Non-working Directors Suffer WHT Not PAYE

Tax laws are ever-changing locally and globally. Locally, organisations must understand that all company directors are no longer subject to PAYE as the laws changed.

With effect from 1 July 2021, the tax laws were amended to obliterate PAYE on non-working directors/non-executive directors. These are directors who do not work full-time for the organisations paying the directors fees but they attend board meetings periodically and earn sitting fees.

This implies that the emoluments of non-executive directors are now subject to withholding tax (WHT) of 10% and 15% for resident and non-resident non-executive directors, respectively. It is however vital to note that prior to the said effective date, all directors were regarded as employees and were subject to PAYE on directors’ fees. However, MDs and CEOs who also sit on boards of directors still suffer PAYE.

Resident directors must still declare the directors’ fees in their annual personal returns as the WHT is an advance tax. On the other hand, the WHT is a final tax to non-resident directors, i.e. they don’t submit returns in Botswana, although the paying company is to register them with BURS for what is called a PIN.

Double Taxation Avoidance Agreements do not vary the tax rate of 15% applicable to non-resident directors. Payers of the fees must never promise the directors that they will obtain a foreign tax credit on the Botswana WHT as that is dependent on the laws of the country of the directors.

It is also important to note that resident directors can’t instruct the paying organisations to deduct a higher tax such as 25% as that goes against the grain of the tax laws. They simply have to top-up tax shortfalls arising from the difference between the 10% WHT and the 25% applicable on their total annual earnings.

This article is of a general nature and is not meant to address particular matters of any person. Please contact us on the details below for tax consulting or to join our free Tax whatsapp group.