Business in Lesotho

The History of Lesotho

 

The Kingdom of Lesotho is a remarkable landlocked country nestled entirely within South Africa, uniquely positioned high in the Maloti Mountains. Covering just over 30,000 square kilometers and home to approximately two million people, Lesotho is the only sovereign nation in the world located entirely above 1,400 meters in elevation. This dramatic geography has earned it the nickname “The Kingdom in the Sky”, attracting visitors and investors alike with its stunning natural beauty, cool mountain climate, and vibrant cultural traditions.

Geography and Strategic Location in Southern Africa
Lesotho’s elevated terrain offers breathtaking mountain views, diverse ecosystems, and a distinct climate unlike any other in the region. The capital city, Maseru, sits near the western border and functions as the country’s political, economic, and cultural centre, blending modern infrastructure with rich Basotho heritage.

A Brief History of Lesotho’s Independence
Lesotho’s path to sovereignty began under British colonial rule, when it was known as Basutoland. It gained full independence on 4 October 1966, emerging as a stable democratic state with a unique legal and political identity in Southern Africa.

Lesotho’s Role in International and Regional Bodies
As a fully sovereign nation, Lesotho is an active participant in several global and regional organisations:

  • A member of the United Nations (UN), contributing to peacebuilding, sustainable development, and multilateral cooperation.
  • Part of the Commonwealth of Nations, maintaining strong ties with other former British territories and engaging in cultural and educational exchanges.
  • A member of the Southern African Development Community (SADC), supporting regional integration, trade facilitation, and collective security in Southern Africa.

With its strategic location, unique geography, and strong institutional participation on the regional and global stage, Lesotho continues to grow as an appealing destination for tourism, trade, and investment.

Currency

The Loti (plural: Maloti) is the official currency of the Kingdom of Lesotho, and it plays a vital role in the country’s economic stability and regional integration. Through its participation in the Common Monetary Area (CMA), Lesotho has pegged the Loti at a fixed 1:1 exchange rate with the South African Rand (ZAR). This fixed parity ensures monetary stability, simplifies cross-border transactions, and enhances confidence among investors and traders operating in Southern Africa.

Because the Loti and Rand are interchangeable in Lesotho, both currencies are accepted as legal tender. This seamless currency arrangement benefits both tourists and businesses, allowing for easy transactions without the need for currency conversion. Whether paying for goods, services, or travel expenses, users can transact freely in either currency throughout the country.

The Central Bank of Lesotho (CBL) oversees monetary policy and coordinates closely with South African financial institutions to sustain this integrated framework. By being part of the Common Monetary Area, Lesotho enjoys a stable currency system that promotes regional trade and investment, supports macroeconomic stability and facilitates tourism and economic mobility within the region

Lesotho’s currency arrangement under the CMA highlights its strategic position in Southern Africa’s financial ecosystem, providing an attractive environment for commerce, tourism, and cross-border business operations.

Banks in Lesotho

The banking industry in Lesotho is regulated by the Financial Institutions Act, which sets out the legal framework for the establishment and operation of banks within the country. A key provision under this legislation is the requirement for a minimum paid-up capital of M10 million, designed to ensure that licensed banks maintain a strong financial foundation. This capital threshold promotes financial stability, protects consumer interests, and supports long-term growth within Lesotho’s financial services sector.

Lesotho is home to several leading commercial banks, each offering a comprehensive range of services tailored to both individuals and businesses. The four major banks in Lesotho include:

  • Standard Lesotho Bank

  • Nedbank Lesotho

  • First National Bank (FNB) Lesotho

  • Lesotho Post Bank

These banks are central to Lesotho’s financial ecosystem, providing essential services such as savings and current accounts, business and personal loans, investment products, and international money transfers. Their operations contribute significantly to financial inclusion, economic development, and the modernization of the country’s banking infrastructure.

By offering both retail and corporate banking solutions, these financial institutions empower individuals, entrepreneurs, and large businesses alike, fostering access to credit, promoting secure transactions, and encouraging economic participation across Lesotho.

