A. Income Tax: Scheme of the Act
The Act provides for a series of steps to be followed in arriving at the taxpayer's 'taxable income'. The starting point is to determine the taxpayer's 'gross income' (as defined in s1). It means the total amount of income, in cash or otherwise, received by or accrued to or in favour of such person from a source within or deemed to be within Namibia during the year of assessment.
Receipts or accruals of a capital nature are generally excluded from 'gross income'. Certain amounts, irrespective of their nature, are specifically included in the definition of 'gross income'.
The next step to be taken is to arrive at 'income', which is the result of deducting all receipts and accruals that are exempt from tax under the Act. Finally, 'taxable income' is arrived at by deducting all the amounts allowed to be deducted or set off in terms of the Act from 'income'.
The steps to be followed to determine taxable income are thus:
Gross income
Minus Exempt Income
= Income
Minus Deductions
= Taxable Income/Assessed Loss
B. Income Tax on Resident Corporations (National Government)
1. Name of Tax and Levied in Terms of Which (Name, Number and Year)
Income Tax, Income Tax Act, 24 of 1981 (hereinafter referred to as "the Act")
2. Institution Responsible for Administration
Inland Revenue Directorate headed by the Commissioner of Revenue Management (hereinafter referred to as "the Commissioner").
3. Definition and Classification
The term 'company' is defined in s 1 of the Act to include:
- any association, corporation or company (other than a close corporation) incorporated or deemed to be incorporated in Namibia or established by or under any law;
- any association, corporation or company incorporated under the law of any country other than Namibia;
- any association formed in Namibia to serve a specified purpose beneficial to the public or a section of the public;
- any unit trust scheme, whether in property shares or in securities other than property shares, managed or carried on by any company registered as a management company
- close corporation
4. Basis of Taxation
4.1 Source-based or residence based
Source-based
4.2 If source, define:
4.2.1 Actual source
The Act itself does not contain a definition of source.
To determine the source of an amount the Courts apply a two-legged test, namely:
(a) where the credit is granted
(b) where the funds are made available
Generally one looks at the originating cause of the amount. The place where payment takes place is not decisive.
4.2.2 Deemed source
The following amounts are deemed to be derived from a Namibian source:
Contracts made by a taxpayer within Namibia for the sale of goods, whether such goods have been delivered or are to be delivered in or out of Namibia; (S15(1)(a)).
The use or right to use patents or designs, or grant of permission to use in Namibia wheresoever such permission has been granted and wheresoever payment is made or to be made; (S15(1)(b))
Any business carried on by a person as owner or charterer of any ship or aircraft who is ordinarily resident wheresoever the ship or aircraft may be operated; (S15(1)(d))
Any annuity from a purchased annuity which accrue or is received by a person ordinarily resident in Namibia; (S 15(3)) and
Any interest which has been received or accrues to a domestic company or a person ordinarily resident in Namibia; (S 15(2))
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 levied on the earlier of the date an amount is received or it accrues (hereinafter referred to as 'derived'). The term 'accrued to' had been interpreted by the Courts as the date on which a person becomes unconditionally entitled to an amount.
6. Included in Tax Base
Income derived from sources within Namibia, or deemed to be from sources within Namibia.
7. Year of Assessment
A company's year of assessment coincides with its financial year
8. Computation of Taxable Income
8.1 Exemptions
8.1.1 Partial exemptions (amounts exempt irrespective of the identity of the recipient):
Dividends S16(1)(n), subject to the provisions of s 42 (Non Resident Shareholders Tax), are exempt from income tax.
