A. Income Tax: Scheme of the Act
The first point is to determine the gross/assessable income of a taxpayer as provided under Section 11 of the Malawi Taxation Act:
The income of a person shall include the total amount in cash or otherwise including any capital gain received by or accrued to or in favour of the person in any year or period of assessment from a source within or deemed to be within Malawi. From the above Section 11 it will be noted that the Taxation Act in Malawi is based on source, not "residence".
To arrive at the "taxable income" the Act provides for allowable and non-allowable deductions. It also provides for deductions from assessable gross income of any amount exempt from tax. Capital gains are treated like and taxed together with any other taxable income.
B. Income Tax on Resident Corporations (National Government)
1. Name of Tax and Levied in Terms of Which (Name, Number and Year)
Income Tax, Taxation Act , Laws of Malawi; Chapter 41:01 (formerly Income Tax Ordinance 1963).
2. Department Responsible for Administration
Malawi Revenue Authority (MRA).
3. Definition and Classification
Under Section 2 of the Act, the term "Company" is defined to include any association wheresoever incorporated.
4. Basis of Taxation
4.1 Source-based or residence based
Income Tax system in Malawi is source-based.
4.2 If source, define: xxxxxxxx
4.2.1 Actual source: xxxxxxx
4.2.2 Deemed source:
The following amounts are deemed to be from a source within Malawi:
- amounts paid for services rendered or work done in the carrying out of a trade in Malawi, irrespective of where the payer is resident;
- amounts incurred or claimable in connection with a permanent establishment in Malawi;
- pensions or annuities for services rendered to the State unless the service or employment was performed wholly outside Malawi; and
- foreign exchange gains or losses realized in connection with a permanent establishment in Malawi or arising in connection with foreign currency assets or liabilities held in Malawi.
4.3 If residence, define:
4.3.1 Define resident
4.3.2 Exclusions from the definition of resident:
4.3.3 Ceasing of residency provided for in the Act
5. Time Tax is Levied
Tax is payable immediately the amount of income is about to be received or it accrues.
6. Included in Tax Base
Actual source from or deemed source from within Malawi.
7. Year of Assessment
The year of assessment is from1 July to 30 June. Where the accounting year ends on a date other than 30 June, the Commissioner General may in his discretion accept such accounts for assessment in respect of the assessment year ending 30 June prior or subsequent to the closing date of such accounts
8. Computation of Taxable Income
Gross Income minus Amount Exemptions and Allowable deductions = TAXABLE INCOME
8.1 Exemptions
8.1.1 Amount exempt (amounts exempt irrespective of the identity of the recipient):
The following amounts are exempt:
a. amounts received as a war disability pension or war widows pension, or as an old age pension, or as an award, benefit, or compensation in respect of injury, disease or disablement suffered in employment;
b. capital gains realised by an individual on the disposal of personal and domestic asses not used in connection with any trade;
c. any amount payable to any person or his dependants or heirs on account of his injury or sickness by any benefit fund or any trade union or under any policy of insurance;
d. up to K50,000 of any amount paid by any employer to an employee who has been declared redundant;
e. such income payable to any person as is, pursuant to any arrangement, agreed to be exempted. The term "arrangement" means any arrangement between the Malawi Government or any other Government, or any international organisation, institution or body, or any person;any scholarship, exhibition, bursary or similar educational endowment paid to a person receiving full-time instruction at a university, college, school or any approved educational establishment, and such allowance connected therewith as may be approved by the Minister;
8.1.2 Persons exempt (taxpayers enjoying completed exemption from tax on income):
These are covered in the First Schedule of the taxation Act under the heading "GENERAL EXEMPTIONS":
a. the revenues of local authorities
b. the receipt and accruals of:
i. land and agricultural banks having its main object, the fostering or controlling of the primary production, manufacture, or marketing of any commodity;
ii. a registered trade union;
iii. agricultural, mining, and commercial institutions or societies not operating for private pecuniary or gain of the members;
iv. clubs, societies and associations formed, or organized or operated solely or principally for social welfare, civic improvement or other similar purposes if such receipts or accruals may not be derived amongst or credited to or accrued to the benefit of any member or shareholder;
v. pension and provident funds;
vi. building societies and friendly societies;
vii. employees' saving schemes or funerals approved by the Commissioner General;
viii. statutory Corporations and bodies and associations as may be specified by the Minister;
xi. Religious, charitable and educational institutions of a public character.
