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Tax Laws And Compliance Requirements In Lesotho


Global Payment and Compliance

Tax Laws And Compliance Requirements In Lesotho

Ensure tax compliance when hiring employees from Lesotho. Discover tax laws, income brackets, and withholding tax rates. Partner with Workpay, Africa's leading EOR service provider, for hassle-free payroll processing and expert guidance on local labor practices. Stay compliant and simplify your hiring process in Lesotho

May 16, 2023
min read
May 16, 2023
8 min read
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Venturing into new markets for employees is becoming a trend among business owners. Many talented potential employees are ready to use their skills to help companies grow. Africa is becoming a hub for sourcing employees, and Lesotho is a good place for business owners to start.

However, with hiring workers from Lesotho comes the responsibility of compliance. Business owners must understand the tax and labour laws and compliance requirements. Failure to meet these regulations leads to penalties and other legal action.

So what are the various tax laws and compliance requirements in Lesotho? The information below provides detailed answers to this. 

Types of Taxes in Lesotho

The following are the types of income tax charged within the county:

  • Company Income Tax (CIT). Manufacturing companies and commercial farming have a 10% tax rate, while other companies are taxed at 25%. 
  • Personal Income Tax (PIT). PIT applies to employees and sole traders. It has two marginal rates, 20$ and 30%.        
  • Fringe Benefits Tax (FBT). The tax is levied on the value of benefits an employee receives in addition to their salary. It is taxable at the rate of 40%.
  • Withholding Tax. The tax is deducted at the payment source and remitted directly to the county's revenue authority. The withholding tax rates depend on the type of income and the recipient's residency status. Resident contractors are at 5%, non-resident contractors at 10%, and non-resident technical services at 7.5%. 
  • Value Added Tax (VAT). VAT rates are 0% for exports and basic commodities, 9% for electricity, 12% for telecommunications, and 15% for other goods and services. 

Tax Rates and Income Brackets in Lesotho

Companies looking to join the Lesotho employee market must comply with the tax requirements per the income brackets. Below is a breakdown of tax rates in the county for personal income tax and withholding tax

Personal Income Tax

As per the tax act, an individual's taxable income is subject to a progressive two-rate system of 20% and 30%. These rates are subject to potential changes through amendments made by the parliament. The tax structure for the 2022/2023 financial year is determined as follows:

  • Any taxable income between LSL 1.00 and M 67, 440.00 or less per year is taxed at 20%.
  • All amounts more than LSL 67, 440.00 are taxed at 30%. 

Withholding Tax

Per Lesotho's Revenue Authority, applicable tax rates for withholding tax are three:

  • Resident contractors at a 5% rate.
  • Non-resident contractors at a 10% rate.
  • Non-residents/ technical services at a 7.5% rate (for RSA only).

Penalties for Non-Compliance with Tax Laws in Lesotho

Some of the penalties employees and employers may face for non-compliance with tax laws in Lesotho include the following:

  • Criminal Penalties. In some cases, non-compliance with tax laws can lead to criminal penalties in the form of imprisonment for the individual or employer. 
  • Late Filing Penalties. Please file tax returns by the due date to avoid attracting a penalty of 1% per month or part of a month. 
  • Failure to Register Penalties. Failing to register for tax purposes can attract penalties for the tax due. 
  • Late Payment Penalties. Individuals are subject to penalties per month or part of a month if they fail to pay taxes on time. The penalty is a percentage of the unpaid amount. 
  • Understatement Penalties. And finally, any taxpayer that understates tax liability or provides wrong information is subject to a penalty. The penalty is usually a percentage of the tax due. 

How Can Foreign Countries Hire In Lesotho Ensure Compliance?

The first and most convenient way a foreign company can ensure they meet the tax laws and compliance requirements is by partnering with an EOR or employer of record. The EOR becomes the third-party intermediary between the company and the employee.

The EOR takes responsibility for compliance with tax laws and labour regulations in the local country. So, it means that the EOR handles tax withholding, payroll processing, and other employee-related tasks for employees in Lesotho.

The foreign company will not have to worry about handling these tasks and is guaranteed compliance thanks to the EOR.

Another key advantage of using an EOR is access to expert knowledge on local labour practices. The EOR ensures that the foreign company understands Lesotho's labour practices, saving them time and resources in navigating the complex differences.

Employers looking to hire from Lesotho must pick an excellent EOR with vast experience and notable success. Workpay is Africa's leading EOR service provider, handling compliance, payroll, and HR needs effectively. The EOR service provider helps with visas and work permits as a valuable local expert who helps companies avoid tax and labour law penalties. 

Critical Parts of Ensuring Compliance

Foreign companies should do the following to avoid penalties for non-compliance:

  • Register with the LRA (Lesotho Revenue Authority). All foreign companies operating in Lesotho should register with the LRA. Registration provides a tax identification number or TIN, vital for tax law compliance. 
  • Keep accurate records. Foreign companies must keep accurate records of salaries, benefits, and other compensation they give Lesotho employees. It ensures that withholding tax is always correct and that they have evidence for it should anything go wrong. 
  • The file returns on time. Avoiding penalties is vital, and a good way to ensure that is by filing returns on time and, in this case, ensuring that withholding tax is done on time and remitted to the proper authorities. 
  • Keep up with tax laws. Tax laws are subject to change. If they do and the company fails to keep up with the change, it could mean non-compliance, leading to penalties. Therefore, companies should strive to understand local laws and keep up with changes.

Achieving all this is more straightforward and less strenuous with a reliable EOR service provider like Workpay.    

Final Observation 

With the increasing trend of business owners venturing into new markets for employees, Lesotho is a good country to source talented employees. However, hiring workers from Lesotho is responsible for compliance with tax and labour laws.

Failure to comply with these regulations leads to penalties and other legal actions. Employers are encouraged to partner with an EOR, which becomes the third-party intermediary between the company and the employee, to ensure compliance with tax laws and labour regulations.

Workpay is Africa's leading EOR service provider that can help employers navigate complex differences and ensure compliance. Reach out today to learn to get started. 

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