Corporate tax in Namibia

Summary

Corporate Income Tax Rate (%) 32 (a)
Capital Gains Tax Rate (%) 0
Branch Tax Rate (%) 32 (a)
Withholding Tax (%)
Dividends 10 / 20 (b)
Interest 10 (c)
Royalties from Patents, Know-how, etc. 10 (d)
Services 10 (e)
Branch Remittance Tax 0 (f)
Net Operating Losses (Years)
Carryback 0
Carryforward Unlimited

a) This rate applies to years of assessment beginning on or after 1 January 2015.

b) This is a final tax applicable to nonresidents. Dividends paid to nonresidents are subject to a final 10% withholding tax if the recipient of the dividend is a company that holds at least 25% of the capital of the company paying the dividend and if it is the beneficial owner of the shares. For all other cases, the dividend withholding tax rate is 20%. Dividends paid out of oil and gas and insurance profits are exempt from withholding tax.

c) A 10% withholding tax applies to interest paid to all persons, excluding Namibian companies, by Namibian banking institutions and Namibian unit trust schemes. In addition, effective from 30 December 2015, a 10% withhold­ing tax is imposed on interest paid to nonresidents. The legislation provides for certain exemptions, notably interest paid by Namibian banks to foreign banks and interest paid by the Namibian state to any person.

d) This withholding tax applies to royalties or similar payments to nonresidents. Effective from 30 December 2015, the scope of the withholding tax on royal­ties is extended to include payments for the use of commercial, industrial or scientific equipment.

(e) The withholding tax on services applies to amounts paid by Namibian resi­dents to nonresidents directly or indirectly for the following:

  • Management, administrative, technical or consulting services
  • Directors’ fees
  • Fees paid for entertainment including payments for cabaret, motion picture, radio, television, theater artists, musicians and sportspersons

The rate of withholding tax on services paid to nonresidents was reduced from 25% to 10%, effective from 30 December 2015.

(f) In the absence of treaty protection, the 10% dividend withholding tax may be
imposed on branch profits when the parent company declares a dividend.

Taxes on corporate income and gains

Corporate income tax. Companies subject to tax include com pa-nies registered in Namibia and branches of foreign companies in Namibia deriving income from a Namibian source. Other associa­tions (such as close corporations) registered or incorporated out­side Namibia that carry on business or have an office in Namibia are taxed as companies. Corporate income tax is levied primarily on income from Namibian sources.

Effective from 30 December 2015, a definition of “Namibia” has been inserted in the Income Tax Act. Namibia’s taxing rights are extended to include activities taking place in the exclusive eco­nomic zone and the continental shelf where taxing rights were previously limited to extractive industries only.

Rates of tax. The tax rate for companies, other than those com­panies that have been awarded manufacturing status, is 32% for years of assessment beginning on or after 1 January 2015. The tax rate for companies that have been awarded manufacturing status is 18% for their first 10 years of registration as a manufac­turer and 32% thereafter. The Receiver of Revenue, in consulta­tion with the Ministry of Trade and Industry, reviews and approv­es applications to register as manufacturers. Approval is grant ed only if the company is engaged in manufacturing and if its ac­tivities economical ly benefit Namibia or its inhabitants (see Section C for information regarding special deductions available to register ed manufacturers).

Mining companies are taxed at a rate of 37.5% for hard-rock min­ing and 55% for diamond mining. Companies that render hard-rock mining services are taxed at a rate of 37.5%, effective from 1 January 2008. Companies that render diamond mining services are taxed at a rate of 55%. Petroleum exploration and production companies are taxed at a basic rate of 35% plus additional profit tax that is calculated in accordance with a complex formula.

Under the Export Processing Zone Act, an export processing zone has been established in Walvis Bay. Companies operating in the zone are exempt from corporate income tax. Value-added tax, trans fer duty and stamp duty are not imposed in the zone.

Capital gains. Capital gains tax is not imposed in Namibia. How­ever, please note the rules discussed below.