With a well-regulated banking sector and reputable financial institutions, Lesotho presents a stable and accessible environment for banking, investment, and financial growth in Southern Africa.

Political System and Investment Climate

The Kingdom of Lesotho operates under a constitutional monarchy with a parliamentary democracy, where executive power rests with the Prime Minister, and the King plays a ceremonial and symbolic role. Lesotho’s Constitution upholds the separation of powers, guarantees an independent judiciary, and protects fundamental civil liberties, including freedom of speech, religion, assembly, and the press.

A distinctive feature of Lesotho’s legal system is its dual structure, which integrates both customary law, governing cultural and traditional matters, and general law, which addresses modern civil, commercial, and criminal issues in accordance with international legal standards.

Democratic Advancement: Lesotho’s First Coalition Government
A key political milestone was reached in May 2012, when Prime Minister Thomas Thabane led the formation of Lesotho’s first coalition government following a competitive electoral process. This marked a significant step toward democratic maturity, demonstrating the country’s commitment to peaceful political transitions, multi-party governance, and pluralistic democracy.

Economic Overview: Key Drivers of Lesotho’s Economy

Lesotho’s economy is supported by a combination of natural resource exports, manufacturing, agriculture, and remittances, offering a diverse landscape for investment and trade opportunities.

  • Diamonds and Water Exports:
    Lesotho is a producer of high-value diamonds, which form a core component of its export earnings. Additionally, the Lesotho Highlands Water Project generates substantial revenue through water exports to South Africa, leveraging the country’s unique mountainous geography.

  • Manufacturing and Agriculture:
    The textile and footwear sectors benefit from access to regional and global markets, including preferential trade agreements. Wool, mohair, and livestock farming continue to play a vital role in Lesotho’s rural economy, with subsistence farming sustaining many communities.

  • Remittances from South Africa:
    A significant portion of the population works in South Africa, and the resulting remittance inflows support household consumption, poverty reduction, and domestic economic activity.

Corporate and Investment Climate: Companies Act 2012

The enactment of the Companies Act of 2012 marked a transformative shift in corporate governance in Lesotho, introducing a modern and efficient regulatory framework. Key features include:

  • Streamlined company registration and compliance procedures

  • Improved transparency and accountability standards

  • Stronger legal protections for investors and shareholders

  • Incentives aimed at attracting foreign investment and encouraging entrepreneurship

Governance and Rule of Law in Lesotho

Lesotho’s commitment to good governance, constitutional rights, and rule of law reinforces its position as a stable jurisdiction for both citizens and businesses.

  • The King, as a constitutional monarch, serves as a unifying national figure.

  • The independent judiciary guarantees legal certainty and fair adjudication.

  • The dual legal system allows the state to uphold traditional values while embracing modern legal standards compatible with international norms.

With its stable political framework, resource-driven economy, and investor-friendly legal environment, Lesotho offers strategic opportunities for sustainable growth and regional integration within Southern Africa.

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

Private Limited Liability Companies in Lesotho – Key Features and Compliance Under the Companies Act

The private limited liability company (Pty Ltd) is the most common and preferred business structure in Lesotho, offering flexibility, limited liability protection, and a streamlined incorporation process. The Companies Act of 2012 introduced several reforms that have reshaped the way private companies operate, affecting both existing entities and new company registrations.

Here’s what you need to know about private company formation in Lesotho, shareholder requirements, capital structure, and corporate compliance:

  • No Minimum Share Capital: The new legal framework removes the requirement for a minimum share capital for private companies. This change lowers barriers to entry and promotes entrepreneurship by making company registration in Lesotho more accessible to small businesses and start-ups.

  • Single Shareholder Structure: Entrepreneurs can now incorporate a private company with just one shareholder, simplifying the formation process for sole proprietors and individual business owners looking to formalize their operations.

  • Shareholder Limit: A private company in Lesotho is limited to a maximum of 50 shareholders, maintaining a closely held ownership structure ideal for family-owned businesses, partnerships, and small to medium-sized enterprises (SMEs).

