Lesotho

Rates and scope

The VAT rates are as follows:

• 0% on goods and services exported from Lesotho

• 10% on the supply of electricity

• 15% on all other taxable supplies of goods and services (the standard rate).

All goods and services that are subject to VAT, including zero-rated supplies, are referred to as ‘taxable supplies’. The total value of these supplies is referred to as ‘taxable turnover’ for VAT registration purposes.

VAT is a tax on the disposal, either by sale or transfer of goods or services, either supplied in Lesotho or imported into Lesotho, including supplies to government.

A ‘supply’ of goods means any arrangement under which the owner of goods parts with, or will part with, possession of those goods. ‘Goods’ means not only tangible movable property but also buildings and developments.

The supply of goods also includes the application of the goods for the supplier’s personal or non-business use.

The supply of services includes making available any facility, tolerating any situation or omitting to act, thereby causing a person to receive payment; or the application of services for own use.

VAT is charged on a supply by auction, the sale of goods by instalments, lay-by sales and the supply of taxable fringe benefits. A supply of goods or services by an agent for a principal is regarded as a supply by the principal.

A supply is taxable if it is made by a vendor for a consideration, as part of a trade or profession. A ‘vendor’ is someone who is, or should be, registered for VAT.

VAT registration

Compulsory registration

Lesotho’s currency is the Lesotho Loti (LSL) or, in the plural, Maloti (M). The VAT registration threshold is LSL850,000 (± USD50,000) taxable turnover in the past or next 12 months.

The RSL may register a person who should be registered for VAT but has failed to apply for registration. The vendor will be liable to pay VAT on all the taxable supplies made after the registration date, regardless of whether tax was actually charged. Furthermore, additional tax of up to 200% of unpaid VAT may be imposed.

Voluntary registration

Registration of non-residents

A person living in Lesotho may be required to register for VAT notwithstanding the fact that only part of their business is carried on in Lesotho while the other part is carried out abroad.

A person will also be required to register for VAT if they have a place of business in Lesotho but live or only supply goods or services abroad.

A local fiscal representative is required, but a bank account in Lesotho is not a necessity. An income tax registration is also required before an entity can register for VAT.

Application for registration

An application for VAT registration must be lodged with the Commissioner. If the application is approved, the Commissioner will issue a certificate of registration, which must be displayed in a prominent position.

The format of the VAT registration number is TN0000000-0. It is called a tax identification number (TIN).

Deregistration

The RSL must be notified in writing if the following should happen and deregistration has to take place:

• where there is a change in the legal status of an entity (e.g. a partnership is dissolved)

• if the business is sold

• if the business permanently ceases to trade

• if a person was registered as an intended trader and the intention to make supplies has ceased.

Output tax

Exempt supplies

Exempt supplies, in relation to which no input tax deductions can be made, include the following:

• education

• financial services

• passenger transport

• insurance

• public postal services

• unimproved land

• leasing or letting of immovable property where the tenant is a manufacturer and uses the property principally to carry on a manufacturing enterprise

• water

• services of doctors and dentists (but not, for example, osteopaths).

Zero-rated supplies

Zero-rated supplies include the following:

• maize meal

• maize, but excluding popcorn or green mealies for human consumption

• beans — dried, whole, split, crushed or in powder form, but not further prepared or processed, or packaged as seed

• agricultural input, e.g. fertilisers, seeds and pesticides

• paraffin intended for cooking, illuminating and heating, not mixed or blended with any other substance for any purpose other than cooking, illuminating or heating

• milk intended for domestic consumption

• bread intended for domestic consumption

• peas — dried, whole, split, crushed or in powder form, but not further prepared or processed, canned, frozen, or packaged as seed

• certain animal feeds and substances

• lentils — dried or shelled but not skinned or split

• sorghum meal

• unmalted sorghum grain

• wheat grain

• wheat flour.

