Corporate Tax

A corporation is a legal entity that is separate and distinct from its owners. Corporations enjoy most
of the rights and responsibilities that an individual possesses: enter contracts, loan and borrow
money, sue and be sued, hire employees, own assets and pay taxes. Some refer to it as a "legal
person."

Corporates are usually called companies

Resident companies including Lesotho branches of non-resident companies are liable to tax in
Lesotho on their worldwide income. On the other hand, non-resident companies, just like any other
non-resident tax payers, are subject to Lesotho tax only on their Lesotho source income. It is
therefore very important to establish the residence status of the company.

Residency of companies
For a company to be considered a resident company in Lesotho it must meet any of the following
three criteria:

1. It is incorporated and formed under the laws of Lesotho

2. It is managed and controlled in Lesotho - the management and control of a company is
regarded as being in the hands of directors rather than the shareholders
3. It undertakes the majority of its operations in Lesotho.

Branch companies
Where a non-resident company has a branch in Lesotho, the branch is to be treated as a separate
company resident in Lesotho. The income tax of Lesotho gives separate legal personality for tax
purposes to a branch. It will therefore be taxed on the world wide income.

Taxation of companies
Every company is liable for income tax on its chargeable income. the tax is charged after the
deductions are made from the incomes generated. The tax maybe paid at the end of the financial
year of assessment or the instalments maybe paid in advance.

The rate of corporation tax for resident companies depends on the nature of income as follows:

o All income of a resident company other than manufacturing income is subject to tax at 25%.
o Lesotho manufacturing income of a resident company is subject to tax at special rate of 10%
[does not extend to branches]

Payment of corporation tax

Companies tax may be paid at the end of the financial year of assessment or the instalments maybe
paid in advance. Where payments are made in advance, they are made at the end of the 6 th, 9th and
12th month of the year of assessment.

The amount of each instalment is calculated as: 30% x (A - B) where;

A = is the taxpayer’s liability for the preceding year of assessment after any Foreign tax credit but
before set off of advance corporation tax.
B = amount of local withholding tax in the previous year’s assessment.

Advanced Corporation Tax (ACT)

This tax payment arises when dividends are paid before the year end out of unqualified income.

ACT = 25/75 * dividends paid out of unqualified income

ACT not satisfied by offsets will have to be paid within 7 days of the dividends payout.
The members of companies (shareholders) enjoy the profits in the form of dividends that are
distributed after tax. However, some times the dividends are distributed before the end of the year,
before incomes can be charged. In those cases, the tax has to be paid (advanced corporate tax).

The advanced corporate tax paid on dividends is a final tax that can be set off against the
instalments already paid or added to the liabilities that already exists. Where a company has both
qualified and other income, the dividends are treated as first paid out of the qualified income.

Qualified income is defined to mean manufacturing income subject tax at 10% and dividend
received from another resident company. No ACT is payable on dividends paid out of Lesotho source
manufacturing income because the company is taxed at the rate of 10% rather than 25%.

Other forms of dividends that attract ACT

Disguised dividends
These are undeclared dividends. The company gives any kind of a benefit to its members

Example - the interest free loan

assets sold at less than market value

all other personal obligation that can be paid on behalf of the member

Redemption of shares
Redeemed shares –where a company redeems a portion of its shares, the distribution made in
redemption is treated as dividends subject to ACT

They are treated as if all the shareholders received dividends on a pro rata basis