Lesotho is a small, mountainous kingdom entirely surrounded by South Africa, with an economy built on textiles and apparel manufacturing, water exports, mining, and agriculture. For foreign investors, it offers duty-free access to regional and international markets and a low tax rate for manufacturers. Registering a company is relatively straightforward, but the planning that matters most concerns business licensing, especially the list of activities reserved for Basotho citizens, along with land access, labor rules, and permits for foreign staff. This guide explains how each stage works and what foreign founders need to prepare.

Why Register a Company in Lesotho?

Lesotho has a population of a little over two million people, and its capital, Maseru, sits on the border with South Africa, with direct road links to Bloemfontein and Johannesburg. Lesotho’s best-known industry is textile and apparel manufacturing, which grew rapidly thanks to preferential access to the United States under the African Growth and Opportunity Act and to regional markets through SACU and the Southern African Development Community (SADC). The country also exports water and hydroelectric power to South Africa through the Lesotho Highlands Water Project, has diamond mining operations in the highlands, and is developing tourism around its mountain landscapes.

For manufacturers, the tax environment is a significant attraction. Manufacturing companies pay corporate income tax at 10 percent, compared with the standard 25 percent, and the Lesotho National Development Corporation (LNDC) supports investors with industrial sites, factory shells, and investment facilitation. Because the loti is pegged one to one with the South African rand, and the rand circulates freely in Lesotho, businesses serving the regional market face little currency risk within the Common Monetary Area.

The challenges are real. The domestic market is small, the OBFC process can be slower and more bureaucratic in practice than its single-window design suggests, land is held by the Basotho Nation and is available to foreigners only through leases, and an expanding list of business activities is reserved for indigenous citizens. For companies that want to hire in Lesotho before setting up a company, an Employer of Record in Lesotho can be a practical alternative.

Choosing the Right Business Structure

The Companies Act, 2011, governs companies in Lesotho and provides for private and public companies, companies limited by guarantee, and the registration of external companies. The structure you choose affects liability, governance, and filing obligations, and it also interacts with licensing rules, since some activities are reserved for companies owned and controlled by indigenous Basotho.

Private Company Limited by Shares

The private company is the most common vehicle for foreign investors. It can be formed by a single shareholder, which can be an individual or a company, and shareholders’ liability is limited to the amount unpaid on their shares. There is no general statutory minimum share capital identified for private companies, although some regulated sectors set their own requirements. The company is governed by its articles of incorporation, and directors owe duties under the Companies Act that apply regardless of nationality, including duties to act in good faith, in the company’s best interests, and with appropriate care. Foreign parents often appoint a mix of group executives and locally based directors, which helps with day-to-day signing and dealings with banks and authorities while keeping strategic control within the group.

Public Company Limited by Shares

A public company can offer shares more widely and suits larger businesses. It must have at least two shareholders, a company secretary who meets the qualification requirements in the Act, and more formal governance and reporting arrangements than a private company.

Company Limited by Guarantee

A company limited by guarantee is used mainly by non-profit organizations, associations, and charities, where members agree to contribute a set amount if the company is wound up. It is rarely used by foreign businesses for commercial activities.

External Company (Branch)

A foreign company can register in Lesotho as an external company and operate through a branch. The branch is not a separate legal entity, so the parent remains liable for its obligations, and the parent must file its constitutional documents and details of its directors and a local representative with the registrar.

Comparison of Common Business Structures in Lesotho

Structure Common purpose Pros Cons
Private company Foreign-owned subsidiaries and most businesses Single shareholder possible; limited liability; no general minimum capital Reserved activities closed to non-indigenous owners
Public company Larger businesses with wider ownership Suits multiple shareholders At least two shareholders; qualified company secretary; heavier governance
Company limited by guarantee Non-profits and associations Recognized non-profit structure Not suited to commercial activities
External company (branch) Parent operating directly No new entity to capitalize Parent fully liable

Lesotho's Legal and Regulatory Requirements for Companies

Lesotho’s business framework centers on the OBFC, which handles company registration and business licensing, but companies also deal with other agencies once they start operating. Because these agencies do not always share information automatically, changes such as a new director or address may need to be reported to several bodies separately. The Registrar of Companies, within the Office of the Registrar of Companies and Intellectual Property, maintains company records. Revenue Services Lesotho (RSL) administers income tax, VAT, and payroll taxes, the Ministry of Labour and Employment oversees employment matters and work permits, and the Ministry of Home Affairs handles residence permits.

