Transcript Botswana Trust Seminar

BOTSWANA
The Most Ideal Trust
Jurisdiction in Africa
Agenda
•Why Botswana
•The Legal Matrix
•History of trust law
•Practical Issues
•The Tax Regime
•Benefits of Trust formation
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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
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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.
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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
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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?
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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Capital Transfer Tax
Rates
For Companies: 12.5% of the value
For persons other than companies:
First P 100 000
2%
Next P 200 000
3%
Next P 200 000
4%
Balance
5%
Note that this provision applies to assets held in
Botswana.
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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.
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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.
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MULTIPLE TRUSTS – EXPONENTIAL PROTECTION
Shares
Trustees can pledge shares
Funds can flow between trusts following the conduit principle
Property
For bank facilities
Dividends flow to the share trust
tax free
This trust can guarantee
Mortgage Bonds
Family
Income from the share trust
This trust carries ZERO risk
Is used to pay the outstanding bonds
No guarantees/sureties
Thus enhancing the rental return.
The Generator Business
Rentals can be taxed in hands of beneficiaries
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In all the trusts, the family are also beneficiaries along with the other trusts
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.
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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.
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Thank you
BDO
Wealth Management Services
Tel: 390 2779
Chris Bray
Duaan Jacobs
Hanno Botha
Peter O’Halloran
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