However, the exemption does not apply to receipts or accruals derived from the carrying on of a business;
c. where an agreement is in force between the Malawi Government and any government whereby the income or part thereof derived from the business of air transport is agreed to be exempt from tax, the income of such business as are specified in the agreement;
d. the receipts and accruals of life assurance companies or societies or of life departments of companies carrying on both lifeor/and non-life business, except income from investments (including the letting of any property);
e. any income arising from the rendering international transport service by, and payable to, a resident of a country which exempts from tax any amount payable to residents of Malawi for rendering similar services; and
8.1.3 Other Exemptions
xxxxxxxxxxxxxx
8.2 Deductions and recoupments
8.2.1 Allowable deductions
Section 28(1): General deductions:
There shall be deducted from the assessable income of any taxpayer the amounts of any expenditure and losses (not being expenditure of a capital nature) wholly and exclusively, and necessarily incurrred by the taxpayer for the purpose of his trade or in the production of the income.
Special deductions
a. The amount of any capital realised in the year of assessment, but to the extent only of either:-
i. the capital loss; or
ii. any capital gain realised in that year or assessment,whichever is lesser (s.28(3))
b. Realised foreign exchange loss (s.28(5))
c. Repairs (not being expenditure of a capital nature)
i. to any business premises; or
ii. resulting from letting of property; or
iii. of articles, implements, plant machinery and utensils used for the purpose of trade (s.32)
d. Capital improvements, farm fencing, industrial buildings, railway lines, articles, implements, machinery or utensils (s.33 and the Second Schedule)
e. Lease Premiums (s.34(1))
Any premium or consideration in the nature of a premium paid for:
i. the right of use or occupation of land or buildings;
ii. the right of use of plant or machinery;
iii. the use of any patent design, trademark, copyright; or any other property within, in the opinion of the Commissioner General, is of a similar nature is used for the production of income or from which income is derived.Provided that where the period for which the right of occupation or use is granted exceeds 25 years, the deduction shall be one twenty-fifth of such premium or consideration.
f. Bad debts (s.35)
Which have become bad during the year of assessment if the amount of the debt is included in the current year of assessment or was included in any previous year in the tax-payer's assessable income.
g. Doubtful debts (s.36(1))
Specific doubtful debts which are included in the current year of assessment or were included in any prvious year of assessment in the taxpayer's income. Such allowance shall be included in the income of the taxpayer in the following year.
h. Export allowance (s.36A(1))
An amount (hereinafter referred to as "export allowance") determined under s.14 of the Export Incentives Act in respect of exports made during the year of assessment. Currently the rate is 12.5% of gross export sales.
i. Pension fund and Provident funds (s.37 and Fifth Schedule, Paragraph 2)
ii. in respect of ordinary contributions in the year of assessment to a Pension fund;
iii. in respect of any contribution, other than any ordinary contribtuion by an employer to a Pension fund for the purpose of ensuring that the moneys in the fund are sufficient to meet all all payments;
iv. an amount contributed by an employer to a provident fund.
The allowable amount is restricted to certain limitations as provided by the Fifth Schedule.
a. the total of the employer's contribution
b. the difference between 24% of the annual emoluments of the employee for that year of assessment and the amount of contribution allowable as a deduction to the employee; or
c. K9,000, less the amount of contribution ( if any) allowable as a deduction to the employee, whichever is the lesser amount.
j. Sale of timber (s.38)
Where income arises from the sale of timber a deduction shall be allowed:
i. in respect of such income from the sale of, or the sale of the right to fell, timber which was growing on the land at the time of the acquisition of the ownership of such land by the taxpayer;
ii. in respect of income from the sale by the taxpayer of timber, the right to fell and dispose of which was not acquired with the land on which the timber was grown.
k.l. Research (s.39(a ))
The amount of any expenditure, not being expenditure of a capital nature, incurred by the taxpayer during the year of assessment on experiments and research relating to his trade.
i. Contributions Research etc (s.39(b)
Any contributions during the year of assessment to any society or educational society or institution solely for the purpose of industrial research or scientific experimental work connected with the trade of the taxpayer
ii. Contribution Scholarships etc (s.39)
Any sum contributed during the year of assessment in the form of a grant, bursary, a course of technical education related to the trade of the taxpayer at any educational institution approved by the Minister
iii. Donations Charitable Organisations (s.39(d))
Individual donations of not less than K250 made during the year of assessment to any approved charitable organisation.