Amounts received as consideration for the alienation or disposal of a mineral license, as defined in the Minerals (Prospecting and Mining) Act, or the sale of shares in a company that owns such a license are specifically included in the gross income of a tax­payer. The scope of the provisions in terms of which mineral li­censes and shares in companies owning such licenses are subject to tax have been widened to include in gross income amounts re­ceived from sales, donations, expropriations, cessions and grants of shares in companies owning such licenses as well as shares in companies that indirectly own such licenses. A measure provides for the deductibility of costs incurred on the acquisition of min­eral licenses. The amendments described above are effective from 30 December 2015.

Amounts received as consideration for the alienation or disposal of a petroleum license, as defined in the Petroleum (Exploration and Production) Act, or the sale of shares in a company that own such a license are specifically included in the gross income of a taxpayer, effective from 30 December 2015. Amounts received from sales, donations, expropriations, cessions and grants of shares in companies owning such licenses, as well as shares in companies that indirectly own such licenses, are also included in gross income. A measure provides for the deductibility of costs incurred on the acquisition of petroleum licenses.

Amounts received for restraints of trade are taxable, effective from 30 December 2015, and whether these amounts are of a capital nature is no longer relevant because all such amounts are specifi­cally included in gross income.

Administration. Annual financial statements must be prepared as of the last day of February, unless another date is agreed to by the tax authorities. In practice, permission to use the company’s financial year-end is always granted. A company’s tax year gener­ally coincides with its financial year.

A company is required to make two provisional tax payments, the first payment six months after the start of the financial year and the second at the end of the year. Payments must be based on an estimate of the current year’s taxable income and must be accurate to within 80% of the actual tax liability for the year for which the payment is due. A penalty for underestimation of the first or sec­ond provisional tax payment is imposed if the respective payments are less than the minimum payment required.

Companies must file an annual return within seven months after the tax year-end unless an extension is obtained. If the total pro­visional tax payments are less than the tax liability shown on the return, the balance of tax due must be paid within seven months after the end of the tax year, regardless of whether a company has obtained an extension to file its tax return. Interest accrues at a rate of 20% per year on any unpaid tax liability.

Dividends. Dividends received by a company are exempt from the regular company tax, and expenses incurred in the production of dividend income are not deductible in the determination of the company’s taxable income. Dividends paid to nonresidents are subject to a final 10% withholding tax if the recipient of the divi­dend is a company that holds at least 25% of the capital of the company paying the dividend and if it is the beneficial owner of the shares. For all other cases, the dividend withholding tax rate is 20%. Dividends paid out of oil and gas profits or long-term insur­ance business profits are not subject to dividend withholding tax. A tax treaty may reduce the rate of dividend withholding tax.

Foreign tax relief. In the absence of treaty provisions, a unilateral tax credit is available for foreign direct and withholding taxes paid on dividends and royalties. The credit may not exceed the Namibian tax attributable to such income. The credit is denied to the extent that a refund of the foreign tax is possible.

Determination of trading income

General. Taxable income includes both trade and non-trade income (interest) not of a capital nature. Revenue amounts and realized foreign-exchange gains are subject to tax. Taxable income rarely coincides with profit calculated in accordance with accepted ac­counting practice.

To be eligible for deduction, expenditures must be incurred in the production of taxable income in Namibia, must be for purposes of trade and must not be of a capital nature. However, realized foreign-exchange losses are deductible even if they are of a cap­ital nature.

Scientific research expenditures are deductible if the research is undertaken for the development of business or is contributed to an institution approved by the Council for Scientific and Indus­trial Research.

Special deductions. The following special deductions are avail­able to registered manufacturers:

  • An additional deduction of 25% of the wages paid to their manufacturing staffs
  • An additional deduction of 25% of approved training expenses for their manufacturing staffs
  • An additional deduction of 25% of export marketing expenses
  • An additional deduction of 25% of expenses incurred to trans­port by road or rail raw materials and equipment used in the man­ufacturing activity for the first 10 tax years as a manufacturer

Losses resulting from these special deductions may not be used to offset other income.

