securities Market (MSM) – currently there are no listed companies as MSM was recently launched.
Foreign Investment Incentives
There are no incentives for, and no performance requirements imposed on, foreign investors as a condition of investment. However, there are tax, factory space, and financial incentives available to manufacturing companies establishing themselves in Lesotho, such as: no withholding tax on dividends distributed by manufacturing firms to local or foreign shareholders; unimpeded access to foreign exchange; export finance facility; and long-term loans. These incentives are applied uniformly to both domestic and foreign investors.
The Pioneer Industries Encouragement Act (“the Act’) provides tax incentives for “approved manufacturers and related industries”. In order to qualify for the tax incentive the Minister must approve an applicant.
- An exemption for a…... “period not exceeding 6 years from the date of production…… from the charge, levy and payment of tax on income by companies in respect of income received by or accrued to it or in its favour from (approved) activities”; or
- Certain exemptions for tax benefits are applicable for such period as may be approved by the Board, whilst certain exemptions for tax benefits are for a period not exceeding 5 years from the date of production. An authorised manufacturer shall ascertain its taxable income for each year of assessment, but no tax on income shall be charged, levied or paid on taxable income to which any exception is applicable.
The following deductions are allowed:
- Machinery & Equipment
- Machinery write-off allowance
- Machinery investment allowance
- New or unused building
- Buildings initial allowance
- Building depreciation allowance
- Building investment allowance
- New or unused dwellings:
- Industrial housing initial allowance
- Industrial housing depreciation allowance
- Industrial housing investment allowance
- Utilities and transportation allowance
- Citizen training allowance
- Citizen wage allowance
Bilateral Investment Treaties
A bilateral investment treaty (BIT) is an agreement establishing the terms and conditions for private investment by nationals and companies of one state in another state. This type of investment is called foreign direct investment (FDI). BITs are established through trade pacts.
The Government of Lesotho (GOL), through its National Strategic Development Plan, recognizes the critical role that domestic and foreign investment and the development of the private sector play in driving shared economic growth. The government actively encourages FDI in all areas of the economy, with limited restrictions on foreign ownership of small businesses. Foreign investors enjoy the same rights and protections as national investors. Lesotho’s standards of treatment and protection of specific interest to foreign investors are good in practice, but the legal framework guaranteeing these norms is weakly developed. There is no foreign investment law, and there are limited BIT’s to protect foreign investors and ensure their adequate treatment.
- Treaty Concerning the Encouragement and Reciprocal of Investments | Key provisions:
- Promotion of investments;
- Investments must be favourable;
- Full protection and security;
- No expropriation, unless it is for public purpose and compensation is paid;
- Free transfer of payments in connexion on investments; and
- Subrogation under the payment of guarantees.
Country: United Kingdom
- (Treaty) Promotion and Protection of Investments | Key provisions:
- Promotion and protection of investments;
- Compensation for loss;
- No expropriation unless for public purpose and compensation is paid;
- Repatriation of investments;Subrogation for payments made under an indemnity; and
- Disputes to be referred to the International Centre of Settlement of Disputes (ICSID).
- (Treaty) Promotion and Protection of Investments | Key provisions:
- Promotion of stable, equitable and favourable conditions for investments;
- Protection, fair and equitable treatment and security;
- Free transfer without restriction or delay in a freely convertible currency;
- No expropriation, unless for public purpose and compensating is paid;
- Compensation for loss of investments suffered from war, armed conflict, revolution, state of emergency; rebellion or civil disturbance in the territory if the contracting party;
- Subrogation for payment made under a guarantee;
- Disputes to be settled by the International Centre of Settlement of Disputes (ICSID);
- Legislation or an obligation of a contracting party will prevail over the treaty if it contains a regulation that is more favourable than the treaty.
The Income Tax Act of 1993 (the “Act”) provides for Corporation Tax. Corporation Tax is paid ahead of the financial year end. It is usually paid in quarterly instalments. This help ease the burden of paying taxes due as a lump sum at the end of the financial year. A refund will be made by the Lesotho Revenue Authority where a taxpayer has been over assessed.
A resident company which pays a dividend is liable to make advance payments of income tax. Dividends are treated as paid first out of qualified income and then out of other income. A dividend paid by a resident company shall not be included in the gross income of a resident shareholder.
A branch in Lesotho of a non-resident company is treated as a separate person which is a resident company. A non-resident company is subject to tax at the standard rate of tax on repatriated income in addition to income tax on chargeable income.
Corporation tax is applied at a rate of 25%.
Transfer pricing is used to shift tax liabilities among associate taxpayers to obtain the best overall tax overcome. In terms of the Income Tax Act, 1993 (“the Act”), the Commissioner has broad powers to distribute or allocate income, deductions or credits between associated taxpayers to prevent the evasion of Lesotho tax or to clearly reflect the income of such taxpayer.