Input tax

Input tax deductions allowed

VAT incurred on goods purchased for resale, raw materials purchased by manufacturers and certain services used for the installation of capital goods may be deducted as input tax. However, input tax does not include the VAT paid on goods or services for someone else’s business, or the VAT on private purchases. VAT incurred on goods and services acquired to make exempt supplies is not recoverable.

The vendor must be in possession of a proper VAT invoice for purchases made in Lesotho, or customs documentation in respect of goods imported into the country.

Where a vendor has lost a tax invoice, they should request the supplier for a duplicate of the invoice. A photocopy of the invoice is not allowed when seeking input tax credit. The replacement invoice must be clearly marked by the supplier as a duplicate.

Input tax expressly denied

There are specific items on which VAT cannot be reclaimed:

• telephone and electricity bills not exceeding LSL5,000 (± USD710) annually per telephone line or electricity metre (input tax can only be claimed on expenses exceeding LSL5,000)

• motor cars, except in the case of car dealers, leasing businesses or financial institutions engaged in leasing — maintenance and repairs to motor vehicles, used solely for business purposes, can be claimed

• business entertainment, namely hospitality of any kind provided in connection with a business, including the supply of meals, drinks and entertainment at clubs and the provision of recreational facilities.

Partial exemption

If a vendor makes taxable supplies as well as exempt supplies, they may claim part of the input tax paid on their purchases.

Similarly, where goods or services are used both for business and for private purposes, a vendor is only allowed a credit for input tax incurred for business use.

Preregistration and post-deregistration VAT

A vendor is allowed to claim an input tax credit for VAT paid not more than two months prior to the date of VAT registration in respect of:

• goods held for re-supply on the date of registration

• a supply to, or an import by, the vendor prior to the date of registration of goods or services to be used in manufacturing goods for supply after the date of registration.

The claim for a pre-registration VAT credit must be submitted within four years of registration and the vendor must provide details of the stock on hand, copy of invoices etc., to support the claim.

Imports

Goods

VAT is payable on the importation of goods by any person into Lesotho. The VAT paid by the vendor on the importation of goods for their business can be claimed as an input tax deduction.

Goods imported from a country from the Southern African Customs Union (SACU) (i.e. Botswana, Namibia, South Africa and Swaziland) are deemed to have been imported into Lesotho at the time the goods physically enter Lesotho.

Goods are deemed to have been imported into Lesotho from outside SACU on the date on which the goods enter the borders for use within Lesotho.

The taxable value of imported goods includes the value of any services relating to the import, such as commission, packaging, transportation, short-term insurance and warranty expenses.

Where goods are imported from outside SACU, their taxable value is the sum of the customs value of the imported goods and the customs duty payable on it.

Where goods are imported from a SACU country, the value of the goods for VAT is the price charged for the goods plus freight and insurance.

If an importer is not registered for VAT or is registered but without a VAT account, VAT officers will collect the VAT payable on the import at the time the goods physically enter Lesotho. If goods are imported by post, VAT officers at the post office will collect the VAT when goods are collected from the post office.

Where the importer is a registered vendor or (in certain circumstances) a foreigner who has arranged a VAT import account, VAT is payable on the import by the 20th day of the month following the month during which the goods were imported.

Goods that would have been exempt or zero-rated if supplied in Lesotho are subject to the same VAT when imported into Lesotho.

Services

An imported service is a supply of services by a person in the course or furtherance of an enterprise carried on outside Lesotho that are meant for use or consumption in Lesotho.

VAT is payable on the imported service by the person importing the service into Lesotho.

Exports

The exportation of goods is zero-rated if sold directly to a business abroad, the goods are exported by or on behalf of the supplier, and the required proof of exportation is maintained. The exportation of services is zero-rated.

Where VAT is paid on exported goods, refunds to foreigners are made through the South African Revenue Service.

Place, time and value of supply

Place of supply

A supply of goods is deemed to be made at:

• the location of the goods upon allocation to a customer’s order. If the goods are in Lesotho when allocated, the supply is in Lesotho, while if the goods are not in Lesotho when allocated, the supply is normally outside the scope of VAT

• the place where the assembly or building of goods for the first time on site takes place.