Key Business Regulations in Lesotho

  • Business licensing. Under the Business Licensing and Registration Act, 2019, and its regulations, businesses need a license for their activities, and the licensing system is intended to be risk-based. Licensing is handled through the OBFC and must be renewed as required.
  • Reserved activities. Regulation 34 of the Business Licensing and Registration Regulations reserves specific business activities exclusively for indigenous citizens. For these activities, the test looks at indigenous citizen ownership and control of the company, not a simple shareholding threshold, and the list was originally published in 2020 with later amendments.
  • Land access. Under the Land Act, 2010, land is vested in the Basotho Nation and administered on its behalf, so foreign investors generally obtain land through leases rather than outright ownership.
  • Tax registration. Companies must register with RSL for a taxpayer identification number and for VAT once their turnover exceeds the registration threshold.
  • Directors’ duties. The Companies Act sets out duties and responsibilities for directors, who can face personal consequences for breaches. Foreign directors should understand these duties before accepting appointment.
  • Labor law. Employment is governed by Lesotho’s labor legislation, and disputes are heard under the Labour Court Act, 2024, which came into force on April 2, 2024.

Tips for Staying Compliant with Basotho Laws

  • Check reserved activities before you invest. Because the Ministry intends to stop issuing or renewing licenses for non-indigenous enterprises in reserved sectors, entering one of these sectors can leave a foreign-owned business unable to operate when its license expires. Review the current list and take legal advice before committing capital.
  • Renew business licenses on time. Licenses under the Business Licensing and Registration Act must be kept current. Operating without a valid license exposes the business to penalties and can affect banking and contracts.
  • File annual returns with the registrar. Companies must keep their records current with the Registrar of Companies, including annual returns and changes to directors and shareholders. Accurate records help with banks, tenders, and permits.
  • Keep tax filings up to date. Companies file income tax returns and, where registered, VAT returns with RSL. Late filings lead to penalties and interest, so set up a compliance calendar with your accountant.
  • Secure land rights properly. Because land is held by the Basotho Nation, foreign investors should make sure leases are properly registered and that the terms support their planned activities and investment horizon.
  • Keep work and residence permits current. Foreign employees need valid permits. Track expiry dates and start renewals early to avoid interruptions, since processing can take time and an expired permit means the employee must stop working.

Step-by-Step Process to Set Up a Company in Lesotho

Company registration in Lesotho is handled through the OBFC in Maseru, and registration typically takes several working days if documents are complete. In practice, submitting documents may require physical presence or a local agent, and business licensing, banking, and permits add time. The steps below reflect the usual sequence for a foreign-owned private company.

1

Check Whether Your Activity Is Reserved

Before anything else, check whether your planned activity appears on the list of activities reserved for indigenous Basotho citizens. If it does, a foreign-owned company will not be able to obtain or renew a license for it, so the business model may need to change.

2

Reserve the Company Name

Check the availability of the proposed name through the OBFC and reserve it, usually for a limited period and for a small fee. Names must be distinct from existing companies and comply with naming rules, and names that suggest government links or regulated activities may be refused, so prepare alternatives.

3

Prepare the Incorporation Documents

Prepare the application for incorporation, the articles of incorporation if you do not use the standard form, consents of directors and the company secretary where applicable, details of shareholders, and the registered office address. Decide at this stage on the company’s share structure and any restrictions on share transfers, since these are easier to set correctly at incorporation than to change later. Foreign shareholders provide passport copies and, for corporate shareholders, certified constitutional documents and resolutions approving the investment.

4

Submit the Application to the OBFC

Submit the documents to the OBFC, either online where available or in person, often through a local agent. The OBFC reviews the documents and, once they are approved, advises when to pay the registration fees. Foreign investors who are not in Lesotho typically appoint a local agent or law firm with a power of attorney, since submissions and follow-up can require visits to the OBFC office in Maseru.

5

Pay the Fees and Receive the Certificate of Incorporation

Pay the registration fees, after which the registrar issues the certificate of incorporation. The company now exists as a legal entity and can apply for licenses and tax registration.