The above includes the adjusting of income arising from the transfer of intangible property between associates so that it is commensurate with the income attributable to the tangible.
Transfer pricing often involves recharacterisation of income or the manipulation of source rules. The source and nature of any income or loss can be recharacterised.
The Exchange Control Order, 1987, (the “Order”) as amended together with the Exchange Control Regulations, 1989 contains the dealings in gold, currency and securities in Lesotho.
The Central Bank of Lesotho is responsible for the day to day administration of exchange control.
Only authorised dealers shall buy, borrow, sell or lend foreign currency or gold. The Minister of Finance may impose conditions upon which an authorised dealer shall buy, borrow, receive, sell, lend or deliver foreign currency.
The commercial banks in Lesotho are appointed as authorised dealers in foreign exchange subject to certain limitations.
There are restrictions in place with regard to the import and export of currency, gold, securities, local banknotes, etc. There are also restrictions in place where non-residents deal in securities, they require the Minister of Finance’s permission to deal with their securities. The Minister’s permission may be subject to conditions.
The Order also makes provision for offences when the Order is contravened.
Thin Cap regulations
Thin capitalisation rules are in existence. Money lending businesses are expected from the thin capitalisation rules.
The prescribed debt to equity ratio is 3:1.
Where a resident company debt to equity ratio is in excess of 3:1 a deduction of interest may be allowed on the interest paid on the part of the debt in excess of the 3:1 ratio.
Export Processing Zone
Lesotho is a lesser developed country in which about three-fourths of the people live in rural areas and engage in substance agriculture. Lesotho’s largest public employer is the textile and garment industry.
Bilateral trade between the United States (“US”) and Lesotho is characterised by the latter country’s rapid expansion of its exports to the US.
The US has traditionally provided a ready market for Lesotho’s exports of apparel which has been strongly boosted by the advent of AGOA. Due to the highly concentrated nature of Lesotho’s exports in textile and apparel, the country has the distinction of having its exports falling under AGOA.
AGOA is aimed at boasting African trade by offering duty-free access to lucrative US markets.
Capital Gains Tax
In terms of the Income Tax Act of 1993, the general principle is that a gain on the disposal of a business or investment asset is taken into account in determining chargeable income.
Gains on the disposal of an asset, which is not a business or investment asset (for example, a family house) is not taken into account for tax purposes.
A gain of a business asset is included in gross income.
The disposal of a business or investment asset is not taken into account for tax purposes, where the asset is disposed directly or indirectly to an associate. This is to prevent the selective realisation of losses through related party transactions to offset gains.
Capital gains are taxed at 25%.
A member (in relation to a company, means a shareholder or other holder of an equity interest in the company) is only taxable on dividends as contained in the Income Tax Act, 1993.
Dividends paid to a resident member are not subject to income tax because corporation tax paid by the company in respect of the dividends is a final tax.
Dividends paid to a non-resident member is subject to withholding tax, although no withholding tax is payable if the dividends are paid out of manufacturing income.
The exemption of dividends paid to a resident member removes the double taxation of dividends.
A resident company will be liable for advance corporation tax on dividends paid to members at 25%. The company is entitled to credit the advance corporate tax against its liabilities for income tax, including instalments of tax.
Advance corporation tax is not payable on dividends received from another resident company because the advance corporation tax would have been paid by the other resident company. This prevents multiple tiers of advance corporation tax being payable as dividends pass through a corporate group.
Interest includes an amount paid or accrued under a debt obligation which is not a return of capital and any discount premiums, swap payments or similar payments.
Interest at 10% is payable by a resident and 25% by a non-resident.
Royalties are not imposed on residents, but are imposed on non-residents at the rate of 25%.
In terms of the Income Tax Act, 1993 the payment of royalties extend beyond payments made for use of industrial or intellectual property rights. In particular it includes an amount paid for the use of, or right to use, industrial, commercial or scientific equipment or supply of know-how.
Royalties are also paid on technical assistance which is ancillary to the use of industrial or intellectual rights, etc..
Withholding Tax is payable on the gross amount of Lesotho-source royalties paid to a non-resident and is charged to that non-resident.
Technical Service Fees
Technical service fees include contracts under which accounting, economic, financial, legal, management, engineering, architectural, surveying or other similar professional services are performed.
Technical services are taxed at 5% for residents and at 25% for non-residents.
Payroll Tax and Social Security
Pay as you earn (PAYE) is tax on an individual’s salary/earnings.
PAYE is imposed on an individual’s earnings using the following rate:
- Income from M2 694,17 up to M4 305,83 is taxable at 20%; and
- Income from M305 000,00 is taxable at 30%.
- A non-refundable tax credit amount of M538,83 is to be deducted from the sum of (1) and (2) above and the end product is the PAYE.
Tax credit is granted under PAYE, but not under company tax.
