Key Benefits:
137. Definitions of terms
In this Part, unless the context otherwise requires-
"average foreign exchange rate" means the average of the monthly foreign exchange rates between the currency of the state and the functional currency of an international financial services centre company, as published by the Bank of Botswana for the relevant period, or where published, the average rate applicable to that tax year;
"currency of the state" means the Pula;
"functional currency" means in relation to an international financial services centre company, the currency of the primary economic environment in which the international financial services centre company operates or, if elected by the company, the currency of the state.
(1) The Minister may by Order published in the Gazette, provide for-
(a) the establishment, marketing and operation of an international financial services centre;
(b) the constitution of an international financial services centre certification committee; and
(c) powers, duties and functions of a committee established under paragraph (b).
(2) The Minister or his or her authorized representative may, on the recommendation of a committee established in accordance with subsection (1)(b), issue a tax certificate certifying that activities of a company as are specified in the certificate are, with effect from the date specified in the certificate, approved financial operations.
(3) A certificate issued in accordance with subsection (2) may be given subject to such conditions as the Minister on the recommendation of a committee established in accordance with subsection (1)(b) considers proper and specifies in the tax certificate.
(4) A certificate issued in accordance with subsection (2) shall be granted to a person who agrees, in writing, with the Bank that he or she shall comply with the reporting requirements stipulated under section 47 of the Bank of Botswana Act, or is exempted from the requirements by Regulations made under section 46 of that Act.
(5) Where in the case of a company in relation to which a certificate under subsection (2) has been given the Minister is satisfied that-
(a) the company has ceased to carry on business;
(b) the company has breached any of the conditions referred to in subsection (3);
(c) the licence granted in accordance with section 3 of the Banking Act has been revoked or the registration under the Insurance Industry Act has been cancelled;
(d) the company has carried on activities that have had or may have an adverse effect on the use or development of the international financial services centre or are otherwise inimical to the development of the international financial services centre;
(e) a change in the ownership of the company has occurred since the grant of the certificate without the prior written approval of the Minister; or
(f) the company has carried on business with persons other than those approved under subsection (7); or
(g) recommendation for revocation of the tax certificate has been made by the Bank of Botswana under section 49 of the Bank of Botswana Act.
the Minister may, on the recommendation of the international financial services centre certification committee, by notice in writing served on the company require the company to rectify the position or revoke the certificate with effect from such date as may be specified in the notice.
(6) For the purposes of subsection (5)-
(a) ownership of a company shall be deemed to have changed if the beneficial ownership of one quarter or more of its share capital or one quarter or more of the voting rights affecting the day to day management of its business shall have changed hands in comparison with the date on which the certificate is granted; and
(b) the holding of shares in a company resident in Botswana shall not constitute the carrying on of business with persons resident in Botswana.
(7) The following shall be approved financial operations for the purpose of subsection (2) provided that they shall be carried on with persons not resident in Botswana or international financial services companies or specified collective investment undertakings-
(a) banking and financing operations transacted in foreign currency;
(b) the broking and trading of securities denominated in foreign currency;
(c) investment advice;
(d) management and custodial functions in relation to collective investment schemes;
(e) insurance and related activities;
(f) registrars and transfer agency services;
(g) exploitation of intellectual property;
(h) development and supply of computer software for use in the provision of services described in (a) to (f) above;
(i) accounting and financial administration; and
(j) other operations that the Minister may declare by order from time to time to be approved financial operations for the purposes of this section:
Provided that transactions incidental to financial operations referred to in this subsection carried on at arm's length with connected persons resident in Botswana shall be considered as approved financial operations for the purposes of this subsection.
(8) In considering an application for a tax certificate, the international financial services centre certification committee shall have regard to-
(a) the number of Botswana citizens who will be employed in relation to the approved operation and the capacities in which they will be employed;
(b) facilities proposed for the training and imparting of skills to Botswana citizens;
(c) provisions made for the eventual replacement of non resident employees by Botswana citizens; and
(d) provision made for the participation by Botswana citizens in the management of the business.
(9) A tax certificate shall entitle a company to carry on the approved financial operations either on its own account or through a wholly owned subsidiary.
(10) The Commissioner General may by notice in writing require a company claiming relief from tax by virtue of this section to furnish him or her with such information, participation or particulars as may be necessary for the purpose of giving effect to this section.
Notwithstanding section 9 and subject to Parts IV and VIII, the gross income of an international financial services centre company shall be the total amount whether in cash or otherwise, accrued or deemed to have accrued to it in that tax year from all sources both inside and outside Botswana, but shall not include any amount of a capital nature except to the extent specified in this Act.
