Special Economic Zones (SEZ) are generally created to attract investments, create jobs and boost exports.
Additionally, these special zones also provide business-friendly regulations with respect to land access. In this respect, it is vital that taxpayers operating in SEZ understand that they are able to acquire immovable property without worrying about Transfer Duty (TD).
Simply put, SEZ operators are exempt from paying TD on the acquisition of land or buildings. However, the exemption is subject to a few strings attached. Keep on reading and allow us to help you understand this special exemption and how you can take advantage of the same. In this article, words importing the masculine shall be deemed to include the feminine.
A SEZ is basically an area in which the business and trade laws are different from the rest of the country. As alluded to above, these zones are established to foster economic growth and development by allowing business operators and investors to leverage on tax incentives. In other words, SEZ is basically a special designated region that is subject to different fiscal regulations from the rest of the country. Such regulations are usually favourable to business operators or investors.
To be precise, the Income Tax Act defines a SEZ as ‘an area of land established as such under section 29 of the Special Economic Zones Act being a geographical demarcation with special regulatory provisions…’ and such companies pay corporate tax at 5% for the first 10 years and 10% thereafter. The Act further specifies that the legal and tax regulations differ ‘in a more liberal way’ than those which apply to the rest of the country. Sir Seretse Khama International Airport, Fairgrounds, Pandamatenga, Palapye and Lobatse are some of the areas already declared as SEZs. Having established the characteristics of what the SEZ entails, let us now turn to the Transfer Duty incentives.
Enter Transfer Duty
Generally, Transfer Duty is levied on any immovable property that is sold or transferred. The Duty is borne by the recipient or acquirer of the property. However, the Transfer Duty Act was amended to include an exemption of payment of transfer duty for SEZ operators. In this regard it is imperative to pay strict attention to the qualifying conditions required for an SEZ operator to enjoy the exemption. In verbatim the amendment states that, ‘where a person, being a holder of a licence under the Special Economic Zones Act, purchases or acquires immovable property for the purpose of operating or carrying on any business activity in a Special Economic Zones as may be approved in the licence, the transfer of such immovable property shall be made without the payment of transfer duty.
As alluded to above, the exemption of Transfer Duty comes along with a few conditions. Accordingly, the exemption applies if a) the acquirer of the immovable property holds a SEZ operating licence, b) the acquired land or building should be for conducting operations as prescribed by the corresponding SEZ licence and c) the land or building should be situated in the SEZ. As an example, this technically means that the exemption does not apply to a person who is licenced to manufacture shoes in a SEZ but acquires a building to conduct retail operations.
Essentially, business operators or investors who are licensed and operating in SEZs can acquire land and buildings by whatever means without paying TD. However, the acquired immovable property should strictly be for conducting operations as per the SEZ license.
Well folks, we hope that was insightful. As us the two Yours Truly say goodbye, remember to religiously pay your taxes. If you want to consult, join our free Tax WhatsApp group or to know about our 9 Tax e-books, send us a text on the +267 71 81 5836. You can read more tax articles on our website, www.aupracontax.co.bw under the ‘Tax articles’ tab.