Lesotho

Business in Lesotho

The History of Lesotho

The Kingdom of Lesotho is a landlocked country uniquely situated high in the Maloti Mountains of Southern Africa. Encompassing just over 30,000 square kilometers and home to around two million people, Lesotho stands out as the only independent state in the world entirely above 1,400 meters in elevation. Its lofty terrain has earned it the nickname the “Kingdom in the Sky,” drawing visitors eager to experience its breathtaking landscapes and rich cultural heritage

Geography and Location

High-Altitude Terrain: Lesotho’s unique position above 1,400 meters means spectacular panoramic views, cooler climates, and distinct biodiversity.
Maseru: The capital and largest city, serving as the country’s administrative and cultural hub, where modern development meets traditional charm.

Historical Background

Former British Colony: Lesotho was previously under British rule and known as Basutoland.
Independence: Gained full sovereignty on 4 October 1966, marking a significant turning point in its modern history.

Sovereign Status and Membership

United Nations (UN): Participates in global initiatives, contributing to international peace and development.
Commonwealth of Nations: Shares historical ties with other member states, fostering cooperation and cultural exchange.
Southern African Development Community (SADC): Collaborates on regional economic and security matters, promoting trade and prosperity within Southern Africa.

Currency

The Loti (plural: Maloti) serves as the official currency of the Kingdom of Lesotho. Notably, it is pegged 1:1 to the South African Rand (ZAR) through a regional agreement known as the Common Monetary Area (CMA). This means that 1 Loti equals 1 Rand, ensuring monetary stability and seamless cross-border trade within Southern Africa.

Since both the Loti and the Rand hold equal value, each currency functions as legal tender in Lesotho. Travelers and businesses alike benefit from the simplicity of these arrangements, as payments can be made interchangeably in Maloti or Rand without currency conversion hassles.

The Central Bank of Lesotho manages the country’s monetary policy, coordinating with South African financial authorities to sustain this collaborative framework.By being part of the Common Monetary Area, Lesotho maintains a stable currency environment that supports trade, encourages tourism, and streamlines economic relations with its neighbors in Southern Africa.

Banks in Lesotho

Lesotho’s banking sector operates under the Financial Institutions Act, which outlines the key requirements for banks to establish and maintain operations within the country. One of the Act’s most notable provisions is the minimum paid-up capital requirement of ten million Maloti, ensuring that financial institutions have a strong capital base to promote stability, consumer confidence, and sustainable growth in the financial market

Lesotho hosts several prominent commercial banks, each providing an array of services—from personal and business banking to loans and investment products. The four main banks operating in the country include:

Standard Lesotho Bank
Nedbank
First National Bank
Lesotho Post Bank

These key players offer both personal and corporate banking solutions, supporting the nation’s economy by encouraging savings, providing credit facilities, and facilitating international transactions. Together, they help to foster financial inclusion, spur economic development, and enhance the overall banking experience for consumers in Lesotho.

Political System and Investment Climate

The Kingdom of Lesotho boasts a parliamentary system under a constitutional monarchy, where the Prime Minister holds executive authority and the King serves a largely ceremonial function. Lesotho’s Constitution ensures an independent judiciary and safeguards civil liberties such as freedom of speech, association, press, assembly, and religion. Notably, the country practices a dual legal system, blending customary law with general law to address diverse aspects of governance and social affair