iv. Donations non-profit institutions (s.39(e))
Individual donations of not less than K500 made during the year of assessment to any such non-profit institution operated solely or principally for social welfare, civic improvement, educational development, or other similar purposes.
l. Annuity (s.40)
Any amount paid by way of annuity allowance or pension during the year of assessment by any taxpayer
i. to a former employee who has retired; or
ii. to any person who is dependent for his maintenance upon a former employee of such a taxpayer.
m. New business initial expenditure (s.41)
In arriving at the taxable income derived from a manufacturing business begun on or after the 1st day of April 1993, there shall be allowed the amount of any expenditure which
i. is incurred not more than 18 months before beginning the business, in the course of establishing the business; and
ii. would have been allowed as a deduction had it been incurred after the beginning of the business
n. Training allowance (s.41A)
Additional fifty per cent of the costs incurred by a taxpayer during the year of assessment in the training of an employee of the taxpayer who is a Malawian to enable such employee attain a qualification at the degree, diploma or certificate level.
o. Transport allowance (s.41B)
Additional twenty five percent of the international transport costs incurred by the taxpayer for his exports, whether produced by manufacturing in bond or otherwise.
p. Losses (s.42)
From the amount of assessable income there shall be deducted any assessed loss arising solely out of trading operations in Malawi incurred by the taxpayer in any previous year of assessment to the extent to which such assessed loss has not been allowed as a deductin from his income of a previous year of assessment.
q. Special Trades and Cases (s.58(2))
There shall be admissible as a deduction in the determination of the taxable income derived by any farmer during any year of assessment expenditure incurred during that year of assessment on:
i. the stumping, levelling and clearing of lands
ii. works for the prevention of soil erosion;
iii. boreholes;
iv. wells;
v. aerial and geophysical surveys;
vi. any water control work in connection with the cultivation and growing of rice, sugar or such crop as the Minister may approve.
8.2.2 Valuation of inventory/trading stock
The value of all trading stock on hand at the end of any accounting year shall be taken into account in ascertaining whether or not the taxpayer has a taxable income. Trading stock shall be valued on the basis of the cost price or market selling value of each item of trading stock as the case may be, at the end of the account year (s.48)
8.2.3 Reserves and provisions
These are not deductible for income tax purposes
8.2.4 Non-deductible expenses
a. the cost incurred by any taxpayer in the maintenance of himself, his family or establishment (s.45(a))b. domestic or private expenses of the taxpayer including the cost of travel between the taxpayer's residence and place of work (s.45(b));
c. any loss or expense which is recoverable under any insurance contract or indemnity (s.45(c))
d. tax upon the income of the taxpayer or interest or penalty (s.45(d));
e. income carried to any reserve fund or capitalised in any way (s.45(e));
f. any expenses incurred in respect of any amounts received or accrued which are not included in the term "income" as defined in the Act (s.45(f));
g. any expense in respect of which a subsidy has been made or will be received (s.45(l));
h. fringe benefits tax and any penalty charged thereon (s.45(j));
i. deductions not admissible as regards income derived from trade
i. the rent of, or cost of repairs to, any premises not occupied for the purpose of trade, or any dwelling house or domestic premises, except such part thereof as may be occupied for the purposes of trade; and
ii. interest which might have been earned on any capital employed in trade
j. deductions under two or more headings (s.28(2))
The Act specifically prohibits claims for a deduction under more than one heading.
8.2.5 Recoupments
Generally any amount which was allowed as a deduction, is included in the taxpayer's income when recouped, for example
i. capital allowances allowed under s.33
ii. bad debts allowed under s.35
8.3 Depreciable regime
8.3.1 Tangibles (movable and immovable assets, for example plant and machinery)
These are provided uner s.33 as read with the Second Schedule to the Taxation Act. Initial allowance shall be given only where the taxpayer so elects in respect of capital expenditure incurred by the taxpayer during the year of assessment on the construction of new farm improvements, farm fencing, industrial buildings, railway lines or additions to alterations to existing farm improvements, farm fencing, industrial buildings, railway lines and in respect of articles, implements, machinery, or utensils purchased and used for the purposes of trade or for farming purposes;
Provided that no initial allowance shall be made in respect of private passenger motor vehicle and an asset upon which investment allowance has been claimed (paragraph 1(1) to the Second Schedule).