6

Apply for a Business License

Apply through the OBFC for the license required for your activities under the Business Licensing and Registration Act, using the prescribed application forms. Higher-risk activities may need inspections or approvals from sector authorities before the license is issued. The license describes the activities the business may carry out, so make sure it covers everything you plan to do and apply for amendments before adding new activities.

7

Register with Revenue Services Lesotho

Register the company with RSL for a taxpayer identification number, and register for VAT if turnover will exceed the threshold or if voluntary registration makes sense. Register as an employer for payroll tax purposes before paying salaries, and appoint an accountant to manage monthly withholding returns and annual tax filings from the start.

8

Secure Premises and Land Rights

Lease premises suitable for your activities, and for manufacturing projects, consider industrial sites offered by the LNDC, such as factory shells in Maseru and other industrial areas. Make sure lease agreements are properly documented and registered, and that their duration supports your investment horizon, since you will generally not be able to buy the land.

9

Open a Corporate Bank Account

Open a business account with a bank in Lesotho using the incorporation documents, license, tax registration, and identification of directors and beneficial owners. Banks carry out their own due diligence on foreign owners, often asking for a business plan and information about the source of funds. Several banks operating in Lesotho are linked to South African banking groups, which can make cross-border payments within the Common Monetary Area more straightforward.

10

Apply for Work and Residence Permits

If foreign staff will work in Lesotho, apply for work permits through the Ministry of Labour and Employment and residence permits through the Ministry of Home Affairs, as described in the next section.

Hiring and Managing Employees

Employment in Lesotho is governed by its labor legislation, with minimum wages set by sector and disputes heard under the Labour Court Act, 2024. The textile and apparel industry is the largest private employer, and the Department of Labour monitors compliance closely, particularly in manufacturing.

Lesotho does not have a single national minimum wage. Instead, minimum wages vary by sector and are set through wage determination orders, with different rates for manufacturing, retail, agriculture, and services, and textile sector wages follow their own determinations. Employers must check the determination that applies to each role and update pay when new orders are published. Employment contracts should set out pay, working hours, leave, and notice terms in line with the labor legislation, and employers must keep records of wages, hours, and leave for inspection. Employers withhold income tax under the pay-as-you-earn system, with personal income tax charged at 20 percent on income up to a set monthly threshold and 30 percent above it. Severance pay and other entitlements under the labor legislation should also be built into employment costs. Global payroll support can help keep wage rates, withholding, and filings accurate.

Foreign nationals need a work permit from the Ministry of Labour and Employment and a residence permit from the Ministry of Home Affairs before they start work. Applications usually include the employee’s qualifications, the employment contract, and the company’s registration and license documents, and permits are tied to the employer and role. Employers typically need to show that the role requires skills not readily available among Basotho and to plan for skills transfer to local staff.

Tips for Recruiting and Retaining Local Talent

  • Check the applicable wage determination. Minimum wages differ by sector, and using the wrong rate can lead to underpayment claims and inspections. Confirm the correct determination for each role.
  • Plan for skills transfer. Work permit applications for foreign staff are assessed with local employment in mind. Training and mentoring programs for Basotho employees support permit approvals and build capability.
  • Invest in workforce development. Skilled managers, engineers, and technicians can be scarce, and many skilled Basotho work in South Africa. Training programs, clear career paths, and competitive pay help retain good employees.
  • Engage constructively with workers. Labor relations in the textile sector are closely watched, so clear communication, fair procedures, and compliance with labor standards help avoid disputes.
  • Use local recruitment expertise. A recruitment agency in Lesotho can help identify candidates, benchmark salaries, and navigate local hiring practices.

Financial Management and Reporting

Lesotho’s tax system is administered by RSL, which was known as the Lesotho Revenue Authority until it was renamed, and includes corporate income tax, VAT, and withholding taxes. Corporate income tax is 25 percent on business income, with a reduced 10 percent rate for manufacturing entities, which makes Lesotho particularly attractive for export-oriented manufacturers. VAT is charged at 15 percent, and businesses must register once their turnover exceeds the prescribed threshold, while those below it may register voluntarily to claim input VAT. Withholding tax applies to dividends, interest, and royalties paid to non-residents, and companies should keep proper accounting records to support their annual tax returns and any audit requirements.

