The new income and capital tax treaty between Lesotho and Mauritius entered into force on 7 June 2021. The Treaty, signed by Mauritius on 14 January 2021 and by Lesotho on 2 March 2021, replaces the 1997 tax treaty between the two countries.

Taxes Covered

The treaty covers Lesotho taxes imposed under the Income Tax Act 1993 and covers Mauritius income tax.

Residence

If a person other than an individual is considered resident in both Contracting States, the competent authorities will determine the person's residence for the purpose of the treaty through mutual agreement, having regard to its place of effective management, the place where it is incorporated or otherwise constituted and any other relevant factors. If no agreement is reached, such person shall not be entitled to any relief or exemption from tax provided by the treaty except to the extent and in such manner as may be agreed upon by the competent authorities of the Contracting States.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services through employees or other engaged personnel if the activities continue for the same or connected project within a Contracting State for a period or periods aggregating more than 4 months within any 12-month period.

Limited Force of Attraction Provision

Article 7 (Business Profits) includes a limited force of attraction provision whereby taxing rights are granted to a Contracting State on profits attributable to the sale of goods or merchandise by a resident of the other State if the same or similar goods or merchandise are sold through a permanent establishment maintained by that resident in the first-mentioned Contracting State. The same applies for other business activities carried on in a Contracting State by a resident of the other State if the same or similar activities are carried on through a permanent establishment.

Withholding Tax Rates

• Dividends - 10%
• Interest - 10%
• Royalties - 10%
• Fees for technical services for any service of a managerial, technical, or consultancy nature - 7.5%

Capital Gains

The following capital gains derived by a resident of one Contracting State may be taxed by the other State:

• Gains from the alienation of immovable property situated in the other State;
• Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other State; and
• Gains from the alienation of shares or comparable interests deriving, at any time in the 365 days preceding the alienation, more than 50% of their value directly or indirectly from immovable property situated in the other State.

Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.

Entitlement to Benefits

Article 23 (Entitlement to Benefits) includes the provision that a benefit under the treaty shall not be granted in respect of an item of income if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of the treaty.

Double Taxation Relief

Both countries apply the credit method for the elimination of double taxation. Further, for dividends paid by a Lesotho company to a resident of Mauritius that directly or indirectly controls at least 5% of the capital of the Lesotho company, Mauritius will also provide a credit for the Lesotho tax paid on the profits out of which the dividends are paid.

Arbitration Clause

Article 26 (Mutual Agreement Procedure) includes the provision that if any issues of a case cannot be resolved under MAP within two years from the date all required information has been provided to both competent authorities, the person that presented the case may request that the case be submitted to arbitration. Unresolved issues may not, however, be submitted to arbitration if a decision on the issues has already been rendered by a court or administrative tribunal of either State.

Effective Date

The treaty applies from 1 July 2021 in Mauritius and from 1 April 2022 in Lesotho.