Value Added tax
Value Added Tax (VAT) is imposed on every taxable supply or every taxable import. The VAT Act, 2003 makes provision for transactions which are excepted from VAT.
In the case of a taxable supply the vendor will be liable to account for the VAT and in the case of a taxable import, the importer will be liable to account therefor.
Registration is compulsory for any business which supplies taxable goods or services and whose annual taxable turnover exceeds the registration threshold, currently being M 850 000.00 per annum.
When a business turnover is below the registration threshold, such a business may nonetheless apply for voluntary registration.
As soon as a business’ taxable turnover exceeds the registration threshold the business is obliged to register VAT. Should the vendor fail to register for VAT, the vendor becomes liable to pay VAT on all taxable supplies made from the time the vendor became eligible, regardless of whether or not the VAT was charged and collected. An additional tax for failure to register will be imposed.
The standard VAT rate is 14% an additional tax at 200%. VAT on electricity and telephones is 5% and VAT on the import of alcohol and tobacco is 15%.
A loss on the disposal of a business or investment asset is taken into account in determining chargeable income. The loss from the disposal of an asset is the excess of the adjusted cost base over the consideration received.
Losses on the disposal of an asset, which is not a business or investment asset (for example, a family house) is not taken into account for tax purposes.
No loss is taken into account on the disposal of an asset directly or indirectly to an associate of the taxpayer.
A loss arising from the disposal of a business asset, whether or not the business asset was on capital or revenue is allowed as a deduction. The excess of losses over a gains on the disposal of an investment asset may be carried forward indefinitely.
Stamp Duties are regulated by the Stamp Duties (Amendment) Act, 1989 as amended from time to time.
Stamp Duties are applicable on the following:
- Affidavits or solemn or attested declarations;
- Agreements or contracts;
- Antenuptial or postnuptial contracts;
- Arbitration or awards;
- Authentication certificate;
- Bills of exchange or promissory notes;
- Bill sof lading;
- Brokers notes;
- Certificate by a person other than a notary in a public or official capacity;
- Charter party;
- Custom & Excise Documents;
- Duplicate original of an instrument;
- Lease or agreement of lease;
- Leases granted under the Land Act;
- Notarial Act or Instrument;
- Partnership Agreements;
- Policy of Insurance;
- Power of Attorney;
- Security or suretyship;
- Transfer Deeds; and
- Warehouse Receipts.
Real Property Tax
Stamp Duty is imposed on transfer deeds relating to immovable property in terms of the Stamp Duties (Amendment) Act, 1989.
Where the value of the property does not exceed M7 000,00, then for every M100,00 or part thereof M1,00 is charged. Where the value of consideration of the property exceeds M7 000,00, then the first M7 000,00 is charged at a rate of M1,00 for every M100,00 or part thereof and the excess is charged at M3,00 for every M100,00.
Transfer Duty is payable in terms of the Transfer Duty Act, 1966. Transfer Duty is calculated as follows.
- Where the consideration of the property does not exceed M10 000,00 then the rate is 3% of the consideration of the property.
- Where the consideration of the property exceeds M10 000,00 then the rate is 3% for the first M10 000,00 and the excess is taxed at 4%.
VAT is also payable except if a transaction is exempted from paying VAT.
Personal Income Tax
Income tax is imposed on every individual, trustee, company and non-resident who has chargeable income for the year of assessment.
Chargeable income of a taxpayer is determined by subtracting from the gross income of the taxpayer any deductions allowed in terms of the Income Tax Act, 1993.
Income tax for resident individuals is 20% up to an amount of M56 946,00 and 30% over M 56 946,00. The income tax rate is increased annually. Residents are allowed to deduct abates from their income tax.
The rate for income tax for non-residents is 25%, being the standard tax rate. Non-residents are not allowed any abatements.
The chargeable income of a trust of a trustee is taxed at 40%.
In Lesotho there is no general legislation dealing with advertising.
Industry Specific Legislation
The Agricultural Marketing (Egg Control) Regulations, 1969 provides that eggs which are imported into Lesotho must be imported under a permit issued by a marketing officer. Eggs shall only be exported or removed from Lesotho if a person is authorised to do so by a permit which has been issued by a marketing officer. Every person who purchases or acquires eggs imported into Lesotho and every person who sells or otherwise disposes of such eggs shall maintain a written record of the quantity of the eggs purchased or acquired, the permit held by the permit holder and the source from which the supplier obtained the eggs.
The Agricultural Marketing (Bread) regulations, 2005 provides that bread must be wrapped in clean material and the weight of the bread offered for sale must be indicated in legible writing on the bread package or container in which the bread is stored.
The Regulations of Advertisement Proclamation, 1960 regulates the publication of advertisements relating to medicine and medical treatments. It prohibits the advertising of any medicine or surgical appliance referring to the administration of or offering to administer treatment as being effective for certain purposes.