Common Pitfalls to Avoid

  • Assuming the manufacturing rate applies automatically. The 10 percent rate applies to qualifying manufacturing income. Confirm eligibility with RSL and keep records that support the classification, particularly if the company also earns income from trading or services, which is taxed at the standard rate.
  • Missing withholding on payments abroad. Dividends, interest, and royalties paid to non-residents attract withholding tax, which the Lesotho company must deduct and pay to RSL. Build this into intercompany agreements, and check whether a tax treaty reduces the rate for payments to your home country.
  • Overlooking VAT registration. Once turnover exceeds the threshold, registration is required. Monitor turnover to register on time, and consider voluntary registration if your customers are VAT-registered businesses that can recover the VAT you charge.
  • Poor recordkeeping. Weak records complicate tax filings and audits. Keep books current.
  • Ignoring reserved activity rules. Operating in a reserved sector can leave a foreign-owned business unable to renew its license. Check the rules before expanding into new activities.

Tips for Operating Successfully in Lesotho

Operating successfully in Lesotho depends on good local advisers and relationships with the agencies you deal with most. A local lawyer and accountant familiar with the OBFC, RSL, and the Ministry of Labour can help navigate licensing and compliance.

It also pays to make use of investment support. The LNDC offers industrial sites, factory shells, and facilitation services for manufacturers, which can significantly reduce setup time and costs. Engaging with the LNDC early can also help investors understand which incentives apply to their project, how to secure suitable premises, and how to navigate approvals with other government agencies, which is especially valuable for first-time investors in Lesotho.

Infrastructure and logistics deserve attention as well. Lesotho’s mountainous terrain means that transport outside the lowland towns can be slow, and most goods move by road through South African ports such as Durban, so supply chain planning should account for border crossings and transit times.

Finally, plan around Lesotho’s close links with South Africa. Most imports, logistics, and financial services connect through South Africa, so supply chains, banking, and travel arrangements should take this into account.

Common Mistakes to Avoid

  1. Entering a reserved sector. Activities reserved for indigenous Basotho are closed to foreign-owned businesses. Check the list before investing.
  2. Expecting land ownership. Land is held by the Basotho Nation, and foreigners generally lease land. Plan property arrangements accordingly.
  3. Underestimating OBFC timelines. Registration and licensing can take longer than expected, especially if documents are incomplete or require physical submission. Prepare documents carefully, appoint a reliable local agent, and allow extra time in your launch plan.
  4. Hiring foreigners without permits. Working without valid work and residence permits breaches immigration rules. Apply early.
  5. Using the wrong wage rate. Sector-specific wage determinations apply. Confirm the correct rate for each role.

Why Now is the Right Time to Register a Company in Lesotho

Establishing a company in Lesotho involves checking reserved activities, registering through the OBFC, obtaining a business license, registering with RSL, securing premises and land rights, and planning for permits and payroll. With these steps in place, manufacturers and service businesses can benefit from low tax rates for manufacturing and access to regional markets.

The timing matters because the rules on reserved activities are now being actively enforced, giving foreign investors clearer guidance on which sectors are open to them. That clarity, combined with the low manufacturing tax rate, industrial infrastructure, and regional market access, means investors can plan with a clearer view of where opportunities lie and which activities to avoid. Investors who focus on open sectors, especially manufacturing, can take advantage of the 10 percent tax rate and LNDC support.

If you are ready to establish your business in Lesotho, RemotePeople’s company registration services can guide you through OBFC registration, licensing, tax setup, and your first compliant hires.

Frequently Asked Questions

For reserved activities, the authorities look at whether a company is owned and controlled by indigenous Basotho citizens, rather than applying a simple shareholding percentage, so joint ventures with partial local ownership may not qualify.

The regulations reserve certain activities for indigenous Basotho citizens, and commentators have noted that this excludes naturalized citizens, which has been controversial.

Yes. The loti is pegged at par to the rand under the Common Monetary Area, and the rand is accepted as legal tender in Lesotho.

According to recent legal commentary, the Ministry intends to stop issuing or renewing licenses for non-indigenous enterprises in reserved sectors, which in practice means a business can continue until its current license expires but will not be able to renew it. Affected businesses should plan restructuring or exit well before their license renewal date.

Yes. The list was originally published in 2020 in Schedule 16 of the regulations and was amended in 2021, with changes to some items and the deletion of motor dealing from the list. Investors should always check the current version rather than relying on older summaries.