Annual allowance shall be made in respect of capital expenditure incurred in respect of:
a. farm improvements, farm fencing, industrial buildings, railway lines:; and
b. articles, implements, machinery and utensils (paragraph 2(1) to the Second Schedule)
Investment allowance shall be given to a taxpayer who is also a manufacturer equal to forty percent of the cost of new and unused industrial buildings and plant or machinery and equal to twenty percent of the cost of used industrial buildings and plant or machinery.
Provided that
a. plant and machinery shall not include motor vehicle intended or adapted for use or capable of being used on roads; and
b. manufacturer shall include the owner of a business carried on in "industrial buildings' and the owner of a plantation producing tea, coffee, tobacco, sugar, cocoa or such other crop as the Minister may approve.
A taxpayer who is elegible for the investment allowance shall, in addition, be given an allowance equal to fifteen percent for investment in an area designated by the Minister (paragraph 4 to the Second Schedule).
Paragraph 8 to the Second Schedule
A building shall e deemed to be an industrial building where it is in use for the purpose of:
a. the making of an article or part of an article; or
b. the subjection of goods or materials to any process including the breaking up or demolition of the article; or
c. the adapting for sale of any article; or
d. the generation of power; or
e. a transport, dock, inland naviagation, water refrigeration or electricity hydraulic power tunnel or bridge undertaking; or
f. a hotel; or
g. the procesing and distribution of fish, including shellfish; or
h. any activity which the Minister declares in writing to be making an important contribution to national development
8.3.2 Intangibles/incorporeals (for example, copyright, patents, goodwill and other intellectual rights)
There is no specific provision in the Act for admissible deduction of these expenses. However their admissibility may fall under s.28(1), general deductions
8.4 Treatment of losses
Any assessed loss arising solely out of trading operations in Malawi shall be carried forward to the subsequent year of assessment
9. Foreign Exchange Losses and Gains
i. any realised foreign exchange loss shall be allowed as a deduction in determining the taxable income; and
ii. any realised foreign exchange gain shall be included in the taxable income of a taxpayer
10. Branch Profits Tax
The current Company tax rate is 30%
Domestic branches are taxed together with the locally incorporated Company at 30%
A branch of a foreign Company suffers and additional 5% tax, that is at the rate of 35%
11. Group Taxation/Consolidated Returns
Non-existent
12. Presumptive Tax Measures (for example, a minimum tax in the form of a gross asset tax)
It is applied on gross income per annum where there is assessed loss or where tax on taxable income is less than the presumptive tax. (The Eleventh Schedule to the Act). The scale of minimum amounts of income tax –
Gross Income per annum Minimum amount of income tax
If the income is K T
a. does not exceed K200,000 5,000 00
b. exceeds K200,000 but does not exceed K500,00 25,000 00
c. exceeds K500,000 but does not exceed K2,000,000 50,000 00
d. exceeds K2, 000,000 but does not exceed K5,000,000 100,000 00
e. exceeds K5,000,000 200,000 00
ii. There is also a final tax at 10% on dividends being distributed by a company incorporated in Malawi by way of withholding tax.
Provided that where the dividend distributed by a subsidiary or a holding company to a holding company or related company on the income being distributed is derived from a dividend which was subject to withholding tax in first instance, no withholding tax shall be deducted (s.70A)
13. Rates
Companies incorporated in Malawi, the tax rate is at 30%, whereas Companies incorporated outside Malawi but have a branch(es) in Malawi, the applicable tax rate is 35%. In the case of life insurance business, at 21% of the taxable income.
