Lesotho: Investing

FDI in Figures

According to UNCTAD's World Investment Report 2023, FDI inflows into Lesotho have been declining during the past years. They were negative for the second year in a row in 2022, at USD -8 million (following USD -12 million one year earlier). At the end of the same period, the FDI stock in the country amounted to USD 958 million, around 38.6% of its GDP. The textile industry traditionally attracts most investments and others are expected for hydroelectric facilities. Lesotho's small-scale manufacturing sector is also a recipient of FDI. South Africa, Turkey, Mauritius, and Southeastern Asian countries are the main investors.

Lesotho is open to and eagerly seeking FDI, but recent measures seem to suggest a turn towards economic nationalism (U.S. Department of State): the Trading Enterprises Regulations of 2011 (TER 2011) and the Business Licensing and Registration Regulations of 2020 (BLRR 2020) designate specific businesses exclusively for Basotho ownership, limiting foreign investors to minority shares, capped at 49%. These reserved businesses, totaling 47, include agent services for foreign firms, barber shops, butchers, snack bars, fuel dealers, dairy shops, cafes, greengrocers, brokers, small supermarkets (under 250m²), and hair/beauty salons. While primarily impacting micro and small enterprises, some medium-sized foreign-owned businesses will also be affected. Lesotho's government has recently made significant strides in improving the business landscape through streamlined licensing, registration processes, and utility connections. Moreover, under the Business Licensing and Registration Act 2019 (BLRA 2019), foreign investors must either demonstrate a capital of USD 123,152 or furnish evidence of a USD 123,152 investment during the registration or renewal of their traders' licenses. Alternatively, they can deposit USD 123,152 with a local institution. Diamond mining operations, irrespective of their scale, fall under the large-scale mines licensing system, where foreign ownership faces no limitations. However, the Government retains the prerogative to hold a minimum of 20-35% ownership in such mines. The Ministry of Trade and Industry is mandated by law to impartially screen foreign investments routinely to ensure alignment with national interests. High port authority expenses due to Lesotho's landlocked territory and the relatively low quality of its infrastructure are real constraints to investors. High credit and setup costs, skills mismatches, and gaps in legal and dispute resolution frameworks, insolvency resolution, and property rights continue to inhibit business development (IMF). Lesotho is prone to corruption, and the country ranks 93rd among the 180 economies on the 2023 Corruption Perception Index. It also ranks 133rd out of 184 countries on the latest Index of Economic Freedom.

Country Comparison For the Protection of Investors

	Lesotho	Sub-Saharan Africa	United States	Germany
Index of Transaction Transparency*	3.0	5.5	7.0	5.0
Index of Manager’s Responsibility**	4.0	3.5	9.0	5.0
Index of Shareholders’ Power***	9.0	5.5	9.0	5.0

Source: Doing Business - Latest available data.

Note: *The Greater the Index, the More Transparent the Conditions of Transactions. **The Greater the Index, the More the Manager is Personally Responsible. *** The Greater the Index, the Easier it Will Be For Shareholders to Take Legal Action.

Foreign Direct Investment	2020	2021	2022
FDI Inward Flow (million USD)	28	-12	-8
FDI Stock (million USD)	1,129.0	1,023.6	958.0
Number of Greenfield Investments*	2.0	2.0	0.0
Value of Greenfield Investments (million USD)	11	197	0

Source: UNCTAD - Latest available data

Note: * Greenfield Investments are a form of Foreign Direct Investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up.

Tax Rates

Value Added Tax (VAT): 15% (standard rate);
12% for telecommunications;
9% for electricity supplies.
Zero-rated items include export of goods or services; agricultural input (fertilizers, seeds and pesticides); beans; bread; lentils; livestock feed and poultry feed; maize (grain); milk; paraffin intended for use as fuel for cooking, illuminating or heating; peas; sorghum meal; unmalted sorghum grain; wheat; wheat flour.
Exempt items include education services provided by certain institutions; certain financial services; transportation services, defined as the transportation of fare-paying passengers and their personal effects by road; supply of public postal, transportation, medical or dental, financial, insurance, or education services; supply of unimproved land; certain supplies by way of lease or letting of immovable property subject to certain provisions; supply of water; supply by an amateur sporting organization of sport activities, where such activities are deemed for the purposes of this Act to be nonprofessional; supply of cultural activities and supplies deemed to be so by the Commissioner-General, which would include, but not restricted to, the collection of entrance fees, or where such events are regular events (provided that such activity is for a nonprofit supply or service); supply of charity arrangements undertaken by an organization or institution deemed by the Commissioner-General to engage in or conduct charitable activities or work subject to certain provisions.
Company Tax: 25%
Withholding Taxes: Dividends: 0% (paid in respect of manufacturing income)/25%, Interests: 15% (paid in respect of manufacturing income)/25%, Royalties: 15% (paid in respect of manufacturing income)/25%.
Bilateral Agreement: Lesotho and Mauritius concluded a Double Taxation Agreement.
Social Security Contributions Paid By Employers: There is no social security system in Lesotho.
Other Domestic Resources: Lesotho Revenue Authority; Overview of Lesotho's tax measures in response to Covid-19; Consult Doing Business Website, to obtain a summary of the taxes and mandatory contributions.

	Lesotho	Sub-Saharan Africa	United States	Germany
Number of Payments of Taxes per Year	32.0	36.6	10.6	9.0
Time Taken For Administrative Formalities (Hours)	327.0	284.8	175.0	218.0
Total Share of Taxes (% of Profit)	13.6	47.3	36.6	48.8

Setting Up a Company	Lesotho	Sub-Saharan Africa
Procedures (number)	6.00	7.51
Time (days)	15.00	21.30

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Income tax	Progressives rates from 20% to 30%
From LSL 0 to 64,200	20%
Above LSL 64,200	30%

Lesotho: Investing

FDI in Figures

Country Comparison For the Protection of Investors

Tax Rates

Individual Taxes

Country Comparison For Corporate Taxation

Investment Opportunities

Business Setup Procedures