1. Political Milestone: First Coalition Government
- May 2012 Elections: Following a highly competitive electoral process, Prime Minister Thomas Thabane formed Lesotho’s first coalition government—a historic turning point reflecting an evolving democratic landscape.
- Democratic Progress: This coalition demonstrated Lesotho’s commitment to peaceful transitions of power and a pluralistic political environment.
1. Economic Landscape
Lesotho’s economy is heavily influenced by natural resources and exports:
- Diamonds & Water
1. - High-Quality Diamonds: A major driver of export earnings.
  - Water Exports to South Africa: Capitalizes on Lesotho’s mountainous terrain, contributing significantly to national revenue.
- Manufacturing & Agriculture
1. - Textile & Footwear Industry: Clothing production benefits from access to regional and international markets.
  - Agriculture & Livestock: Wool and mohair remain vital exports, while subsistence farming supports local communities.
- Remittance Inflows
1. - Many Basotho work in South Africa, sending remittances that boost household incomes and spur domestic consumption.
1. New Companies Act (May 2012)
- Major Corporate Changes: The Companies Act of 2012 introduced a modern regulatory framework, enhancing corporate governance and transparency.
- Business Environment: Streamlined registration and compliance procedures aim to attract foreign investment and encourage local entrepreneurship.
1. Governance and Legal Framework
- Constitutional Monarchy
1. - The King symbolizes national unity, while executive powers rest with the elected government.
- Independent Judiciary
1. - Courts uphold rule of law and constitutional rights, reinforcing a stable legal environment for citizens and businesses alike.
- Dual Legal System
1. - Customary Law: Addresses cultural and traditional matters.
  - General Law: Covers modern civil, commercial, and criminal cases, aligned with international standards.

Forms of Business

Private Limited Liability Company
Shareholding Companies
Non-profit Companies
External companies (being branches of foreign corporate bodies)
Partnerships (which include consortiums and joint ventures)
Sole proprietorships
Co-operatives
Statutory corporations
Business trusts

Companies

A private limited liability company is the most prevalent form of business entity in Lesotho. With the advent of the new Companies Act, several important changes have reshaped the corporate landscape, affecting both existing and newly registered companies. Below is an overview of what you need to know about private companies, share capital requirements, electronic filing, and ongoing compliance initiatives

Under the new legislation, no minimum share capital requirement exists for private limited liability companies in Lesotho. This relaxation of capital constraints encourages entrepreneurship and makes company formation more accessible.

One Shareholder: A private company may be incorporated with just one shareholder, significantly simplifying setup for small businesses and solo entrepreneurs.
Maximum of 50 Shareholders: The Companies Act limits the total number of shareholders to 50, ensuring that private companies maintain a relatively close-knit ownership structure.
Directors’ Duties: The Companies Act now holds directors personally liable for breaches of their duties owed to shareholders. This ensures a higher level of accountability and transparency.
Major Transactions: Any major transaction within the company requires shareholder approval by special resolution—strengthening shareholder oversight in significant corporate decisions.

External Companies

Under Lesotho’s Companies Act, a foreign company wishing to do business in the country can register as an “external company.” This must be done within 10 days of establishing a place of business in Lesotho.

Partnerships

A partnership agreement in Lesotho must be reduced to writing and signed by all partners before a Notary Public. According to the Partnerships Proclamation of 1957, such agreements can also be registered in the Deeds Registry, providing an official record that may enhance legal certainty and stakeholder confidence. Additionally, any termination of the partnership requires a written cancellation to ensure clarity for all parties involved

Partnerships Proclamation of 1957: Codifies much of Lesotho’s common law on partnerships, governing rights and duties among partners.
Notarial Certification: By law, the agreement must be signed before a Notary Public—a crucial step ensuring the partnership’s legality and binding nature.

Taxation

Lesotho’s tax system is primarily governed by the Income Tax Act and its supporting regulations. Below is a concise overview of the key tax types—ranging from individual income tax rates to withholding taxes and value-added tax (VAT).

Personal Income Tax (Residents)

Taxable Income Brackets
- First 48,744 Maloti: Taxed at 25%
- Any Excess Above 48,744 Maloti: Taxed at 35%

Withholding Tax (Non-Residents)

Standard Rate (25%)
- Dividends, Interest, Royalties, Natural Resource Payments, and Management/Administrative Charges to non-residents are subject to 25% withholding tax deducted at source.
Services Contract Rate (10%)
- Any payment under a Lesotho-source services contract to a non-resident attracts a 10% withholding tax on the gross amount.

Capital Gains Tax

Subject to Exemptions
- Lesotho imposes capital gains tax under specific conditions, with certain exemptions available depending on the nature of the asset or transaction.

Value-Added Tax (VAT)

Standard Rate (14%)
- Levied on most goods sold and services rendered in Lesotho.
Zero-Rated Items
- Basic foodstuffs are zero-rated, meaning no VAT is charged on such essentials.
Registration Threshold
- Businesses with turnover exceeding 500,000 Maloti per year must register for VAT.

