Explanatory note

The Convention with Lesotho is set out in the Schedule to this Order.

The Convention provides for business profits not arising through a permanent establishment to be taxed only in the country of the taxpayer’s residence. Profits attributable to a permanent establishment may be taxed in the country in which the permanent establishment is situated (Articles 5 and 7).

Income from immovable property may be taxed in the country in which the property is situated (Article 6).

Shipping and air transport profits are to be taxed only in the residence state of the operator (Article 8).

The Convention includes rules for determining taxable profits when a company in one country is related to a company in the other (Article 9).

The rate of tax imposed in the country of source on dividends derived by a resident of the other country is, in general, not to exceed 10 per cent. of the gross amount of the dividends (Article 10).

The rate of tax imposed in the country of source on interest derived by a resident of the other country is, in general, not to exceed 10 per cent. of the gross amount of the interest. Certain categories of interest (e.g. interest paid to the Government of the other country) will be exempt from tax in the source state (Article 11).

The rate of tax imposed in the country of source on royalties flowing to the other country is, in general, not to exceed 10 per cent. of the gross amount of the royalties (Article 12).

The rate of tax imposed in the country of source on management and technical fees paid to a resident of the other country is, in general, not to exceed 10 per cent. of the gross amount of the fees (Article 13).

Capital gains are to be taxed in accordance with the domestic law of each country (Article 14).

The earnings of temporary business visitors and some other individuals are, subject to certain conditions, to be taxed only in the country of the taxpayer’s residence (Articles 15 and 16). Fees received by a resident of one country in his capacity as a director of a company resident in the other country may be taxed in the latter country (Article 17).

Income derived from the activities of artistes and sportsmen may be taxed in the country in which those activities are exercised, with certain exemptions (Article 18). Occupational pensions (other than those paid in respect of Government Service) and annuities are to be taxed only in the recipient’s country of residence (Article 19). Government Service remuneration and pensions are normally taxable only by the paying Government (Article 20). Certain payments made to visiting students and business apprentices are to be exempt from tax in the country visited (Article 21). There are separate provisions for diplomatic or consular officials (Article 28).

Other income not specified in the Convention (with the exception of income paid out of trusts or the estates of deceased persons in the course of administration) is to be taxable only in the taxpayer’s country of residence, as long as it is not associated with a permanent establishment or fixed base in the country of source (Article 22).

Where income continues to be taxable in both countries credit will be given in the taxpayer’s country of residence for tax imposed by the other country. In the case of dividends, the United Kingdom will give credit for underlying tax paid in Lesotho where the shareholder is a United Kingdom company which controls at least 10 per cent. of the voting power in the company paying the dividends (Article 23).

There are provisions which limit the relief available in certain circumstances (Article 24). There are also provisions safeguarding nationals and enterprises of one country against discriminatory taxation in the other country (Article 25), for consultation to resolve difficulties in the application or interpretation of the Convention (Article 26) and for exchanges of information (Article 27) between the taxation authorities of the two countries.

The Convention will enter into force on the date of the later of the notifications by each country of the completion of the procedures required by its law to bring the Convention into force. The Convention is to take effect in the United Kingdom on or after 1st April in respect of corporation tax, and on or after 6th April for income tax and capital gains tax, in the calendar year next following that in which it enters into force (Article 29). The date of entry into force will in due course be published in the London, Edinburgh and Belfast Gazettes.