8.1.2 Absolute exemptions (taxpayers enjoying completed exemption from tax on income):
Amounts derived by the following taxpayers are exempt from tax:
- Temporary building societies, pension fund, provident fund, retirement annuity fund or benefit fund; (S16(1)(d))
- Institution which in the opinion of the Minister is a mutual savings bank, mutual loan association, a fidelity or indemnity fund, a trade union, a chamber of commerce, local publicity association or a non-proprietary stock exchange; (S16(1)(d))
- Institutions which in the furtherance of its sole object or one of its principal objects, conducts scientific, technical or industrial research or provides necessary or useful commodities, amenities or services to the State; (S16(1)(e))
- Amateur sporting associations; (S16(1)(g))
- The Government and local authorities; (S 16(a) and S 16(1)(b))
- Ecclesiastical, charitable and educational institutions of a public character; (S16(1)(j))
- Unit trust schemes; (S16(1)(a))
8.2 Deductions and recoupments
8.2.1 Allowable deductions
The Act provides for a general deduction formula as well as for special deductions:
General deduction formula (S 17(1)(a) and (b))
A taxpayer who conducts a trade may deduct expenditure and losses actually incurred in the production of income during the year of assessment provided that the expenditure and losses are not of a capital nature.
Although, as a general rule expenditure is deductible in the year in which it was actually incurred, special provision is made in certain instances for the spreading of expenditure over a number of years.
Special deductions:
(a) Legal costs (S 17(1)(c)).
Legal expenses actually incurred by the taxpayer during the year of assessment on any claim, dispute or action arising in the course of or by reason of ordinary operations undertaken by him or her in the carrying on of his trade is deductible. The deduction is limited to legal expenses that:
- are not of a capital nature;
- are not incurred in respect of a claim made against a taxpayer for the payment of compensation or damages if by reason of the nature of the claim or the circumstances payment that is or might be made in satisfaction or settlement of the claim would rank for deduction under the general deduction formula;
- are not incurred in respect of a claim made by the taxpayer for the payment to him or her of an amount that does or would not constitute income;
- are not incurred on a claim which if successful, can be deducted by the taxpayer or will be included in his or her income.
(b) Repair of property occupied for the purpose of trade (S 17(1)(d))
A deduction may be claimed in respect of expenditure incurred on the treatment against attack by beetles of any timber forming part of such property as well as sums expended for the repair of machinery, implements, utensils and other articles employed for the purpose of trade.
(c) Expenditure incurred in respect of acquisition of vehicles, aircraft, sea-going craft, machinery, implements, utensils and articles for the purpose of trade (S17(1)(e))
The amount of such expenditure shall not be fully deductible in the same year of assessment in which the expenditure is incurred, but shall be deducted, one-third in the year of assessment in which the expenditure is incurred, one-third in the first ensuing year and one-third in the second ensuing year.
(d) Allowance in respect of buildings (S 17(1)(f))
A taxpayer may deduct an allowance equal to twenty percent of the cost of erection of such buildings in the year during which a building is brought into use and four percent of such cost for each of the twenty years following on the year of erection. If the building is used solely for manufacturing purposes by a registered manufacturer an allowance equal to twenty percent is deductible in the year of assessment during which such buildings are brought into use and eight percent of such cost for each of the ten years following thereafter.
(e) Lease premiums (S 17(1)(g))
A deduction may be claimed in respect of premiums or consideration in the nature of a premium paid by a taxpayer for the right of use or occupation of land or buildings, the right to use plant or machinery, the right to use a motion picture film, the right to use a patent and the imparting of knowledge
(f) Lease improvements (S17(1)(h))A lessee may deduct the cost of improvements to rented land or buildings when contractually obliged.
The deduction is spread over the remaining period of the lease or one twenty-fifth of the aggregate, whichever is the greater.
(g) Expenditure incurred on patents (S 17(1)(i))Expenditure may be deducted in respect of the devise of a patent, the obtaining thereof if used by the taxpayer for the purpose of trade.
It is deductible in full if less than N$200 or, if greater than N$200, proportionally over the estimated useful life (not to exceed 25 years)
(h) Bad debts (S 17(1)(l)(m))An allowance is granted at the discretion of the Minister in respect of debts, the recovery of which is doubtful. In certain instances an allowance is granted equal to 25% of the total of debts. In other instances the allowance is calculated as a percentage of debts outstanding at year-end, the percentage being based on bad debt history over five years. The amount allowed as a deduction in one year must be included in income in the following year. The amount of any irrecoverable debts written off is allowed as a deduction provided the debts are in respect of amounts previously included in taxable income. Subsequent recoveries are taxable.
