As streaming services become more popular in Botswana, many people and businesses now subscribe to platforms like Netflix, Amazon Prime, Showmax and others. On the surface, it looks simple: you pay a subscription and watch your shows. But an important tax question comes up: should Netflix fees paid to a company outside Botswana be subject to withholding tax (WHT)? Using the rules in the Income Tax Act (ITA), the answer is yes if the payment is made by a company or business. Netflix is a foreign company, and its income comes from users in Botswana. That already points to WHT. But more importantly, the subscription itself falls under what the ITA calls a commercial royalty. Below, we explain why this is so. In this article, words importing the masculine should be deemed to include the feminine.
Netflix payments are taxable
The ITA requires Botswana residents to withhold tax on payments made to non-residents for specified categories of income. The underlying principle is that when a service or benefit is consumed in Botswana, and the provider is outside Botswana, the payment becomes subject to WHT unless specifically exempt. Netflix subscriptions meet these criteria because the service provider is a non-resident and the income is sourced from Botswana users, whilst the service is consumed in Botswana. The nature of the payment fits within the ITA’s definition of commercial royalty, which attracts WHT.
Netflix payments as Commercial Royalty
The ITA defines a commercial royalty as, as read in verbatim, ‘any amount payable for the use of, or the right to use, any copyright of literary, artistic or scientific work (including cinematograph films, and films or tapes for radio or television broadcasting), any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience, or the right to commercially develop and exploit software;.’ Netflix subscriptions fall right into this category because when you subscribe, you are paying for the right to access and watch copyrighted films and TV shows. Netflix is literally giving you access to movies, documentaries, series, cartoons, and many other copyrighted works.
This right to view the content without owning it meets the definition of a commercial royalty under the ITA. That classification alone is enough to make WHT applicable. Even if Netflix charges were not categorised as commercial royalties, although they clearly are, they would still be taxable because Netflix performs a service, a streaming content, the benefit of the service is enjoyed in Botswana, and the ITA requires WHT where services are rendered or enjoyed in Botswana. The place of consumption creates a Botswana-source income.
Implications for Botswana resident corporates
When a Botswana business, e.g., a hotel, airline, corporate office, internet café, or digital media company, pays for Netflix subscriptions used in the course of business, it is obliged to withhold the applicable WHT at the rate of 15 percent unless reduced by a tax treaty. Although the legal obligation is clearest for companies, the principle applies to all payments by Botswana resident corporates or businesses. In practice, however, consumers pay via cards or app stores, and digital platforms do not allow them to withhold tax at source as the full amount is required by Netflix. Nevertheless, for businesses, BURS generally expects full WHT compliance.
Conclusion
Netflix subscription fees paid to non-resident suppliers by businesses fall within the scope of withholding tax under the ITA. These payments constitute commercial royalties because they involve access to copyrighted films and artistic works. Additionally, they represent services consumed in Botswana, further reinforcing their taxability. Businesses in Botswana must therefore recognise Netflix fees as WHT-applicable payments, apply the correct WHT rate and remit the tax to BURS.
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.
Contacts: You may contact us at +267 7181 5836 or +267 393 9435 or jhore@aupracontax.co.bw or www.aupracontax.co.bw. This article is general, and tax advice is recommended if decisions are to be made. If you need to join our free Tax WhatsApp groups or to know more about our 9 Tax e-books, please send us a text/WhatsApp on the number above.
