Botswana’s proposed Income Tax Bill 2025 introduces a clearer and more structured framework for the taxation of trust income. The draft legislation formalises attribution principles that determine whether trust income is taxed in the hands of the settlor, the beneficiary, or the trustee.
Under this proposed regime, tax liability follows legal entitlement and control. In practical terms, the drafting of your trust now determines who pays tax.
The Shift Toward an Attribution Framework
Subdivision II (Trusts) of the proposed Bill establishes express income attribution rules. Depending on the structure of the trust and the rights created under the trust deed, income may be attributed to:
- The settlor
- The beneficiary
- Or the trustee
This represents a deliberate move toward transparency and conduit-based taxation, aligning Botswana’s approach with modern international principles that link tax outcomes directly to economic control and beneficial entitlement. Trust structuring is therefore no longer merely a private law exercise – it carries direct and measurable tax consequences.
Settlor Trusts: Control Comes With Continued Tax Exposure
Where a trust qualifies as a settlor trust, the Bill provides that the trust is not treated as separate from the settlor for tax purposes:
- Amounts derived by the trustee are treated as derived by the settlor.
- Trust assets are treated as owned by the settlor.
- Dealings in trust property are treated as dealings by the settlor.
Where a settlor retains extensive powers, reversionary interests, or effective control over trust assets, income may continue to be attributed to the settlor regardless of whether distributions are made. Trust deeds that preserve broad control clauses may therefore result in ongoing personal tax liability.
Absolute Beneficiary Trusts and Vested Rights
The Bill further recognises a category of absolute beneficiary trusts. Where a beneficiary holds an enforceable and vested entitlement to trust income or capital, the trust is treated as transparent. Income derived by the trustee is treated as derived directly by the beneficiary.
This means that vesting provisions in your trust deed are no longer technical drafting details – they directly influence the allocation of tax liability.
Discretionary Trusts and Trustee Liability
Where no beneficiary holds a vested entitlement, the trustee remains liable for tax on the taxable income of the trust. The proposed Bill provides that:
- The trustee is personally liable as a representative taxpayer.
- Where there is more than one trustee, they are jointly and severally liable.
- Income taxed at trustee level is not taxed again upon later distribution to beneficiaries.
These provisions formalise trustee-level taxation for discretionary trusts while preserving the non-double-taxation principle. However, they also elevate governance risk – trustees can no longer treat tax compliance as an administrative afterthought. Personal responsibility for compliance is expressly embedded in statute.
Why Drafting Now Determines Tax Outcomes
Under the proposed framework, tax consequences flow directly from:
- Settlor control clauses
- Reversionary interests
- Vesting provisions
- Distribution mechanics
- Trustee powers and discretions
Many existing trusts were drafted without anticipating an attribution-based tax regime. Under the new Bill, this may result in:
- Unexpected tax exposure
- Reporting failures
- Misalignment between trust objectives and tax outcomes
- Personal liability for trustees
A technical review of trust documentation is therefore not merely advisable – it is strategic.
Time to Review Existing Trust Structures
Trusts operating in Botswana should reassess:
- Whether the trust may qualify as a settlor trust
- Whether beneficiary rights are vested or discretionary
- The allocation of trustee powers
- Tax reporting obligations
- Governance and compliance systems
Early preparation will determine whether a trust remains compliant and tax-efficient under the forthcoming legislative framework.
Upcoming Training
KLP Consulting and Services will be hosting a training session on:
Trusts in Botswana: Structure, Registration and Taxation
30 March 2026 | Gaborone
A structured and practical guide to trust structuring, registration requirements and tax compliance under Botswana’s evolving tax framework.
Further details on upcoming training sessions are available on our website.
