The UK signed a double tax agreement with Lesotho on 3 November 2016. When it goes into effect it will replace the current agreement signed in 1997.

The agreement generally follows the provisions of the OECD Model Tax Convention but the following provisions should be noted:

Permanent establishment

A building site, construction, assembly or installation project or any supervisory activity connected to is constitutes a permanent establishment if it continues for more than six months.

A permanent establishment also exists if services are provided by an enterprise through employees or other personnel engaged for the purpose if the activities continue on the same or a connected project within the other contracting state for an aggregate of 183 days in any twelve month period beginning or ending in the relevant fiscal year.

An installation or structure used to explore for natural resources constitutes a permanent establishment if the use of the installation or structure continues for at least 90 days within any twelve month period commencing or ending in the relevant fiscal year.

Withholding tax

Withholding tax on dividends is limited to 5% if the beneficial owner is a company holding directly at least 10% of the capital of the paying company. In other cases the withholding tax is limited to 10%. The withholding tax is limited to 10% on interest and to 7.5% on royalties.

Mutual agreement procedure

The article on the mutual agreement procedure includes a provision for issues to be submitted to arbitration if the competent authorities do not reach agreement on the issues within three years from the date of presentation of the case to the competent authority.

Entry into force

The agreement will enter into force following an exchange of diplomatic notes to confirm that the necessary procedures have been completed. The agreement will take effect in relation to withholding taxes from the first day of the second month following the date of entry into force. For other taxes the agreement takes effect in Lesotho for years of assessment beginning on or after the date of entry into force and in the UK for corporation tax for financial years beginning on or after 1 April following entry into force (and on or after 6 April following entry into force in the case of income tax and capital gains tax).