14. Rebates
These are provided as incentives for national development –
i. in the case of Companies in an export processing zone, the applicable rate shall be 0 percent;
ii. in the case of Companies operating in priority industries, the applicable rate shall be either
a. 0 percent for such period, not exceeding ten years; or
b. 15 percent
15. Withholding Taxes
Every person who makes any payment specified in the Fourteenth Schedule to any other person shall, before making such payment withhold tax in accordance with the rates specified in that Schedule (s.102A(1)) The rates are –
Nature of Payment Rates of Withholding Tax on
Gross payment
a. Royalties 20%
b. Rents 20%
c. Payment of over K1, 000 for any supplies to traders and institutions under tender or any similar arrangement -
i. foodstuff 7%
ii. other 10%
d. Fees and commissions 20%
e. Payment for carriage and haulage 10%
Nature of Payment Rates of Withholding Tax on
Gross payment
f. Payment of over K1, 000 for tobacco and other products 7%
g. Payment to Contractors and subcontractors 10%
h. Payment for public entertainment 20%
i. Payment of over K500 for casual labour or services 20%
j. Bank interest of over K10,000 20%
Where a valid Withholding Tax Exemption Certificate is issued by the Commissioner General, withholding tax shall not be deducted. However, no exemption from payment of withholding tax shall be granted in respect of bank interest, rent, royalties, fees, commissions and payment of casual labour.
16. Beneficiaries of Revenue
Malawi Government.
C. Income Tax on Individuals (National Government)
1. Name of Tax and Levied in Terms of Which Act (Name, Number and Year
Same as for bodies corporate.
2. Department Responsible for Administration
Same as for bodies corporate.
3. Definition and Classification
The term ‘individual’ is not defined in the Act and therefore takes its ordinary meaning. A partnership of individuals does not have a separate legal existence, but tax is levied on the individual partners.
4. Time Tax is Levied
Same as for bodies corporate.
5. Basis of Taxation
5.1 Source-based or residence based
Same as for bodies corporate.
5.2 If source, define:
5.2.1 Actual source
Same as for bodies corporate.
5.2.2 Deemed source
Same as for bodies corporate.
5.3 If residence,
5.3.1 Define resident
5.3.2 Exclusions from the definition of resident:
5.3.3 Ceasing of residency provided for in the Act
6. Included in Tax Base
Same as for bodies corporate.
7. Year of Assessment
Same as for bodies corporate.
8. Computation of Taxable Income
8.1 Exemptions (do not only indicate the heading, but provide a brief explanation)
8.1.1 Partial exemptions (amounts exempt irrespective of the identity of the recipient):
Same as for bodies corporate. In addition the following amounts are exempt:
Housing allowance of up to K200 per month received by or accrued to or in favour of an employee from his employer.
The salaries and emoluments payable in respect of their officers in the service of such Government of Countries outside Malawi or such agencies of such Governments or of such international organisations.
Contract gratuity –
a. an amount equal to twenty five percent of the salary accrued over the period of employment; or
b. K40,000Whichever amount is lesser.
8.1.2 Absolute exemptions (taxpayers enjoying completed exemption from tax on income)
Same as for bodies corporate.
8.2 Deductions and recoupments
8.2.1 Allowable deductions
Same as for bodies corporate.
8.2.2 Valuation of inventory/trading stock
Same as for bodies corporate.
8.2.3 Reserves and provisions
Same as for bodies corporate.
8.2.4 Non-deductible expenses
Same as for bodies corporate.
8.2.5 Recoupments
Same as for bodies corporate.
8.3 Depreciable regime
8.3.1 Tangibles (movable and immovable assets, for example plant and machinery)
Same as for bodies corporate.
8.3.2 Intangibles/incorporeals (for example, copyright, patents, goodwill and other intellectual rights)
8.4 Treatment of losses
9. Foreign Exchange Losses and Gains
Same as for bodies corporate.
10. Rates
Effective from 1st July 2009
Table of Income per annum Rate
First K120,000 0%
Next K36,000 15%
Excess of (Over) K156,000 30%
Or
Minimum tax where tax on income is less as follows-
Gross Income per annum Minimum amount of Income Tax
K T
a. does not exceed K100,000 Nil
b. exceeds K100,000 but does not exceed K500,000 5,000 00
c. exceeds K500,000 but does not exceed K1,000,000 7,500 00
d. exceeds K1,000,000 10,000 00
11. Rebates/Tax Threshold
i. The first K36,000 per annum at 0% where tax is based on taxable income; or
ii. Up to K100,000 gross income Nil tax where it is based on minimum tax.
12. Fringe Benefit Taxes (Benefits Flowing from an Employer-Employee or an Office Relationship)
Every employer, other than the Government, who provides fringe benefits to any of his employees shall be liable to pay fringe benefits on the total taxable value of such fringe benefits currently at the rate of 30%
Payment of fringe benefits tax should not aply to fringe benefits provided to employee whose annual taxable income does not exceed K84,000.00
13. Allowances
a. Reimbursements for expenditure incurred in the production of income or for the purposes of trade by any employee is non-taxable.
b. Other allowances such as travelling and subsistence are also non-taxable
14. Treatment of Pension, Provident or Retirement Annuity Fund Income
These are taxable subject to certain limits as provided in the Act.