  • Director Accountability: Under the Companies Act, directors now face personal liability for breaches of their statutory duties to the company and its shareholders. This promotes greater transparency, corporate responsibility, and alignment with good governance standards.

  • Approval of Major Transactions: Any major corporate transaction, such as asset disposals, mergers, or acquisitions, must receive shareholder approval via special resolution, ensuring that key business decisions are made with full ownership oversight.

  • Digital Compliance and Filing: The Companies Act supports electronic filing systems, streamlining the submission of company returns, updates, and statutory documents to the Companies Registry of Lesotho, enhancing efficiency and reducing administrative burdens.

With these updates, forming and managing a private limited liability company in Lesotho is more efficient and investor-friendly than ever. Whether you’re starting a new venture or restructuring an existing business, Mayet & Associates provides comprehensive legal support to help you stay compliant and thrive in Lesotho’s evolving corporate environment.

External Companies

Under the Companies Act of Lesotho, any foreign company intending to operate within the country must register as an external company. This registration is a legal requirement and must be completed within 10 days of establishing a place of business in Lesotho. Whether opening a branch, office, or engaging in commercial activity, foreign businesses must ensure full compliance with Lesotho’s company registration regulations to operate lawfully and avoid penalties.

At Mayet & Associates, we assist international clients with every step of the external company registration process in Lesotho, ensuring timely submissions and ongoing regulatory compliance.

Partnerships

In Lesotho, any partnership agreement must be formally documented in writing and signed by all partners before a Notary Public to comply with the country’s legal requirements. This notarial certification ensures that the agreement is legally binding and enforceable, offering clarity and protection for all parties involved.

In accordance with the Partnerships Proclamation of 1957, which governs the formation, rights, and obligations of partnerships under Lesotho’s common law, such agreements can also be voluntarily registered in the Deeds Registry. While registration is not mandatory, it provides an official public record, which can significantly enhance legal certainty, transparency, and stakeholder confidence, especially in business dealings with third parties.

Furthermore, in the event of a termination or dissolution of the partnership, a written cancellation agreement is required to clearly document the end of the relationship and protect the interests of all former partners.

At Mayet & Associates, we provide expert guidance on drafting, notarising, and registering partnership agreements in Lesotho, ensuring full compliance with local laws and supporting long-term business success.

Taxation

Lesotho’s tax framework is governed by the Income Tax Act and its related regulations, providing a structured approach to both personal and business taxation. Whether you’re an individual taxpayer, local business owner, or international investor, understanding Lesotho’s tax rates and obligations is essential for compliance and financial planning.

Personal Income Tax in Lesotho (Residents)

Lesotho uses a progressive income tax system for individuals, with tax calculated based on income brackets:

  • First M48,744: Taxed at 25%

  • Income exceeding M48,744: Taxed at 35%

Withholding Tax for Non-Residents

Payments made to non-residents are subject to withholding tax, which must be deducted at source.

  • Standard Withholding Rate – 25%
    Applies to payments such as dividends, interest, royalties, natural resource-related payments, and management or administrative fees.

  • Service Contract Withholding – 10%
    A 10% withholding tax is levied on the gross amount of payments made under Lesotho-source service contracts to non-resident entities or individuals.

Capital Gains Tax in Lesotho

Lesotho imposes capital gains tax under certain conditions, although specific exemptions may apply based on the nature of the asset sold or the type of transaction. Businesses and individuals engaging in asset transfers should seek professional advice to assess tax liability.

Value-Added Tax (VAT) in Lesotho

  • Standard VAT Rate: 14% on most goods and services supplied within Lesotho

  • Zero-Rated Items: Essential goods, such as basic foodstuffs, are zero-rated, meaning no VAT is charged

  • VAT Registration Threshold: Businesses with an annual turnover exceeding M2 000 000 are required to register for VAT with the Lesotho Revenue Authority (LRA)

Lesotho’s tax system is designed to support both revenue generation and economic growth, with structured rates and a relatively simple compliance process.

