Are foreign companies conducting business in Botswana required to establish a presence in there?

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Dentons would like to thank Tatenda Dumba, from Armstrongs Attorneys in Botswana, for this month’s contribution to the Africa section of the Dentons South Africa Newsletter. In this article, Tatenda discusses the requirement to establish a presence in Botswana.

Introduction

This question is frequently put to attorneys in Botswana. In terms of section 344 of the Companies Act 2016 (the Act), a foreign company carrying out business (or having a place of business) in Botswana is required to register with the Registrar of Companies as an external company (branch) or alternatively can register a local incorporated company within one month of conducting such business.

What specifically constitutes conducting business in Botswana is not clear from the Act. The Act does not define what it is, but rather defines it by negating what is considered not conducting business in Botswana.

Meaning of "conducting business"

The courts of Botswana have, at present, not yet had the opportunity to pronounce on the meaning of section 344 of the Act. As a consequence, we currently look to the New Zealand Companies Act and case law for guidance. Through numerous court pronouncements and challenges to the interpretation of section 332 of the Act, certain salient factors have been crystallised for consideration when dealing with this issue.

These factors include whether:

  • the foreign company employs any Botswana resident agents to act on its behalf or manage, administer or deal with property in Botswana;
  • any part of management of the business is in Botswana;
  • the “brain power” is in Botswana;
  • the company has a place of business, staff or infrastructure in Botswana;
  • the transaction was an isolated occurrence;
  • there is some degree of “permanence” in Botswana; and
  • the contract will be performed in Botswana.

It is evident from the above that the determination of whether a company is “conducting business” in Botswana will be dependent on the specific facts and circumstances of each case. Furthermore, in as much as the presence of the above factors may incline more to the fact that a company does indeed conduct business in Botswana, the mere presence of one or two of the above cannot be said to be conclusive in this regard.

Registration as a corporate subsidiary or branch office

Another common question is whether the foreign company should register as a local incorporated subsidiary or establish a branch office, once it has been established that the foreign company is required to be registered. That issue also poses various considerations.

Differences to note are that a branch company in Botswana is deemed to be an extension of the company in the foreign country and there is no separate existence from the foreign head office. The shareholders and directors will be considered the same as the foreign head office except that there is a requirement to appoint an authorised agent (resident in Botswana) who has to accept, on its behalf, service of process and any notices required to be served on the company.

Furthermore, there is no exemption from any registration and licensing requirements (if applicable) and tax requirement. In fact, the corporate tax rate for external companies has been increased from 25% to 30% in terms of the Income Tax Amendment Act 2011, unless an International Financial Services Certificate is granted. This means that it is more tax efficient for foreign investors to operate in Botswana through a subsidiary (which has a flat tax rate of 22%) as opposed to a branch.

A subsidiary will isolate liability from its foreign company and will only require one resident director (not necessarily a Botswana national) and a company secretary responsible for the on-going filing requirements with the Registrar of Companies.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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