140. Specified foreign exchange
(1) The gross income of an international financial services centre company shall include the amount of any specified foreign exchange gain, provided the gain has been credited in the profit and loss account of the international financial services centre company under a commercially recognised system of accounting.
(2) In ascertaining the chargeable income of an international financial services centre company, there shall be deducted the amount of any specified foreign exchange loss, provided the loss has been debited in the profit and loss account of the international financial services centre company under a commercially recognised system of accounting.
(3) A contract which, for the purposes of this section is a relevant contract shall be disregarded for all purposes of the Act except under this section.
(4) In this section, unless the context otherwise requires-
"rate of exchange" means the price at which two currencies might reasonably be expected to be exchanged between persons dealing at arms length and, unless there is evidence to the contrary, this price shall be the rate quoted by the Bank of Botswana;
"relevant asset or liability" means the assets and liabilities of an international financial services centre company, other than shareholders equity, which are held for the purposes of the approved financial operations of the company as stated in its tax certificate granted in accordance with section 138, including a liability for the discharge of a tax under section 50(d) and (e);
"relevant contract" means a contract entered into for the purpose of reducing or eliminating the risk of loss arising in respect of a relevant asset or liability due to a change in a rate of exchange, whether or not the contract is recognised on the balance sheet of a company;
"shareholder's equity" means the share capital and reserves of a company which are classified as equity or its equivalent in the balance sheet under a commercially recognised system of accounting;
"specified foreign exchange gain" means a gain whether realised or unrealised, that results directly from a change in a rate of exchange and is attributable to a relevant asset, liability or contract; and
"specified foreign exchange loss" means a loss whether realised or unrealised that results directly from a change in a rate of exchange and is attributable to a relevant asset, liability or a relevant contract.
(1) Where an amount of foreign debt interest is, apart from this section, allowable as a deduction from the gross income of an international financial services centre company in a particular tax year and, at any time during that tax year, the total foreign debt of the tax payer exceeds the foreign equity product for that year, then the amount of foreign debt interest ascertained in accordance with the following formula:
1 x A
B
x
C
365
where-
A
is the amount of the excess of the total foreign debt over the foreign equity product;
B
is the total foreign debt;
C
is the number of days in that tax year during which the total foreign debt exceeded the foreign equity product by that amount; and
I
is the foreign debt interest,
shall not be allowable as a deduction.
(2) The formula in subsection (1) shall be reapplied in every circumstance in which the excess represented by A changes in order to identify the total amount of foreign debt interest which is not allowable as a deduction for an international financial services centre company in the relevant tax year.
(3) In this section-
"approved multiple" means the maximum number of times that the foreign debt is divisible by the foreign equity and such multiple shall be fixed by the Commissioner General on application by an international financial services centre company, at a level which the Commissioner General deems reasonable:
Provided that in the absence of such an application, the approved multiple shall be-
(i) in the case of banks, a multiple of 12; and
(ii) in the case of other international financial services centre companies, a multiple of 3;
"bank" ...
"foreign controller" means in relation to an international financial services centre company, a non resident who either alone or together with a connected person has control, directly or indirectly, of the resident company;
"foreign debt" means the balance outstanding on any amount owing by an international financial services centre company to its foreign controller, or to a connected person of the foreign controller, and where interest is, or may become payable in respect of the amount owed:
Provided that where an amount is owing by an international financial services centre company to a non resident other than its foreign controller, or a connected person of the foreign controller, and the amount owing is wholly or partly guaranteed directly or indirectly by the foreign controller, or by a connected person of the foreign controller, the amount shall be treated for the purpose of this definition as an amount owing by the international financial services centre company to its foreign controller;
"foreign debt interest" means the interest payable by an international financial services centre company in respect of an amount of foreign debt, which, is apart from this section, allowable as a deduction from the gross income of the company;
"foreign equity" means so much of the amount standing to the credit calculated under a commercially recognised system of accounting of the-
(i) share or branch capital account, both equity and non equity;
(ii) share premium account;
(iii) accumulated profits account excluding, accumulated losses, if any; and
(iv) other reserve accounts;
of an international financial services centre company that its foreign controller or a connected person of its foreign controller would be beneficially entitled to receive by way of distribution on a liquidation of the international financial services centre company; and
"foreign equity product" means the foreign equity outstanding at the end of the accounting period of an international financial services centre company multiplied by the approved multiple.
(1) The accounts of an international financial services centre company together with the reconciliation of the accounts with the chargeable income, which must be submitted with the tax return in accordance with section 71(1) shall be prepared in the functional currency of an international financial services centre company.
(2) The chargeable income in the reconciliation shall be translated into the currency of the state at the average foreign exchange rate for the period.