At Mayet & Associates, we provide tailored legal and tax advisory services to help individuals and businesses navigate Lesotho’s tax laws, meet their obligations, and structure transactions efficiently for tax optimisation and regulatory compliance.

Double Taxation Agreements

Lesotho’s International Economic Framework – Tax Treaties, Exchange Controls, and Regional Integration

The Kingdom of Lesotho operates within a dynamic and increasingly integrated global economic environment, shaped by its bilateral tax treaties, exchange control regulations, and participation in several key regional and international organizations. These frameworks support Lesotho’s goals of enhancing foreign direct investment (FDI), maintaining monetary stability, and expanding its role in regional trade and diplomacy.

Double Taxation Agreements (DTAs) and Ongoing Negotiations

Lesotho has signed tax treaties with a number of countries to avoid double taxation and promote cross-border investment by reducing withholding tax obligations on dividends, interest, and royalties.

Existing Tax Treaties:

  • United Kingdom

  • South Africa

  • Mauritius

Treaties Under Negotiation:

  • Botswana

  • Seychelles

Future Negotiations Approved:

  • Namibia

  • Eswatini (Swaziland)

  • India

  • China

  • United States

  • Australia

Expanding Lesotho’s double taxation treaty network helps lower the tax burden for international investors, encourages capital inflows, and strengthens the country’s appeal as a destination for international trade and investment.

Exchange Control and the Rand Common Monetary Area (CMA)

Lesotho is a member of the Rand Common Monetary Area (CMA), along with South Africa, Namibia, and Eswatini, enabling a 1:1 peg between the Loti and the South African Rand (ZAR). This arrangement promotes currency stability and harmonised monetary policy coordination.

Exchange Control Framework:

  • Governed by the Exchange Control Order and Regulations, enforced by the Central Bank of Lesotho in coordination with the South African Reserve Bank.

  • Commercial banks in Lesotho act as authorised dealers, handling foreign exchange transactions within defined regulatory limits.

  • Certain transactions such as overseas investments, cross-border loans, and dividend repatriations may require prior approval, ensuring compliance and economic stability.

Lesotho’s exchange control policies help manage capital flows, protect foreign reserves, and maintain confidence in the local financial system, while still enabling access to global markets.

Membership in International and Regional Organizations

Lesotho is an active member of several multilateral and regional bodies, promoting economic cooperation, trade liberalisation, and development partnerships. These include:

  • Southern African Development Community (SADC)

  • Southern African Customs Union (SACU)

  • Preferential Trade Area (PTA)

  • British Commonwealth

  • United Nations (UN)

Through these memberships, Lesotho gains access to preferential trade agreements, technical assistance, and regional funding initiatives, reinforcing its position in Southern Africa’s economic and diplomatic landscape.

At Mayet & Associates, we assist businesses and investors in navigating Lesotho’s tax and exchange control landscape, ensuring full compliance while maximising international trade and investment opportunities.

Monetary Policy

Monetary policy in Lesotho is formulated and executed by the Central Bank of Lesotho (CBL), the country’s primary financial authority. The core objective of Lesotho’s monetary policy is to maintain price stability, which supports sustainable economic growth and a stable financial environment.

The CBL employs indirect monetary policy tools, such as open market operations and reserve requirements, alongside an inflation forecasting framework to anticipate economic trends and manage inflationary pressures effectively.

By promoting monetary and financial stability in Lesotho, the Central Bank plays a critical role in:

  • Managing interest rates and money supply

  • Regulating foreign exchange reserves

  • Overseeing banking sector liquidity

  • Supporting the goals of the Common Monetary Area (CMA), including currency parity with the South African Rand

At Mayet & Associates, we assist businesses and investors in understanding the implications of Lesotho’s monetary policy on financial planning, lending, and cross-border transactions, ensuring informed decision-making in a regulated economic environment.

Trading Licences

All businesses and entrepreneurs operating in Lesotho are required to register with the Ministry of Trade to obtain a Business Licensing Identity Document (ID). This is a mandatory step to ensure that commercial operations are legally recognised and fully compliant with Lesotho’s business regulations.

