1. Overview
- Incentives apply equally to both domestic and foreign investors.
- The Government’s aim on investment incentives is to encourage development that will enhance gross domestic product, be of net benefit to the nation’s foreign exchange reserves and expand employment opportunities. The main thrust of investment incentives comes through the tax system, directly and indirectly.
- Direct tax concessions takes the form of accelerated depreciation, outright deduction of certain capital costs, indefinite carry forward of resultant tax losses and exempting of a proportion of export revenues.
- Indirect tax concessions can cover preferential tariff rates for raw material, tariff exemption for capital goods imported and surtax (value added tax) and import duty exemptions are granted.
2. Investment Policy
The Government of Malawi seeks to encourage the private sector to assume the leading role in developing the national economy. The thrust of Government’s efforts is to facilitate rather than to regulate private investment. To create a more conducive investment climate, the Government pursues stable macro-economic policies by exercising fiscal and monetary discipline and maintain a realistic exchange rate of Malawi Kwacha (MK) the country’s currency. Special measures have been taken to deregulate the economy with an aim of creating a conducive investment climate have been implemented including elimination of price controls, termination of import restrictions and the accompanying need for import licences, and divestiture of state owned companies.
The investment policy also allows investors both local and foreign to invest in any sector of the economy without restrictions on ownership, size of investment, source of funds or whether the product is destined for foreign or domestic markets.
The Government established Malawi Investment Promotion Agency (MIPA) through an Act of Parliament in 1991 with a mandate to promote, attract, support, encourage and facilitate both domestic and foreign investments in Malawi. MIPA assists investors by providing courtesy services to visiting investors, supplying information about Malawi, identifying joint venture partners when requested, making introduction to financial community, providing professional and business services and facilitating all aspects of the investment process including relationship with Government. MIPA operates as a One-Stop Investment Centre and as such all permits and licences are processed and granted within MIPA through an Investment Approval Committee.
3. General Incentives
4. Free Trade Zones
In Malawi, no area or region has been designated and developed as a Free Trade Zones. However, any company located in any part of the country can apply for Export Processing Zone (EPZ) status under the Export Processing Zone Act. Companies operating under the Export Processing Zone produce exclusively for the export market. The primary objectives of Export Processing Zones are to earn foreign exchange and create employment.
The administration of Export Processing Zones in Malawi is under the Ministry of Commerce and Industry. Under the guidelines of the Export Processing Zones act, an appraisal committee meets at least six times a year to assess applications made for Export Processing Zone status. Ministry of Commerce and Industry chairs the committee. Export Processing Zones licence is valid for an initial period of five years and is subject to renewal every two (2) years. One a licence is granted the applicant must initiate activities within nine (9) months from the day of approval.
5. Export Incentives
The following are the export incentive schemes available in the country:
(i) Export Processing Zones
- Zero % Corporate tax rate
- 100% duty free status for capital equipment and raw materials.
- No withholding tax on dividends.
- No duty on capital equipment and raw materials.
- No excise taxes on purchases of raw materials and packaging materials made in Malawi.
- No surtax (Value Added Tax)
(ii) Incentives for exporters manufacturing under bond
- Transport tax allowance of 25% of all international transport costs of firms manufacturing under bond.
- No duties on imports of capital equipment for manufacturing for export.
- No duties and surtaxes on raw materials.
- No excise tax on locally produced raw materials as well as packaging materials.
(iii) Horticultural Producers for export market
- 100% duty free importation of equipment and raw materials.
6. Financial Assistance
Most form of financial assistance to sizeable capital investment projects are channel through the developmental financial institutions. The Malawi Development Corporation (MDC) acts as a catalyst to development by promoting industrial and commercial activity through active participation in investment projects in equity or loan financing. MDC also participates in joint ventures with both local and foreign investors.
7. Regional Incentives
It is Government’s policy to encourage development of new industry away from existing centers. The Government’s Decentralizing Policy is the guiding policy for regional development strategy. General investment incentives and export incentives apply equally to both urban and rural areas.
Spatial Development Initiative (SDIs) are designed around some projects, especially infrastructure projects, that will be the basis of the SDIs and which will attract other resource-based investments. The following SDIs have been identified in Malawi.
- Nacala Development Corridor (multi-sectoral): Transport, agriculture, fisheries, commerce, industry, mining and tourism.
- Zambia-Malawi-Mozambique Growth Triangle (multi-sectoral): agriculture, agro-processing, tourism, fisheries, forestry, energy, manufacturing, commerce, transport, IT and telecommunications.
8. Industrial Financing
Long term and venture capital finance is provided to both foreign and local investment by:
- Malawi Development Corporation in the form of equity and term debt, most often with board representation.
- The Investment and Development Bank of Malawi Limited provides term loans and equity packages.
Normal commercial avenues of financing through the financial sector are readily available to both domestic and foreign firms. Both domestic and foreign films can also access financing from regional and international financing institutions.
9. Development Programmes And Incentives For Specific Industries
The following are general industry-specific incentive schemes administered by Government:
i. Manufacturing: duty free importation of capital equipment and raw material and tax allowances on expenditures on both new and used capital equipment.
ii. Tourism: duty free importation of qualifying capital equipment for the tourism sector.
iii. Mining Sector: duty free importation of qualifying capital equipment for the mining sector.
iv. Horticulture Sector: duty free importation on qualifying capital equipment.
v. IT and Telecommunication: duty free importation on qualifying capital equipment and duty free importation of computers.
vi. Agriculture Sector: duty free importation of irrigation equipment and duty free importation of qualifying capital equipment.
10. Tax
10.1. Rates
Rates of taxes are fixed for the different category of taxpayers. The Government through Parliament has the discretion to change this rate.
10.2. Deferral Period
10.3. Tax Holiday
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10.4. Depreciation
10.5. Other