During initial discussions with a multinational services client, the Praxima team was asked to assess whether it would be possible to engage employees in the Kingdom of Lesotho without first establishing a locally registered entity. The client was in the early stages of market entry and wished to limit upfront administrative and regulatory commitments. They wanted to know, “Can we obtain a PAYE identification number in Lesotho without incorporating a local company?”
Although the query appeared to relate purely to payroll administration, it quickly became apparent that it raised broader corporate and regulatory considerations.
In Lesotho, employers are required to withhold income tax from employees under the Pay-As-You-Earn (PAYE) system. PAYE is administered by the Lesotho Revenue Authority (LRA).
Employer obligations include:
From a procedural perspective, these requirements are broadly consistent with payroll systems in many other jurisdictions. The critical issue, however, lies in the legal identity of the employer.
The client intended to employ staff in Lesotho directly from its overseas headquarters, without registering either a subsidiary or branch locally.
Upon reviewing the regulatory requirements, it became clear that PAYE registration is intrinsically linked to employer registration. In practice, the LRA requires documentation such as:
In essence, the tax authority must be able to recognise a legally registered employer operating within its jurisdiction. Without a locally registered entity, or another legally recognised employment structure, there is no compliant mechanism through which PAYE obligations can be performed.
We advised the client that proceeding without local registration would create material risks, including:
1. Inability to secure a PAYE registration number
An application would likely be rejected in the absence of local corporate registration.
2. Exposure to tax non-compliance
PAYE obligations arise where employment duties are performed in Lesotho, irrespective of where salaries are paid from.
3. Employment law uncertainty
The enforceability of employment contracts could be compromised without a recognised local employer.
4. Regulatory and reputational exposure
Failure to comply with payroll registration requirements could result in penalties and heightened scrutiny.
From a governance perspective, the arrangement would not meet acceptable compliance standards.
Entity formation remained under consideration; however, the client instructed us to analyse alternative compliant mechanisms for managing payroll obligations.
1. Establishment of a Local Entity
The most straightforward solution was to register either:
This would enable formal employer registration with the LRA and ensure full payroll compliance. Although incorporation would involve additional administrative effort, it would provide long-term regulatory certainty.
2. Engagement of an Employer of Record (EOR)
A more flexible interim solution was the engagement of a locally registered Employer of Record (EOR).
Under this arrangement:
This approach allows market entry without the immediate need for incorporation, while maintaining regulatory compliance.
Following analysis, our conclusion was clear:
It is not possible to obtain a PAYE identification number in Lesotho without a locally recognised legal presence.
If the client wished to proceed without establishing an entity, engaging an Employer of Record would be the most compliant short-term solution. For longer-term operations, however, incorporation would offer greater control and cost efficiency.
This engagement reinforced several important principles in cross-border payroll planning:
If this article raised questions or highlighted areas you’d like to understand better, let’s talk.Our team can walk through the details, implications, and practical considerations for your business.