Taxable income derived from exports of manufactured goods, excluding fish and meat products, is reduced by 80% if the goods are manufactured in Namibia. This allow ance is available to trad­ing houses and manufacturers. For manufacturers, this allowance applies in addition to the special deductions listed above. For the first 10 years of operation, the tax rate for registered manufactur­ers that export all goods manufactured is 3.6%. After the 10-year period, the rate increases to 6.4%.

Inventories. Trading stock includes all goods, materials or prop­erty acquired for manufacture or sale, including packaging but excluding consumables and machinery parts. The value of stock is based on original cost plus the costs of preparing stock for sale. The last-in, first-out (LIFO) method of stock valuation may be ap plied on approval by the Minister of Finance, subject to various conditions.

Provisions. Deductible expenses must be actually incurred, and consequently, provisions are not deductible. However, an allo w-ance for doubtful accounts may be established equal to 25% of the debts that the Minister of Finance is satisfied are doubtful. The amount of irrecoverable debts written off is allowed as a deduc­tion if the debts were once included as taxable income or if the write-off can be construed as an operating loss incurred in the production of income (for example, the write-off of casual loans to staff members who are unable to repay).

Tax depreciation (capital allowances)

Machinery, equipment and vehicles. The cost of machinery, motor vehicles, utensils, articles, ships and aircraft may be deducted in three equal annual amounts, beginning in the year of acquisition. No amount may be deducted in the year of disposal of the asset.

Buildings. An initial allowance of 20% of construction cost is per­mitted for commercial buildings in the year the buildings are first used. An allowance of 4% is permitted in each of the following 20 years. For industrial buildings of a registered manufacturer, an initial allowance of 20% and an annual allowance of 8% are al­lowed. No allowance is granted for employee housing.

Patents, designs, trademarks and copyrights. If used in the pro­duction of income, the cost of developing, purchasing or register­ing patents, designs, trademarks, copyrights and similar property is allowed in full if such cost is not more than NAD200, or the cost can be amortized over the estimated useful life or 25 years, whichever is shorter, if the acquisition cost is more than NAD200.

Mining including oil and gas. Prospecting and development ex­penses incurred in mining operations are not subject to the tax de preciation rules described above. In general, prospecting expens­es may be deducted in the year production begins. Costs incurred on infrastructure may be deducted over three years, beginning in the year production begins.

Recapture. Capital allowances are generally subject to recapture to the extent the sales proceeds exceed the tax value after de pre-ci ation. In addition, capital allowances are recaptured if assets are withdrawn from a business or removed from Namibia, regardless of whether the assets are sold. The market value of the assets is used to determine the amount recaptured if no proceeds are received.

Relief for trading losses. Companies may carry forward unused losses indefinitely to offset taxable income in future years if they carry out a trade. Losses may not be carried back. Companies that carry on mining operations may offset current-year and prior-year trading losses from mining against other trade income and vice versa. However, such losses must be apportioned on a pro rata basis between mining and other trade income to determine taxable income from each source in the current year. Oil and gas compa­nies may not offset losses from oil and gas activities against other trade income, or vice versa, in any year.

Groups of companies. A group of companies is not taxed as a sin­gle entity in Namibia, and an assessed loss of one company cannot be offset against the taxable income of another company in the group. An assessed loss of a branch of a foreign company may be transferred to a Namibian subsidiary under certain circumstances.

Value-added tax

Value-added tax (VAT) is levied on supplies of goods or services, other than exempt supplies, made in Namibia and on imports of goods and certain services.

The standard VAT rate is 15%. The following items are zero-rated:

  • Exports of goods
  • Certain services rendered to nonresidents who are not registered for VAT
  • Disposals of going concerns
  • Local supplies of fuel levy goods (petrol and diesel)
  • Maize meal, fresh or dried beans, sunflower cooking oil, fried animal fat used for the preparation of food, bread and bread or cake flour, if these items are not served as cooked or prepared food, fresh milk and white or brown sugar

Local public passenger transport, medical services, services sup­plied by registered hospitals, educational services and long-term residential rentals are exempt from VAT.