15. Treatment of Professional Income
As part of gross income, they are taxable.
16. Treatment of Investment Income
Being ordinary income, is taxable. Dividends are not taxed on the recipients.
17. Withholding Taxes
Please see B. 15
18. Beneficiary of Revenue
Please see B. 15
D. Income Tax on Non-Residents (National Government)
1. Name of Tax and Levied in Terms of Which Act (Name, Number and Year
2. Department Responsible for Administration
Malawi Revenue Authority
3. Included in Tax Base
Malawi sourced income
4. If Sourced-Based, Define (If Not Already Done)
4.1 Actual source
The Act itself contains no definition of the term source. To determine source of income Courts apply
- The originating cause of the income
4.2 Deemed source:
Income shall be deemed to be derived from a Malawi source
a. notwithstanding that such income has been invested, accumulated or otherwise capitalised by a person
b. or that such income has not been actually paid over to a person remains due and payable to him
Section 12(1)
5. Rates
15% of the gross amount of such income (section 76A)
6. Beneficiary of Revenue
Malawi Revenue Authority (Agent) Malawi Government
E. Income Tax: Treatment of Dividends, Interest, Royalties and Fees
1. Dividends
Final tax at the rate of 10% on distribution.
The term divident means any distribution whether in cash or in property by a company to a shareholder thereof with respect to the shareholders interest in the company other than distribution in complete liquidation of the company and for the purpose of the Act the existence of a dividend shall be determined without regard to whether or not the company has current or accumulated profit.
2. Interest
The Act does not contain a definition of the term interest for general purpose. Interest receivable is taxable i.e. interest received by a company is included in the company's assessable income and taxed at Company rate. Interest received by an individual is included in the individuals assessable income and taxed at a normal rate.
Exemptions
a. Interest on Savings certificate issued by Malawi Government or interest in so much of any Tax Reserve Certificate as is accepted in payment of income tax or any other tax the assessment and collection of which is vested in the commissioner General.
b. Interest received by a person from any public loan raised by Malawi Government
c. Interest received by any person from stocks or bonds issued by Malawi Government
d. Interest received by any person not being a resident of Malawi from 4.5% African Development loan issued on 1 July 1960
e. Interest up to K10,000 received by or accrued to or in favour of an individual
i. on any sums deposited with an institution registered under the Banking Act or Building Societies Act
ii. from stock, bond or promising notes raised on behalf of Malawi Government
3. Royalties
Royalties are subject to tax as long as they are from a source in Malawi or demed to be from a source in Malawi subject to Double Taxable Agreement
4. Fees
These are paid for services rendered and are taxable
5. Rents
As long as they are from a source within Malawi they are taxableAll the passive income suffer withholding tax at source at 20% No Withholding Tax Exemption certificate are granted to recipients of passive income.
F. Income Tax: Specific Industries
1. Mining Tax
2. Insurance Business
Life Assurance Businesses are taxable at the rate of 21% of the taxable income
The taxable income or assessed loss of an insurer in respect of short term insurance
Business shall be determined by charging the losses, expenses and deductions in respect of his short term insurance business agains the sum of
a. Premiums received in Malawi in respect of his short term insurance business
b. Amounts other than premiums received in Malawi from the carrying on of his short term Insurance Business and
c. The amount of a reserve allowed as a deduction in the previous year of assesment for unexpired risks at the percentage for such risks adopted by the insurer in relation to his short term insurance operations as a whole
3. Farming
Farming operations may include Pastoral, Agricultural or other farming operations – income from farming is taxable.
- The following are allowed as a deduction in determining the taxable income of a farmer during any year of assessment
a. the stumping, levelling and clearing of land
b. works for the preservation of soil erosion
c. boreholes
d. wells
e. aerial and geophysical surveys
f. any water control work in connection with the cultivation and growing of rice, sugar or such other crops as the Minister may approve
4. Ships and Aircraft Owners
Malawi is a land locked country and hence we do not get foreign ships
Domestic Aircraft owners are taxed. However foreign Aircraft owners who just have offices in Malawi are not taxed in Malawi
5. Other
G. Income Tax: Administrative Procedures (National Government)
1. Payment Periods
Income Tax Returns are issued annually to registered taxpayers after the end of each year of assessment.