Double Taxation Agreements

Lesotho maintains a dynamic economic framework shaped by its bilateral tax treaties, exchange control regulations, and memberships in international organizations. Below, we highlight the key agreements, monetary policies, and partnerships that support Lesotho’s global and regional economic integration.

Tax Treaties and Ongoing Negotiations

Existing Tax Treaties
- United Kingdom
- South Africa
- Mauritius
Negotiations in Progress
- Botswana
- Seychelles
Future Negotiations Approved
- Namibia, Eswatini (Swaziland), India, China, United States, Australia

By pursuing and expanding double taxation treaties, Lesotho aims to reduce tax burdens on cross-border trade and investment, fostering economic growth and foreign direct investment (FDI).

Exchange Controls and the Rand Common Monetary Area

Rand Common Monetary Area (CMA)
- Lesotho is part of the CMA, alongside South Africa, Namibia, and Eswatini.
- This arrangement facilitates currency stability and fosters closer monetary policy coordination.
Exchange Control Legislation
- Exchange Control Order & Regulations: Enforced by the Central Bank of Lesotho in cooperation with the South African Reserve Bank.
- Authorised Dealers: Commercial banks in Lesotho act as authorized dealers in foreign exchange, subject to specific transaction limits.
Impact on Businesses and Investors
- Approval Requirements: Certain capital movements, overseas remittances, and investments may require prior approval.
- Trade Facilitation: By controlling currency outflows and inflows, Lesotho seeks to maintain financial stability and market confidence.

Membership of International and Regional Organizations

Preferential Trade Area (PTA)
Southern African Development Community (SADC)
British Commonwealth
United Nations (UN)
Southern African Customs Union (SACU)

Membership in these bodies underscores Lesotho’s commitment to regional cooperation and global diplomacy, opening doors to preferential trade agreements, technical assistance, and developmental support.

Monetary Policy

Lesotho’s monetary policy is primarily designed and implemented by the Central Bank of Lesotho (CBL). With the overarching aim of price stability, the Central Bank uses indirect policy instruments—supported by an inflation forecasting framework—to maintain a stable economic environment. Below is an overview of Lesotho’s monetary policy approach and the CBL’s essential functions.

Trading Licences

Any company or entrepreneur operating in Lesotho must register with the Ministry of Trade to obtain a Business Licensing Identity Document (ID). In the case of foreign enterprises, an additional Business Permit is required. This streamlined process ensures that all commercial activities are officially recognized and compliant with Lesotho’s legal framework.

Lesotho designates certain business activities specifically for indigenous Basotho, reflecting the government’s commitment to empowering local entrepreneurs. In addition, specific sectors may demand prior approval or licenses from relevant government bodies.

Legal System

Lesotho operates under a mixed legal framework, blending elements of common law and statutory law. In rural regions, tribal law and custom often govern day-to-day disputes and property matters, although these local norms are ultimately subordinate to statutory law. Below is a brief look at how Lesotho’s legal structure functions and the role of its superior courts.

Court of Appeal
- The highest appellate court, reviewing decisions from the High Court and addressing key legal questions.
High Court
- Has unlimited original jurisdiction in civil and criminal matters.
- Deals with significant cases and often sets binding precedents.
Commercial Court
- Specializes in business and commercial disputes.
- Aims to provide efficient resolution of complex economic cases, fostering a stable business environment.

Infrastructure

Lesotho’s transport and infrastructure landscape is undergoing significant upgrades to enhance connectivity, bolster economic growth, and improve quality of life for its citizens. From road expansions to water purification projects, these developments are crucial for the country’s continued advancement. Below is an overview of Lesotho’s current road network status, major infrastructure initiatives, and details on its only international airport.

Road Network in Lesotho

Total Road Length
- Lesotho has an estimated 7,091 km of roads.
- Only 1,404 km of these are tarred (asphalt), highlighting a considerable need for paved expansions.
Ongoing Road Upgrades
- Several road rehabilitation projects are in progress to enhance safety and connectivity between rural and urban centers.
- Improved roads are vital for economic activity, enabling smoother transport of goods, services, and tourists throughout the country.

