Presentation on theme: "BOTSWANA The Most Ideal Trust Jurisdiction in Africa."— Presentation transcript:
BOTSWANA The Most Ideal Trust Jurisdiction in Africa
Page 1 Agenda Why Botswana The Legal Matrix History of trust law Practical Issues The Tax Regime Benefits of Trust formation
Page 2 WHY BOTSWANA Close to South Africa, Zimbabwe, Namibia Well developed infrastructure Access to offshore markets and service providers Botswana is a potential regional hub for business Many expatriates Stable political climate No Exchange Controls Beneficial tax regime
Page 3 The Legal Matrix Roman Dutch Law became the common Law of Botswana South Africa, Zimbabwe and Namibia share this legal heritage. There is at present no statutory set of laws that regulate trusts. Only common law. The law of trusts mainly focus upon the duties of trustees. The trustee is the vital cog in the administration of a trust. Duties of trustees will be discussed further along. Be aware of the tax laws of the client’s home jurisdiction. It may affect certain decisions.
Page 4 TRUST HISTORY Roman Law – twelve tables Demise of the Roman Empire Monasteries became the reciprocities of knowledge Forbidden to own property Germanic Laws Use of trusts 1820 Settlers Cape - Botswana
Page 5 Practical Issues It is important to have the right founder for a number of reasons (SA Transfer Duty; Amendment of the deed) Professional Trustee is very important because the administration of a trust has to be professionally attended to. Letters of wishes should be drafted and should contain wishes regarding the succeeding trustees rather than instructions regarding assets. Communication with clients might involve sensitive issues. Banking. The correct jurisdiction is vital. Not easy to open offshore banking accounts at this time. Why offshore banking?
Page 6 Conduit Principle Under the conduit principle of taxation, any income that a beneficiary of a trust receives will be taxed in the hands of that beneficiary, although minor children of the donor are exempt from this provision. Minor grandchildren are subject to the conduit principle. The conduit principle also applies to the source of income from a trust. Dividends, which are tax-free, remain tax-free as they pass through a trust to a beneficiary. The smart trustee will award income from different sources to different beneficiaries where the trust deed allows it. For example, dividend income can be given to one beneficiary who has other sources of income, and interest income can be given to children with no other sources of income. So, the trustees can pay the school fees of the grandchildren of a donor and have the income taxed in their hands. The Conduit principle extends through multiple trusts.
Page 7 Taxation of trust income, section 9 Gross Income 9. Scope of charge to tax Subject to Parts IV and VIII, the gross income of every person for each tax year shall be the total amount, whether in cash or otherwise, accrued or deemed to have accrued to him or her in that tax year from every source situated or deemed to be situated in Botswana but shall not include any amount of a capital nature except to the extent specified in this Act.
Page 8 Taxation of Trusts in Botswana Income Tax Section 11 11. Amounts deemed to have accrued in Botswana An amount accrued to any person shall be deemed to have accrued from a source situated in Botswana where it has accrued to such person in respect of- (i) any investment made outside Botswana or any business carried on outside Botswana by a resident of Botswana: Provided that paragraph (i) shall not apply to foreign investment income of non-citizens resident in Botswana.
Page 9 Taxation of Trusts in Botswana Section 19 19. Trusts (1) Any amount accrued to a trust for the benefit of any person shall be included in the gross income of the trust and the taxable income ascertained therefrom shall, except in a case to which section 14(2) applies, be charged to tax in the name of the trustee in the same sum as would have been charged if such amount had been included in the gross income of such person. (2) In this section "trust" includes- (a) a will or other testamentary disposition; and (b) a deed of donation, settlement or other disposition.
Page 10 Taxation of Trust Income in Botswana Section 14 14. Settlements and wills (2) Where any person has made, in a will or other testamentary disposition, a stipulation to the effect that the beneficiaries therein, or one or more of them, shall not receive any amount accrued under such will or disposition until the happening of an event, whether fixed or contingent, any such amount as would, but for the stipulation, have accrued to the beneficiaries shall, until the happening of that event, be deemed to have accrued to the trust and shall be included in the gross income of the trust and the taxable income ascertained therefrom shall be charged to tax in the name of the trustee.
Page 11 Taxation of Trust Income- Minors Section 13 13. Minor children (1) Where, by reason of any donation, settlement or other disposition (in this section referred to as "a settlement") made by any person (in this section referred to as "the settlor") for the benefit of a minor child, any amount has accrued to that child, such amount shall, during the minority of that child or until the prior death of the settlor, be deemed to have accrued to the settlor and shall be included in his or her gross income.
Page 12 Taxation danger areas Transfer Duty – non citizens and agricultural land Note that the transfer duty upon the transfer of agricultural land to non-citizens is currently 30% of the value of the agricultural property. Capital Transfer Taxes CTT are payable upon a gratuitous disposal of property. Rates per the following slide.
Page 13 Capital Transfer Tax Rates For Companies: 12.5% of the value For persons other than companies: First P 100 000 2% Next P 200 0003% Next P 200 0004% Balance5% Note that this provision applies to assets held in Botswana.
Page 14 Taxation of Trusts Income Splitting The trust is a “look through” entity. This means that the authorities would “look through” the entity to ascertain the ultimate beneficiaries. The beneficiaries are taxed per the “conduit principle” The “conduit principle” is part of the common law that applies to trusts. It means that the type of income that is routed through the trust to the beneficiaries in a particular financial period will retain its character (as interest, dividends, etc). Capital Gain which may be payable are also able to be split through the trust to beneficiaries.
Page 15 Benefits of trust formation What is not owned cannot be attached for debt. Death of any party does not cause a tax effect. Administration by responsible board of people. Perpetual succession. Income Splitting. Can be used for business especially for passive income earning. Wealth repository, out of danger. In Botswana, no exchange controls, thus international possibilities. Taxation is low in Botswana.
Page 16 MULTIPLE TRUSTS – EXPONENTIAL PROTECTION Family This trust carries ZERO risk No guarantees/sureties Property This trust can guarantee Mortgage Bonds Shares Trustees can pledge shares For bank facilities The Generator Business Dividends flow to the share trust tax free Funds can flow between trusts following the conduit principle In all the trusts, the family are also beneficiaries along with the other trusts Income from the share trust Is used to pay the outstanding bonds Thus enhancing the rental return. Rentals can be taxed in hands of beneficiaries
Page 17 MULTIPLE TRUSTS No Audit required in trusts. No deemed income provisions in terms of loan accounts. Income splitting. One trust can be used for business assets, keeping these assets safe from creditors. Management trusts to manage business interests. Compartmentalization of risks.
Page 18 Benefits- Possibilities Business Assets can be placed out of risk, especially the paid-for assets. Long term investments can grow without interruption. Expatriates that return to home country will not own the investment and the growth will thus not accrue to them. Life assurance if the spouses are not financially astute should be held in trust and the funds administered by trustees.
Page 19 Thank you BDO Wealth Management Services Tel: 390 2779 Chris Bray Duaan Jacobs Hanno Botha Peter O’Halloran