Botswana: Tax incentives include reduced tax rate for investors in special economic zones

SEZ incentives can confer significant savings for investors and developers

Investors in special economic zones

Statutory Instrument 89 of 2021 [Income Tax (Special Economic Zones Development Approval) Order, 2021] promulgated on 22 October 2021, is intended to give legislative effect to the income tax incentives that are available to investors and developers operating in special economic zones.

The special economic zones are established and regulated by the Special Economic Zones Authority.

Tax and other incentives

Special economic zone (SEZ) tax rates: The October 2021 order stipulates that income accruing to an investor or developer from SEZ-licensed operations is to be taxed at a special rate of 5% for the first 10 years of operation in a special economic zone and 10% thereafter.

Other incentives: In addition to the special income tax rates, other regulatory, commercial, and fiscal incentives available to licensed developers and investors include:

  • Value added tax (VAT) at the rate a rate of 0% on purchases of raw materials for use in manufacturing of goods for export
  • No exchange controls
  • Full repatriation of profits and capital
  • Waiver on transfer duty on land and property
  • Duty-free imports of specialist plant and machinery for manufacturing purposes

Eligible persons: SEZ incentives are available to certain investors and developers:

  • An investor who:
    • Has been licensed by the Special Economic Zones Authority to conduct business in special economic zone, or
    • Exports 100% of goods or services or has been exempted from the 100% requirement by the Minister for Trade and Industry in terms of the SEZ regulations, or
    • Undertakes within a special economic zone, any of the approved development project or activity, and
    • Has been granted the tax relief by the Minister
  • A developer:
    • Who has a right over land in a special economic zone, held for purposes of development of special economic zones infrastructure through privately obtained funding of his/her own, or
    • Who draws from his/her networks to bring in other investors to be licensed in and operate their businesses from the special economic zone which he/she will be responsible for managing, and
    • Who has been granted the tax relief by the Minister

Approved projects or activities: Certain business activities conducted in a special economic zone by a licenced investor or developer are eligible for SEZ incentives such as:

  • Agrobusiness activities
  • Manufacturing activities
  • Warehousing, distribution or logistics services
  • Internationally traded service
  • Exports of 100% of annual produce/sales (except when exempted) or
  • Approved activities, subject to prescribed conditions, involving:
    • New businesses within a special economic zone, or
    • An expansion or relocation of an existing business from a customs territory to a special economic zone, or
    • An expansion or relocation of an existing business from one special economic zone to another

Designated special economic zones: Currently the following special economic zones have been designated:

  • Sir Seretse Khama International Airport
  • Gaborone Fairgrounds
  • Lobatse
  • Selebi Phikwe
  • Francistown
  • Palapye
  • Tuli Block
  • Pandamatenga

Categories: Special economic zones are categorised as follows:

  • Free trade zones or commercial special economic zones
  • Export processing zones
  • Enterprise zones
  • Free ports
  • Single factory economic zones

KPMG observation

The SEZ incentives (both tax and other incentives) can confer significant savings in terms of the busines establishment costs, lead time, and tax costs for investors and developers. Those weighing conducting business opportunities in a special economic zone need to consider various issues such as the SEZ licence and tax relief, tax registration market-entry strategies and business plans, compliance services, and back-office support among other items.
 

For more information, contact a KPMG professional in Botswana:

Olivia Muzvidziwa (Head of Tax) | +26 777 19 9022 | olivia.muzvidziwa@kpmg.bw

Leonard Muza (Senior Manager, Tax) | +26 777 19 9067 | leonard.muza@kpmg.bw

Kabelo Moyo (Head of Advisory) | +267 71383072 | kabelo.moyo@kpmg.bw

 

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