Other Infrastructure Initiatives

Water Purification Plants
- Projects to modernize and expand water purification facilities ensure clean water availability, a key driver of public health and industrial growth.
- These initiatives align with Lesotho’s focus on sustainable water resource management, given the nation’s vast highland water sources.
Broadband and Power Projects
- Though not explicitly mentioned, additional infrastructure efforts often extend to electricity grid expansions and broadband internet improvements.
- Enhanced utilities bolster Lesotho’s business environment and living standards.

Air Travel and Connectivity

Maseru’s International Airport
- Lesotho’s only international airport features two asphalt runways.
- Offers direct links to major airports in South Africa, connecting Lesotho to regional and global destinations.
Regional Travel and Tourism
- Ease of flight connections through Maseru encourages tourism, trade, and business travel.
- Contributes to the economic integration between Lesotho and neighboring countries.

Mining

Lesotho’s diamond industry is internationally renowned, with certain mines producing exceptionally high-quality gems. Beyond its global reputation, mining significantly boosts foreign investment in the country’s economy. Below is an overview of Lesotho’s mining sector and the key legislation governing it.

Diamonds: A Key Economic Driver

World-Renowned Diamonds
- Lesotho’s mines are known to yield stones of notable clarity and size, placing the country on the global map for premium diamonds.
- Diamond exports generate substantial revenue and foreign direct investment (FDI).
Contribution to Local Economy
- The mining industry directly and indirectly supports job creation, infrastructure development, and community programs.
- Partnerships between government and mining firms often fund local initiatives, spurring wider economic growth.

Mines and Minerals Act, 2005

Regulatory Framework
- The Mines and Minerals Act, 2005 serves as the core legislation governing mining operations, exploration rights, and environmental obligations.
- It outlines licensing procedures, royalty structures, and safety standards for operators.
Investor Clarity
- Clear, transparent provisions under the Act attract foreign investors seeking stable regulatory conditions.
- Compliance with environmental and social obligations helps mining companies maintain good standing within local communities.

Agriculture

Agriculture is undeveloped and consists largely of subsistence crops (mainly maize and wheat). It contributes 7.8% of Lesotho’s GDP. Lesotho is not food self-sufficient and relies on food imports.

Labour Relations

Lesotho’s labuor force is estimated at 854,600 individuals, with the majority employed in the agriculture sector. Despite a significant portion of the population engaging in subsistence farming and related activities, the nation continues to grapple with a high unemployment rate. Below is an overview of labour relations, work permit requirements, and wage regulations within the Kingdom of Lesotho.

Labor Force Composition

Agriculture Dominance
- Farming remains the primary employer, reflecting Lesotho’s still-developing economic structure.
- Subsistence methods often limit productivity, contributing to low output and underemployment.
High Unemployment Rate
- Many jobseekers, particularly youth, face limited job opportunities across both urban and rural areas.
- Economic diversification and skill development remain ongoing challenges for policy makers.

Legislative Framework: Labour Act, 2024

Governing Labor Relations
- The Labour Act, 2024 establishes the legal foundation for employer-employee relationships, ensuring basic rights and outlining dispute resolution mechanisms.
- It also regulates working conditions, health and safety standards, and benefits.
Foreign Worker Requirements
- Work Permits: Foreign nationals must obtain a valid work permit before commencing employment in Lesotho.
- Employers may need to demonstrate that no suitably qualified local candidates are available for certain positions.
Statutory Minimum Wage
- Lesotho enforces a minimum wage across various sectors, providing a baseline of financial protection for workers.
- The rate is periodically reviewed and adjusted to account for living costs and economic conditions.

Tourism

Lesotho, often referred to as the “Kingdom in the Sky,” boasts unparalleled natural beauty with its soaring mountains, crystal-clear rivers, and breathtaking vistas. As more visitors seek authentic, off-the-beaten-path travel experiences, Lesotho’s tourism sector presents exciting prospects for entrepreneurs looking to establish accommodation, tour operating services, or high-altitude adventure ventures.