In Botswana, Withholding Tax (WHT) has traditionally applied to certain payments made to non-residents, such as interest, royalties and technical fees. Under the new Income Tax Bill no.36 of 2025, which may soon become law, insurance premiums paid to non-residents may soon be brought into the Withholding Tax net. This means that where a Botswana resident pays insurance premiums to a non-resident insurer, Withholding Tax will apply, something that was not provided for in the current Income Tax Act (ITA). Let us unpack what this means in simple terms. In this article, words importing the masculine should be deemed to include the feminine.
What is meant by insurance premium?
The Bill gives a broad meaning to the term insurance premium. It does not only refer to the normal premium paid under an insurance policy. It also includes premiums relating to reinsurance and any amount payable in respect of the placement of insurance outside Botswana. This is important because many local insurers and businesses place risks with foreign insurers or reinsurers. Even where the arrangement is structured as reinsurance or placement outside Botswana, it still falls within the definition of insurance premium for tax purposes.
Enter WHT
Under the Bill, a non-resident tax is imposed on a non-resident who derives Botswana source income in the form of insurance premiums, among other listed payments. In simple terms, if the premium is regarded as Botswana-source income and it is paid to a non-resident, it becomes subject to Withholding Tax. The tax is calculated on the gross amount of the insurance premium. This means that the tax is applied before any deductions or expenses. The obligation to withhold does not rest with the foreign insurer. It rests with the person making the payment. Where a resident of Botswana or a permanent establishment in Botswana of a non-resident makes a payment of an insurance premium to a non-resident, that payer must withhold tax at the prescribed rate, which is 5 percent. In addition, if the payment is made to an address outside Botswana, the payer is required to withhold the tax. This makes it clear that cross-border insurance payments are specifically targeted.
Many businesses may not have previously considered insurance premiums as falling within the Withholding Tax rules. The new Bill removes any doubt by specifically listing insurance premiums as subject to non-resident tax. Failure to withhold where required can result in penalties and interest, and the payer may be held personally liable for the tax that should have been deducted.
Conclusion
In conclusion, the Income Tax Bill no.36 of 2025 makes it clear that a non-resident tax is imposed where a non-resident derives Botswana-source income in the form of an insurance premium. Accordingly, a resident of Botswana or a permanent establishment in Botswana of a non-resident will be required to withhold tax when making a payment of an insurance premium to a non-resident.
Tax hint: If you have never had a tax audit/review conducted by a tax consultancy firm to check whether you are tax compliant, or should it be apparent that you are not certain that your tax affairs are in good order, then don’t wait for the taxman to pounce on you, as that can be very costly. Contact us today so we can help you fix your tax affairs whilst you still have time.
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