Effective corporate governance necessitates the establishment of an independent board of directors tasked with overseeing management teams.
These directors maintain a level of detachment from the day-to-day operations, collaborating with the executive team to facilitate strategic decision-making. We aim to illustrate that even trustees of societies and public trusts are liable to withholding taxes (WHT) on their earnings. Continue reading as we delve into the reasons why these fees are subject to WHT, despite the organizations not being formal companies. Additionally, it is important to note that throughout this article, words signifying the masculine gender shall be construed to include the feminine gender.
The non-executive directors
As mentioned earlier, organizations appoint non-executive directors to enhance the expertise of working directors by offering expert advice and guidance. These directors are typically tasked with safeguarding the objectives and assets of the organizations. In essence, non-executive directors, distinct from their executive counterparts, are not employees; they serve as independent overseers providing guidance on management functions. In contrast, executive directors are actively involved in the day-to-day operations of organizations, leading to the use of the terms ‘working’ or ‘executive directors’ for them. It is standard practice to remunerate such directors with sitting fees based on the number of board meetings held in a year. Today’s article focuses on these fees, exploring what tax laws stipulate regarding the compensation of non-executive directors.
With effect from the 1st of July 2021, the Income Tax Act was amended to introduce a new withholding tax for resident and non-resident directors at 10 percent and 15 percent, respectively. Additionally, the amendment defined the impacted director as anyone who earns income as a member of the board of directors of a company. Technically, the said definition tacitly excluded executive or working directors from the ambit of employees of the organisation they work for. For the avoidance of any doubt, an employee is defined by the Income Tax Act as ‘any person (other than a company) who, in respect of an employment receives remuneration from an employer and includes any person to whom remuneration accrues as a director of a company….’
Further, a company per the said Act, includes public trusts, any association and parastatals. Now to put everything into perspective, it is apparent that fees accruing to non-executive directors are subject to withholding tax even when they receive the sitting fees from societies and public trusts or associations. This is so as such organisations are regarded as companies by the said Act.
On another note, it is imperative to note that the tax withheld on a resident director is an advance tax which can be set off against the directors’ tax liability at year-end. Unfortunately, for a non-resident director, the same tax is final in Botswana. However, it can be claimed as a foreign tax credit if the country of residency permits such practices.
Well, folks, we hope that was insightful. As we the two Yours Trulies say goodbye, remember to pay Caesar what belongs to him. If you want to consult, join our free Tax WhatsApp group or to know about our 9 Tax e-books, send a text to +267 7181 5836 or email us on firstname.lastname@example.org. You can read more tax articles on our website, www.aupracontax.co.bw under the ‘Tax articles’ tab.