(i) Annuities (S 17(1)(p))Annuities paid to a former employee retired on grounds of old age, ill health or infirmity or to a dependant of a former employee may be deducted.
(j) Expenditure on scientific research (S 17(1)(r)).Such expenditure is allowed provided it is not of a capital nature.Donations S17(1)(s).Donations to educational institutions and welfare organisations are deductible. It cannot create a loss, an individual may not be nominated as a beneficiary and compulsory school fees are not allowed.Scrapping allowance S17(1)(u).
A scrapping allowance may be claimed in respect of qualifying assets used by the taxpayer for the purposes of trade that has been scrapped during the year of assessment.Instalment sales S25.Where ownership of property passes (or in the case of immovable property, transfer is given) only on payment of a certain portion of the purchase price, the full purchase price is included in the income of the seller in the year of sale and a deductible allowance is granted to take account of the portion unpaid at the end of the year. This allowance is usually a percentage of the instalment sale debtors based on the average gross profit on such sales, including interest. An allowance granted in one year must be included in income in the following year and a new allowance calculated.
Note: Special deductions to registered manufacturers are dealt with in Chapter 3: Investment Incentives.
Allowance in respect of lease premiums
A deduction may be claimed for a premium or consideration in the nature of a premium paid for the right of use
8.2.2 Valuation of inventory/trading stock
The cost of trading stock (inventory) held and not disposed of at the end of the year of assessment is included in gross income. The cost so included is deductible in the next year of assessment as the value of opening stock. The cost of trading stock is determined according to specific rules
8.2.3 Reserves and provisions
Amounts transferred to a reserve fund are usually not deductible for tax purposes (see 8.2.4, below).
8.2.4 Non-deductible expenses
The following expenses may not be deducted:
Expenses incurred to produce exempt income (S 16(1)(f)) Expenditure incurred on amounts that are exempt from tax cannot be deducted.
Non-trade expenditure (S 24(g))
Expenditure is only deductible to the extent that it has been expended for the purposes of trade.
Provisions and reserves (S 24(1)(e))Income carried to a reserve fund or capitalised in any way.
Interest, penalties and taxes (S 24(1)(d))Taxes, duties, penalties, interest or additional tax imposed under the Income Tax Act or any other Act administered by the Commissioner cannot be deducted for tax purposes.
Recoverable Amounts (S 24(1)(c))Any loss or expense, the deduction of which would otherwise be allowable, to the extent to which it is recoverable under any contract of insurance, guarantee, security or indemnity.
8.2.5 Recoupments
As a general rule the amount claimed as a deduction for income tax purposes is included in a person;s income in the year in which it is recovered or recouped (S 14(4)). The recoupment is limited to the amount previously deducted.
8.3 Depreciable regime
8.3.1 Tangibles (movable and immovable assets, for example plant and machinery)
Vehicles, aircraft, sea-going craft, machinery, implements, utensils and articles (S 17(1)(e)Expenditure incurred on the acquisition of vehicles, aircraft, sea-going craft, machinery, implements, utensils and articles used by the taxpayer for the purpose of the taxpayer;s trade is deductible in equal instalments over three years.
Buildings (S17(1)(f))An allowance of 20% is granted on the cost of erection of buildings used for the purpose of trade in the first year during which they are brought into use, and 4% in each of the following 20 years. Additions to existing buildings (not alterations or repairs) qualify for the same 20% and 4% deductions.
A registered manufacturer is entitled to an annual allowance of 8% for ten years, provided the building is used solely for manufacturing purposes was completed after 23 August 1993. The initial allowance is also 20%. Mining exploration expenditure incurred before commencement of production is deductible in full in the first year of production against income derived from the mine.
Subsequent development expenditure is written off in three equal annual instalments. (S 18 and 36).There is no requirement for book and tax treatment of depreciation to be the same. ?????