A supply of services is deemed to be made at the place:

• where the supplier belongs, namely the supplier’s business or other fixed establishment, including a branch or agency

• if no such establishment exists, where a natural person usually lives or a company is legally constituted

• in the case of establishments in more than one country, at the location of the establishment most directly concerned with the supply

• if services are supplied wholly or partly in Lesotho, but not near the border between Lesotho and another country, the Commissioner may determine that the services are supplied in Lesotho if the supplier is registered or operates in Lesotho

• in the case of the supply of radio, television, telephone or other communication services, if the signal or service originates outside Lesotho, where the recipient receives the signal or service, provided a consideration is payable for receiving the service or signal.

Time of supply

The time of supply of the goods or services determines when the liability for VAT arises. In terms of the general rule, the time of the supply is the earliest of when:

• goods are delivered or made available

• performance of services is completed

• an invoice for the supply is issued

• payment for the supply is received.

A vendor is considered to have received cash on the date that they receive the money and a cheque on the date that they receive the cheque.

In the case of credit cards, payment is received on the date that a vendor makes out the sales voucher. Where a vendor takes a deposit for a supply, they must account for VAT when the deposit is received.

The specific rules for the time of supply can be summarised as follows:

• auctions — the time of the auction

• goods taken for own use — the date on which the goods or services are applied for own use

• gifts — the date on which ownership passes or the services are completed

• hire purchase agreement or financial lease — the date of commencement of the agreement or lease

• other periodic payments and rent — the successive supplies occur when each payment is due

• services — supplier of services may apply in writing to the Commissioner to defer payment of VAT until payment for the services is received.

A vendor is deemed to have made a payment on the date that they receive a VAT invoice. In relation to cheques, a vendor is deemed to have made a payment on the date that they send the cheque or the date on the cheque, whichever is later.

In the case of credit cards, the credit card payment date is the date when the supplier makes out the sales voucher.

Where a vendor makes a deposit payment that serves as an advance payment, they can claim a credit for the input tax for the payment made.

Value of supply

The general rule is that the taxable value of a taxable supply is the consideration received for the supply. ‘Consideration’ normally means money, but it can also mean any payment made directly or indirectly to a person. This includes credits or payments in kind, or any other indirect form.

Where monetary consideration for a supply is not sufficient or where there is no monetary consideration, a fair market value is adopted, such as in the following circumstances:

• hire purchase agreements and finance leases

• application of goods for own use

• supply for a reduced consideration.

VAT compliance

Accounting basis and tax periods

Where a vendor has adopted the cash VAT accounting system, they account for VAT in the VAT return for the month in which payment for a supply is received, and the input tax credit is claimed after payment has been made.

Where an invoice VAT accounting system is adopted, the input tax credit may be claimed on the basis of a tax invoice showing a time of supply date that falls before the end of the return period during which the claim is lodged.

Registered businesses may apply to use the cash method if 90% or more of the taxable value relates to services, such as accountants, lawyers and hotels, and certain other requirements are met.

Returns and payment of VAT

Interest and penalties

Refunds

Where a vendor has overpaid VAT for any tax period, they have the option to either:

• set off the excess against any outstanding liability relating to an earlier period

• carry forward the excess, and apply for a refund in respect of each calendar quarter, ending on 31 March, 30 June, 30 September and 31 December.

Any repayment due must first be set off against any tax in arrears. Where a vendor can satisfy the RSL that excess credits are a feature of their business activities, the quarterly rule may be waived and the vendor may be allowed to make monthly refund claims, or whenever a credit arises.

Objections and appeal

A person who is dissatisfied with an assessment may file an objection with the Commissioner within 30 days after the notice of assessment. After considering the objection, the Commissioner may allow the objection in whole or part, or disallow the objection.

The Commissioner must serve the person objecting with notice of the objection decision. If the Commissioner has not made an objection decision within 60 days, the Commissioner is deemed to have made a decision to disallow the objection.