  1. Miscellaneous matters

Exchange controls. Namibia is a member of the Common Monetary Area, which also includes Lesotho, South Africa and Swaziland. Consequently, it is subject to the exchange control regulations promulgated by the Reserve Bank of South Africa. If Namibia withdraws from the Common Monetary Area, it is likely to intro­duce its own exchange control restrictions along similar lines.

Exchange controls are administered by the Bank of Namibia, which has appointed various commercial banks to act as autho­rized foreign-exchange dealers.

The Namibian dollar (NAD) is the Namibian currency. The Namibian dollar and the South African rand (ZAR) are convert­ible one for one (that is, ZAR1 = NAD1), and this rate does not fluctuate.

Debt-to-equity rules. The tax law includes measures that counter thin capitalization by adjusting both the interest rate and the amount of the loan based on arm’s-length principles. Although no guidelines have been published in this area, a debt-to-equity ratio of up to 3:1 is generally acceptable.

Transfer pricing. The Namibian Income Tax Act includes transfer-pricing measures, which are designed to prevent the manipula­tion of prices for goods and services, including financial services (loans), in cross-border transactions between related parties.

Anti-avoidance legislation. Namibian legislation contains a general anti-avoidance provision to attack arrangements that are primarily tax-motivated and, in certain respects, abnormal when considered in the context of surrounding circumstances. In general, the Bank of Namibia requires a debt-to-equity ratio of 3:1 when approving foreign investment into Namibia. Another anti-avoidance provision deals with transactions involving companies (including changes in shareholdings) that are designed to use a company’s assessed loss, usually by diverting income to, or generating income in, that company.

Treaty withholding tax rates

Namibia has entered into double tax treaties with Botswana, France, Germany, India, Malaysia, Mauritius, Romania, the Rus­sian Fed eration, South Africa and Sweden. In addition, it has a treaty with the United Kingdom, which is the 1962 treaty between the United Kingdom and South Africa as extended to Namibia.

The treaties provide for withholding tax rates on dividends, inter­est and royalties paid to residents of the other treaty countries as indicated in the following table.

  Dividends

%

Interest

%

Royalties

%

Services

%

Botswana 10 10 10 0/15 (h)
France 5/15 (a) 10 10 0
Germany 10/15 (b) 0 10 0
India 10 10 10 0/10 (i)
Malaysia 5/10 (c) 10 5 0/5 (j)
Mauritius 5/10 (c) 10 5 0
Romania 15 15 15 0
         
Russian Federation 5/10 (d) 10 5 0
South Africa 5/15 (c) 10 10 0
Sweden 5/15 (a) 10 5/15 (e) 0/15 (h)
United Kingdom 5/15 (f) 20 5 0
Non-treaty countries (g) 10/20 10 10 10

a) The 5% rate applies if the recipient is a company that owns at least 10% of the payer of the dividends. The 15% rate applies to other dividends.

b) The 10% rate applies if the recipient is a company that owns at least 10% of the payer of the dividends. The 15% rate applies to other dividends.

c) The 5% rate applies if the recipient owns at least 25% of the payer of the dividends. The 10% rate applies to other dividends.

d) The 5% rate applies if the recipient is a company that owns at least 25% of the payer of the dividends and has invested at least USD100,000 in the share capital of the payer. The 10% rate applies to other dividends.

e) The 5% rate applies to royalties paid for patents, secret formulas or informa­tion relating to industrial or scientific experience. The 15% rate applies to other royalties.

f) The 5% rate applies if the recipient is a company that controls directly or in directly more than 50% of the voting power of the payer of the dividends. The 15% rate applies to other dividends.

g) For further details, see Section A.

h) The 15% rate applies to payments for administrative, technical, managerial or consultancy services performed outside Namibia.

i) The 10% rate applies to technical, managerial or consultancy fees paid by Namibian residents.

j) The 5% rate applies to technical, managerial or consultancy fees paid by Namibian residents.

Namibia has a signed tax treaty with Canada, but the treaty has not yet been ratified. Namibia is negotiating tax treaties with Lesotho, Seychelles, Spain, Zambia and Zimbabwe.