Tax returns must be submitted to the Commissioner General 180 days from the Accounting date of the taxpayer
From the information furnished in the Tax Return the Commissioner General raises an assesment showing the tax due or refundable as the case may be for that year of assessmentDuring the year of assessment, a pay as you earn (PAYE) deduction system of collecting taxes operates for employees
Taxpayers earning income not subject to Paye are required to make provisional payments
Provisional Tax
Taxpayers who are not subject to employees tax are provisional taxpayers have to make compulsory tax payments every three months (quarterly)
2. Rulings
2.1 Possibility of advance rulings
None
2.2 Publication of rulings
None
3. Codification of Revenue Practices
None
4. Refunds
When the Commissioner General is satisfied that a taxpayer has overpaid tax he may authorise a refund – if the taxpayer owes any other tax, the Commissioner is entitled to set off the refund against the tax owing
5. Interest, Charges and Penalties
Interest is charged on taxes paid after the due date (six months after the end of taxpayers accounting period).
Penalties are charged for failure to abide by the law
H. Income Tax: Anti-Avoidance Provisions (National Government)
1. Transfer Pricing Legislation
2. Thin Capitalisation Legislation
3. Controlled Foreign Entities (CFES)
4. Provide a Brief Discussion of General Anti-Avoidance Provisions (Both under common and statutory law)
5. Transactions Between Connected Persons
I. Capital Gains Tax on Corporations (National Government)
1. Name of Tax and Levied in Terms of Which Act (Name, Number and Year
Capital Gains Tax, Income Tax Act (Chap.41:01)
2. Department Responsible for Administration
Malawi Revenue Authority (hereinafter referred to as "MRA") and is headed by the Commissioner General
3. Basis of Taxation (Source-based or residence-based)
Source-based tax- Section 11 of the Malawi Taxation Act reads:
The income of a person shall include the total amount in cash or otherwise including any capital gain, rceived by or accrued to orin favour of the person in any year or period of assessment from a source within or deemed to be within Malawi.
Section 70E states that-
No capital gain or loss shall be recognised upon the contribution by one or more persons of assets to the capital of a company where the contributing person or persons own at least 80% of the equity interest in the company; and in such case, the basis of the contributed assets in the hands of the company shall be the adjusted basis in the hands of the person or persons immediately prior to the contribution.
4. Time When Tax is Levied
Tax is payable immediately the amount of income is received or accrues.
5. Included in Tax Base
Actual source from or deemed source from within MalawiThe basis if a capital asset other than an asset used in trade or business and in respect of which initial, investment or annual allowances have been given will be adjusted by an inflation factor specified by the Commissioner General.
Meanwhile a proposal has been put forward to the Minister to have the inflation factor approved (see the rates attached)
6. Exemptions/Exclusions
Retirement benefits
- 1/3 lump sum benefit received
- the receipts and accruals of life assurance companies or societies or of life departments of companies carrying on both life and non life business employees' Savings Schemes or funds approved by the Commissioner General
- Agricultural, mining and commercial institutions or societies not operating for the private pecuniary profit or gain of the members
- Where an asset of a taxpayer is involuntarily converted –
- into an asset similar to, or related in service or use to, the asset so converted,
- no capital gain shall be recognised
7. Allowable Deducations
- Expenses incurred on disposal of the asset is allowable
- Inflation factor: The selling price less the inflation factor
(see the proposed inflation factor rates attached)
8. Non-Deductible Expenses
- Valuation expenses are not allowable
- If expenditure was already claimed under a different section of the Act, it is not to
9. Roll-Overs
Where an asset of a taxpayer is involuntarily converted: xxxxxxxxx
a. into an asset similar to, or related in service or use to, the asset so converted, no capital gain shall be recognised;
b. into an asset not similar to, or related in service or use to, the asset so converted, or into money, capital gain, if any, shall be recognised subject to
1. Where a taxpayer whose asset has been involuntarily converted makes a valid and timely election and timely acquires an asset that is similar to or related in service or use to, the asset so converted (hereinafter referred to as the "qualifying replacement asset"), capital gain, if any, shall be recognised only to the extent that the amount realised as a result of such conversion exceeds the cost of the qualifying replacement assest.
