The double tax treaty between the UK and Lesotho takes effect in relation to UK corporation tax for financial years beginning on or after 1 April 2019. The treaty was signed on 3 November 2016 and entered into force on 18 September 2018.

Permanent establishment

The definition of a permanent establishment includes a building site or construction or installation project if it continues for more than six months.

The PE definition also includes the furnishing of services, including consultancy services, through employees or other personnel engaged for the purpose, if the activities continue on the same or a connected project for more than 183 days in aggregate in any twelve month period.

Withholding tax

The agreement provides for a maximum 5% withholding tax on dividends if the recipient company has a 10% shareholding in the company paying the dividend; or in other cases the maximum withholding tax on dividends is 10%. It should be noted however that the UK under its domestic tax law does not withhold tax on dividends.

The treaty provides for a maximum withholding tax in the source state of 10% on interest, with some exceptions, and a maximum withholding tax of 7.5% on royalties.

Mutual agreement procedure

The article on the mutual agreement procedure provides that any issues arising from a case that are not resolved after three years may be submitted to arbitration if the person who presented the case to the competent authorities requests this. The arbitration decision is binding on both Contracting States unless a person directly affected does not accept the mutual agreement that implements the decision.

Other

The agreement also contains provisions on the exchange of information and on assistance in the collection of taxes.

The treaty took effect for withholding taxes in both countries in relation to amounts paid or credited on or after 1 November 2018. In Lesotho the treaty took effect for other taxes from 1 January 2019.

In the UK the treaty will take effect for corporation tax for financial years beginning on or after 1 April 2019 and for income tax and capital gains tax for years of assessment beginning on or after 6 April 2019.