For foreign-owned businesses, there is an additional requirement to secure a Business Permit before commencing operations. This regulatory framework helps maintain a transparent and structured business environment, while facilitating easier monitoring and enforcement of compliance.

Lesotho also enforces local ownership policies, whereby certain business activities are reserved exclusively for indigenous Basotho citizens, promoting local entrepreneurship and economic empowerment. Additionally, depending on the industry or sector, businesses may be required to obtain special licences or approvals from other government departments or regulatory bodies prior to operating.

At Mayet & Associates, we provide expert guidance on the business registration process in Lesotho, including licensing, permits for foreign investors, and sector-specific compliance, helping clients establish and grow their businesses in full accordance with the law. 

Legal System

Lesotho follows a hybrid legal system that incorporates elements of common law, statutory law, and customary law. This unique structure ensures that both modern legal principles and traditional tribal customs are considered in the administration of justice. While customary law plays a significant role in rural areas, particularly in family, inheritance, and land-related disputes, it remains subordinate to national legislation and constitutional provisions.

Here’s an overview of the court system in Lesotho and the roles of its key judicial bodies:

  • Court of Appeal of Lesotho
    As the highest appellate court, the Court of Appeal hears cases brought from the High Court, offering authoritative interpretations of the law and resolving major legal questions. Its decisions are final and binding.

  • High Court of Lesotho
    The High Court has unlimited original jurisdiction over both civil and criminal matters, making it a central pillar of Lesotho’s judicial system. It handles serious cases and often delivers rulings that set legal precedents affecting lower courts.

  • Commercial Court of Lesotho
    A specialised division of the High Court, the Commercial Court focuses on business and commercial litigation. It plays a critical role in resolving corporate, financial, and contractual disputes, ensuring timely and effective adjudication that supports Lesotho’s business and investment climate.

Lesotho’s legal structure, underpinned by a mix of traditional and formal law, ensures access to justice, legal certainty, and predictability for businesses and individuals operating in the country. At Mayet & Associates, we guide clients through Lesotho’s legal system, offering strategic legal support in civil, commercial, and appellate matters.

Infrastructure

Lesotho’s transport and infrastructure sector is experiencing transformative growth, with major upgrades underway to improve national connectivity, stimulate economic activity, and enhance the overall quality of life. From road network expansions to water purification projects and aviation infrastructure, these developments are vital for positioning Lesotho as a competitive and accessible economy within Southern Africa.

Road Infrastructure in Lesotho

  • Total Road Network: Lesotho has approximately 7,091 kilometers of roads, yet only 1,404 kilometers are currently paved with asphalt, highlighting the urgent need for expanded road surfacing and modernization.

  • Ongoing Road Projects: The government is actively engaged in multiple road rehabilitation and construction projects aimed at improving transport safety, logistics efficiency, and urban-rural connectivity. Enhanced roads facilitate the smoother movement of goods, services, and tourists, contributing directly to economic development and regional trade integration.

Key Infrastructure Initiatives

  • Water Purification and Access Projects: With abundant highland water resources, Lesotho is investing in the modernization and expansion of water purification plants to ensure clean and reliable water supply. These efforts support both public health and industrial productivity, aligning with the country’s goals for sustainable water management.

  • Electricity and Broadband Development: Although not always headline projects, critical investments in electricity grid expansion and broadband infrastructure are also being made. These improvements are essential for enhancing Lesotho’s digital connectivity, strengthening its business environment, and improving access to essential services for citizens.

Air Travel and Aviation Connectivity

  • Maseru International Airport: Lesotho’s sole international gateway, located near the capital city, features two asphalt runways and provides direct flight connections to major South African airports. This enhances regional and global accessibility, supporting tourism, business travel, and air cargo movement.

  • Impact on Trade and Tourism: Improved air connectivity plays a critical role in boosting tourism, attracting foreign investment, and promoting economic integration between Lesotho and its neighboring countries. Efficient air links help establish Lesotho as a viable hub for cross-border business and regional development.