2. The election by the taxpayer whose asset has been involuntarily converted to limit any capital gain recognised as a result of such conversion shall be valid if the taxpayer, in a timely filed income tax return for the taxable year during which the conversion occurred.
- The acquisition of a qualifying replacement asset shall be within two years after the close of the first year of assessment in which any part of the capital gain is realised.
10. Treatment of Losses
For the purpose of determining the taxable income of any taxpayer, there shall be deducted from assessable income of such taxpayer the amount of any capital loss realised by the taxpayer in the year of assessment, but to the extent only of either –
a. the capital loss
b. any capital gain realised by the taxpayer in that year of assessment, whichever is the lesser
11. Rates
Capital gains are included in determining taxable income.
In case of corporate taxpayers – 30%
In case of ordinary income – applicable rates for individual taxpayers
12. Rebates
None
13. Tax Period
Similar as for income tax – 1st July – 30th June
14. Withholding Taxes
None
15. Beneficiary of Revenue
Government of Malawi
J. Capital Gains Tax on Individuals (National Government)
1. Name of Tax and Levied in Terms of Which Levied (Name, Number and Year)
Capital Gains Tax, Income Tax Act (chap 41:01)
2. Department Responsible for Administration
Malawi Revenue Authority
3. Basis of Taxation (Source-based or residence-based)
Source-based – See section 11 of the Malawi Taxation Act
4. Time When Tax is Levied
Tax is payable immediately the amount of income is received or accrued
5. Included in Tax Base
Same as for Corporate tax
6. Exemptions
No capital gain or loss shall be recognised for purposes of this Act iro the transfer of any capital asset.
1.a. between spouses; or
b. between former spouses; or
c. to a spouse from the estate of a decease spouse
d. disposal of a principal residence of an individual
2. any amount received as a war disability or war widows pension or as an old age
7. Allowable Deducations
- Expenses incurred on disposal of the asset is allowable
- Inflation factor – selling price less inflation factor
8. Non-Deductible Expenses
- Valuation expenses are not allowable
- Expenditure was already claimed under different section of the Act is not allowable
9. Treatment of Losses
In determining the taxable income of any taxpayer, there shall be deducted from the assessable income of such taxpayer the amount of any capital loss realised by the taxpayer in the year of assessment, but to the extent only of either –
a. the capital loss
b. any capital gain realised by the taxpayer in that year of assessment, whichever is the lesser.
If the asset which has been used in trade or business and in respect of which initial, investment or annual allowances were given under this Act, no limitation will be needed.
The whole or any part of the capital loss not deducted by reason of limitation shall be carried forward to the following year of assessment and shall continue to be so carried forward until fully deducted.
The deduction of any foreign exchange loss shall be subject to the limitation that any realised foreign exchanged loss shall not be deductible from assessable income of a taxpayer in the yar of assessment to the extent of his unrealised foreign exchange gain which would otherwise be realised if all foreign currency assets and liabilities of the taxpayer were disposed of.
10. Rates
Rates applicable to individual taxpayers
11. Rebates/Annual Deduction
None
12. Tax Period
1st July – 30th June
13. Withholding Taxes
None
14. Beneficiary of Revenue
None
K. Special Taxes (Other Than Income Tax) on Certain Industries/Types of Income
1. Name of Tax and Levied in Terms of Which Act (Name, Number and Year
2. Department Responsible for Administration
3. Taxpayer
4. Included in Tax Base
5. Tax Rate
6. Beneficiary of Revenue
L. Taxation of Capital
1. Name of Tax and Levied in Terms of Which Act (Name, Number and Year
2. Department Responsible for Administration
3. Taxpayer
4. Included in Tax Base
5. Tax Rate
6. Beneficiary of Revenue
M. Donations Tax (National Government)
1. Name of Tax and Levied in Terms of Which Act (Name, Number and Year
2. Department Responsible for Administration
3. Taxpayer
4. Included in Tax Base
5. Tax Rate
6. Beneficiary of Revenue
N. Other (National Government) (National Government)
1. Name of Tax and Levied in Terms of Which Act (Name, Number and Year
2. Department Responsible for Administration
3. Taxpayer
4. Included in Tax Base
5. Tax Rate
6. Beneficiary of Revenue