A person dissatisfied with an objection decision may, within 30 days, appeal to the tribunal. A party to a proceeding before the tribunal who is dissatisfied with the decision of the tribunal may, within 30 days, appeal to the High Court. A party to a proceeding before the High Court may, with special leave of the Court of Appeal, appeal the decision of the High Court to the Court of Appeal.

VAT records

VAT invoices

A registered vendor must issue a VAT invoice in respect of a taxable supply to a taxable vendor in the same month that the goods or services are supplied. A VAT invoice must contain the following details:

• the words ‘Value added tax invoice’ or ‘VAT invoice’

• the vendor’s commercial name, address, place of business and VAT registration number

• individual invoice number

• the commercial name, postal address, place of business and VAT registration number of a vendor recipient

• date of issuing the VAT invoice

• brief description (including quantity or volume) of the goods or services supplied

• the selling price, excluding VAT and any discount, the total amount of VAT charged, and the selling price including VAT

• the total charge on the invoice inclusive of VAT, any discount and the rate of VAT.

Credit notes and debit notes

Credit notes may be issued where the VAT disclosed on an issued VAT invoice exceeds the correct amount chargeable. The credit note must contain the following information:

• the words ‘Credit note’ in a prominent place

• the vendor’s commercial name, place of business, and VAT and TIN registration numbers

• the commercial name, place of business, and VAT and TIN registration numbers of the recipient

• the date the credit note is issued

• a brief explanation of the circumstances that gave rise to the issuing of the credit note

• sufficient information to identify the taxable supply to which the credit note relates

• the taxable value of the supply shown on the VAT invoice, the correct taxable value, the difference between the two amounts and the VAT relating to the difference (that is, the VAT overcharged).

Other than the fact that the words ‘Debit note’ must appear in a prominent place, the information to be disclosed in a debit note is similar to the information required in a credit note. The additional VAT amount in a debit note is due for payment in the period in which the additional liability arises.

Additional export documentation

The required proof of exportation includes:

• commercial invoices

• certified copies of the documents presented to Lesotho Customs at exportation

• certified copies of customs import documents of the country of destination

• proof of payment (settlement), if applicable.

Record-keeping

A vendor must keep record of all supplies made and received, including zero-rated supplies, and a summary of VAT for each month. The VAT summary is referred to as the vendor’s VAT account. A separate record must be maintained for any exempt supplies made by a vendor.

If a vendor sells directly to the public, they do not need to issue a VAT invoice unless the customer asks for one, but they must make a summary of their sales, showing separate totals for:

• VAT on the sales

• value of the sales before VAT

• total of all exempt sales

• VAT on certain postal imports and imported services.

Credits allowed to customers

A vendor must keep a summary of supplier invoices received, showing separate totals for:

• VAT paid on purchases in Lesotho

• Value of the purchases before VAT

• VAT paid on imported supplies

• Credits received from suppliers.

A record must also be kept (for a period of six years) of:

• goods given away or taken from stock for employees’ or private use.

• business purchases on which input tax is denied

• customs documents showing the import entry and the VAT receipt

• business records.

Specific VAT rules

Bad debts

VAT paid to the RSL by a taxpayer in respect of a taxable supply, but not received from an insolvent customer is allowed as a credit where the whole consideration for the supply is subsequently treated as a bad debt. The credit arises on the later of:

• the date on which the bad debt was written off in the accounts of the vendor

• 12 months after the end of the tax period in which the VAT was paid on the supply.

A supplier who wants to claim relief for bad debt must:

• make a claim to the administrator, receiver or liquidator against their debtor for the VAT-inclusive amount that they are owed by the insolvent debtor

• obtain a written statement from the administrator, receiver or liquidator that the debtor is insolvent and cannot pay the debt

Where any amount on which a credit has been allowed is subsequently wholly or partly recovered by the vendor, the vendor must account for output tax on that amount.

Secondhand goods