Lesotho

Exchange

Maseru Securities Market (“MSM”)

Listed companies 

MSM was launched during January 2016 and at this stage there are no listed companies. 

Listing Rules

Central Bank of Lesotho (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.

Principal Legislation

• The Central Bank Act, 2000
• The Companies Act, 2011
• The Industrial Property Order, 1989

Corporate Governance Code

Lesotho does not have a Corporate Governance Code. 

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 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.

Judiciary 

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.

Arbitration

Arbitrations are governed by the Arbitration Act, 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.

Lesotho does not have an arbitration forum and often in practice the rules of the Arbitration Foundation of Southern Africa are contractually agreed upon.

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.

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.

CPI INDEX SCORE FOR 2022:
37

CPI INDEX RANK WORLDWIDE FOR 2017:
99

SIGNATORIES TO UNITED NATIONS CONVENTION AGAINST CORRUPTION (UNAC)?
Yes

RATIFIED?
Yes

SIGNATORIES TO THE OECD CONVENTION ON COMBATING BRIBERY OF FOREIGN PUBLIC OFFICIALS IN INTERNATIONAL BUSINESS TRANSACTIONS
No

SIGNATORIES TO THE AFRICAN UNION CONVENTION ON PREVENTING AND COMBATING CORRUPTION?
Yes

RATIFIED?
Yes

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 are reserved for Basothos. A new licensing regime is being implemented under the Business Licensing and Registration Act, 2019 (the “Business Act”), notwithstanding that the lack of a commencement notice at the date hereof. The Business Act requires businesses to obtain a business identification card in order to commence a business activity. In addition, a foreign business is required to obtain a business permit. Where a restricted business activity, as listed in schedule 1 to the Business Act, is undertaken the business is required to obtain a business license.

Under the Mines and Minerals Act, 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.

Listed Companies

Maseru Securities Market (MSM) – currently the only listed company is RNB Properties Ltd.  

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.

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.

Country: Germany 

• 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).

Country: Switzerland

• (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.

Corporation Tax

The Income Tax Act, 1993 (the “Income Tax Act”) provides for Corporation Tax. Corporation Tax is paid ahead of the financial year end. It is usually paid in quarterly instalments. This helps 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 Revenue Services Lesotho 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 (manufacturing 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 resident company, for tax purposes.. 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 – subject any double taxation agreements.

Corporation tax is applied at a rate of 25%, with a special rate of 10% on manufacturing income. Manufacturing income derived from manufacturing activities relating exclusively to exports to any country other than a country within the Southern African Customs Union is taxed at 0%.

Transfer Pricing 

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, 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.

Exchange Control 

The Exchange Control Order, 1987 (the “Order”), as amended together with the Exchange Control Regulations, 1989, governs the dealing 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.

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 (the “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 African Growth and Opportunity Act (“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, the general principle is that a gain on the disposal of a business or investment asset is taken into account in determining chargeable income. There is no separate capital gains taxation for companies. Individuals and companies are taxed on the same basis.

The excess amount of consideration received over the adjusted cost-base of an asset is known as capital gain. This gain is subjected to taxation as ordinary income at the standard corporate tax rate.

If assets are transferred between spouses or former spouses as part of a divorce settlement, or if an asset is sold or involuntarily converted and the proceeds are used to reinvest in a similar asset, then no capital gain or loss will be realised.Capital gains are taxed at 25%.

Dividends

A nonresident who receives a dividend payment from a resident company in Lesotho is required to pay withholding tax. The rate of withholding tax is usually 25%, as stated in the Income Tax Act, but may be reduced if there is a double taxation agreement in place.

This tax is considered final, unless the taxpayer chooses to file a return to claim deductions. However, if the taxpayer believes that the withholding tax paid during the tax year is higher than the amount that would be payable if they filed a return along with supporting documents, they may choose to file for deductions (as stated in the LRA Withholding Tax Guide).