At Mayet & Associates, we offer legal support to investors, contractors, and public entities engaged in Lesotho’s infrastructure and transport projects. From regulatory compliance to project finance and procurement advice, we ensure smooth legal navigation in support of the country’s ongoing development.

Mining

Lesotho’s diamond industry is globally recognized for producing some of the world’s most exceptional high-quality gems. The country’s reputation in the diamond market continues to attract substantial foreign direct investment (FDI), making mining a key pillar of Lesotho’s economic development. Diamond exports contribute significantly to national revenue, while also driving job creation, infrastructure upgrades, and local economic stimulation. In addition to employment opportunities, mining companies in Lesotho often engage in community development programs through public-private partnerships, further enhancing the sector’s socioeconomic impact.

The legal foundation for Lesotho’s mining sector is set out in the Mines and Minerals Act of 2005, which provides a comprehensive framework for regulating exploration, mining operations, licensing, royalties, and environmental compliance. The Act establishes clear procedures and transparent standards that offer confidence to foreign and local investors alike. It also ensures mining activities align with environmental and social obligations, helping companies maintain community trust and long-term sustainability. With its rich mineral resources and investor-friendly legislation, Lesotho remains a competitive and attractive destination for international mining investment.

Agriculture

Agriculture in Lesotho remains largely underdeveloped, with most farming focused on subsistence crops such as maize and wheat. Despite being a key livelihood for rural communities, the agricultural sector contributes only 7.8% to Lesotho’s GDP. The country faces ongoing challenges related to low productivity, climate variability, and limited access to modern farming technology. As a result, Lesotho is not food self-sufficient and continues to depend heavily on food imports to meet national demand. Strengthening the agriculture sector remains vital for improving food security, reducing import reliance, and supporting rural economic development.

Labour Relations

Lesotho’s labour force is estimated at approximately 854,600 individuals, with a large portion engaged in the agriculture sector, particularly in subsistence farming. While agriculture remains the dominant source of employment, its low productivity levels contribute to widespread underemployment and limit broader economic growth. The country continues to face a high unemployment rate, especially among the youth, as job opportunities in both urban and rural areas remain scarce. Efforts to promote economic diversification and enhance skills development are central to addressing these labour market challenges.

The legal framework governing employment in Lesotho is outlined in the Labour Act, 2024, which regulates labour relations, sets out minimum working conditions, and provides mechanisms for dispute resolution. The Act ensures that employee rights are protected, including provisions for occupational health and safety, working hours, and employee benefits.

For foreign nationals seeking employment in Lesotho, securing a valid work permit is a legal requirement. Employers hiring international staff must demonstrate that no qualified local candidates are available to fill the position, in line with the country’s labour protection policies.

Lesotho also enforces a statutory minimum wage across various sectors to ensure a basic standard of living for workers. These wage rates are regularly reviewed by the government to reflect cost-of-living changes and evolving economic conditions, supporting fair compensation and worker welfare.

Tourism

Lesotho, known as the “Kingdom in the Sky,” offers some of the most spectacular natural landscapes in Southern Africa, featuring majestic mountains, pristine rivers, and panoramic views. As global travelers increasingly seek authentic and off-the-beaten-path travel experiences, Lesotho’s emerging tourism industry presents strong opportunities for investment. Entrepreneurs can tap into this growing sector by developing accommodation services, launching guided tour operations, or offering high-altitude adventure tourism, including hiking, pony trekking, and mountain biking. With its unspoiled environment and rich cultural heritage, Lesotho is quickly becoming a desirable destination for eco-tourism and sustainable travel ventures.

Click to view our Bloemfontein website

Contact us:

services

  • Monday - Friday:
  • 08:00-AM - 16:30PM
Facebook Instagram Linkedin

No article or picture may be reproduced\published without the written consent of Mayet & Associates.
© Copyright 2024 Mayet & Associates. All Rights Reserved.