Dividends paid from manufacturing income, which is taxed at a concessional rate under section 10(2) of the Income Tax Act, are not subject to withholding tax as per the laws of Lesotho.

Interest

If a nonresident receives interest payments from a resident company in Lesotho withholding tax applies. The rate of withholding tax is usually 25%, but may be reduced if a double taxation agreement exists. This tax is considered final, unless the taxpayer decides to file a return claiming deductions. However, if the withholding tax paid during the tax year is higher than the amount that would be payable if the taxpayer files a return with supporting documents, they may choose to file for deductions.

For loan funds used exclusively in the production of manufacturing income, which is taxed at a concessional rate under section 10(2) of the ITA, a lower withholding tax rate of 15% applies, unless, again, a double taxation agreement provides a lower rate.

Royalties

If a nonresident receives royalty payments from a resident company in Lesotho, withholding tax applies. The rate of withholding tax is typically 25%, unless a double taxation agreement provides a lower rate. This tax is considered final unless the taxpayer chooses to file a return claiming deductions.

In cases where technology is used solely in the production of manufacturing income, which is taxed at a concessional rate under section 10(2) of the ITA, royalty payments are subject to a lower withholding tax rate of 15%.

Technical Service Fees

A withholding tax of 10% is charged on the gross amount of a payment made under a Lesotho-based service contract to a nonresident, unless a double taxation agreement provides a lower rate. This tax is considered final, unless the taxpayer decides to file a return claiming deductions. However, this withholding tax does not apply to a management charge that is subject to withholding tax under section 107 of the ITA.

Payroll Tax and Social Security 

In Lesotho, the employer withholds individual income tax from the employee's earnings and remits the tax to the tax authority.

Withholding tax by employers is required on all payments of employment income to n employee.  

If an employee is a resident individual the following rates are applied for the 2022/2023 tax year:

1. Income up to M67 440 is taxable at 20%; and
2. Any income above M67 440 is taxable at 30%.
3. A non-refundable tax credit amount of M10 560 is to be deducted from the sum of (1) and (2).

Value Added tax

Value Added Tax (“VAT”) is imposed on every taxable supply or every taxable import. The VAT Act, 2003 (the “VAT Act”), 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 per annum.

When a business turnover is below the registration threshold, such a business may nonetheless apply for voluntary registration if it can show good cause.

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.

VAT is payable on most goods sold and services rendered at the rate of 15%. Basic foodstuffs and exports are zero-rated, and there is a reduced VAT rate of 10% on the supply of electricity.

Losses 

The loss resulting from the sale of an asset is calculated as the difference between the adjusted cost base and the amount received for the sale. Losses that occur during the sale of investment assets can be offset against capital gains that arise from the sale of other investment assets during the same year. However, they cannot be offset against gains from business assets or other chargeable income. If a loss is disallowed due to this rule, it can be carried forward to the next tax year and used to offset gains from the sale of investment assets.

There are certain situations where the transfer of assets between spouses or former spouses, as part of a divorce settlement, or the involuntary conversion or sale of an asset, where the proceeds are reinvested in a like-kind asset, do not result in capital gain or loss.

Stamp Duty

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 of 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;
• Receipts;
• 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.

General Legislation

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.

Legislation

The Competition Act, 2022 (the “Competition Act”), protects comeptition in Lesotho and approval of the Competition Commission is required for certain mergers or share purchases. Athough published, the Competition Act is yet to commence.

The Companies Act, 2008 regulates the procedures for mergers.
The Central Bank (Capital Markets) Regulations, 2014 is also applicable in the case of a listed company.

Scope

A “merger”, for purposes of the Competition Act, includes instances where “one or more enterprises directly or indirectly acquire or establish direct or indirect control over the whole or part of the business of another enterprise”.

Impact of regulatory regime on business

No financial thresholds have been published by the Minister of Trade and Industry which trigger the notification requirement under the Competition Act.