8.3.2 Intangibles/incorporeals (for example, copyright, patents, goodwill and other intellectual rights)
Expenditure incurred on the development, acquisition, registering and renewal of incorporeal rights are deductible in full if it is less than N$ 200 or, if greater than NS 200, proportionally over the estimated useful life of the property (not to exceed 25 years).
In the case of extension or renewal of such rights, the cost is allowed in full in the year in which it is incurred. A trade name is viewed as ;similar property; for this purpose. (S 17(1)(g))
8.4 Treatment of losses
Assessed tax losses may be carried forward indefinitely, provided the company continues to trade. Losses may not be carried back or transferred to other group companies.
Should a company cease to trade for a full fiscal year, its assessed loss falls away, regardless of subsequent activity.Losses incurred on a trade conducted by a taxpayer outside Namibia cannot be deducted against income derived from carrying on a trade in Namibia.
9. Foreign Exchange Losses and Gains
Where a gain or loss is realised on the repayment or rollover of a foreign loan taken out for the purposes of the taxpayer’s business (including, if the taxpayer is a company, for the purpose of an associated company’s business) in Namibia this must be included in (or deducted from) his income.
The gain (or loss) is computed on the difference between the dollar equivalent when the loan was taken out and the amount actually paid. To the extent to which the gain or loss has already been taken into account for tax purposes it must be reduced accordingly.
Loans raised in order to repay or ‘roll over’ other loans also qualify for the same treatment. Generally, unrealised losses and gains relating to loans will not be deductible/taxable. The deduction of realised losses on loans raised for working capital and fixed capital is permitted. The categorisation of a foreign exchange loss as capital in nature does not prevent its deduction. Similarly, capital gains on foreign exchange differences are taxable. (S 25A).
10. Branch Profits Tax
Profits or losses of all branch operations of a company that carries on business in Namibia are combined. Income from branches operating entirely outside Namibia is not taxable in Namibia; losses connected with these operations may not be claimed.
11. Group Taxation/Consolidated Returns
No group taxation.
12. Presumptive Tax Measures (for example, a minimum tax in the form of a gross asset tax)
No presumptive tax measures.
13. Rates
Non-mining companies pay tax on their taxable income at a flat rate of 35%.Diamond mining companies pay 55%.Petroleum mining companies pay at a flat rate of 35%.Other mining companies pay at a flat rate of 37.5%.
14. Rebates
None.
15. Withholding Taxes
Only withholdine on dividends and royalties to non-residents. Rate on dividends (S 42) is 10% and on royalties (S35) is 10.5%.
Rate of 10 % on interest received from the banking institution will be withhold.
16. Beneficiaries of Revenue
State Revenue Fund
C. Income Tax on Individuals (National Government)
1. Name of Tax and Levied in Terms of Which Act (Name, Number and Year
Income Tax, Income Tax Act 24 of 1981 (hereinafter referred to as the Act) ?????
2. Department Responsible for Administration
Inland Revenue Directorate
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.Trusts are treated as individuals for tax purposes.
4. Time Tax is Levied
Tax is levied on the earlier of the date an amount is received or accrued (hereinafter referred to as ‘derived’. The term ‘accrued to’ had been interpreted by the Courts as the date on which a person becomes unconditionally entitled to an amount.
5. Basis of Taxation
5.1 Source-based or residence based
Source-based
5.2 If source, define:
5.2.1 Actual source
Same as for bodies corporate.
5.2.2 Deemed source
Same as for corporate taxpayers.
In addition the following amounts are deemed to be from a South African source:
(a) Pensions and annuities granted by the Government of Namibia, regional council or a local authority; (S 15(1)(i));
(b) Any amount derived from a pension, provident, retirement annuity fund in respect of which any contribution was allowed in Namibia irrespective of where the funds from which payment is made are situate; (S15(7));
Any service rendered by a person whether payment is made from outside Namibia and whether a person resident in or outside Namibia makes the payment; (S15(1)(e))
Any service rendered outside Namibia by a person who is ordinarily resident in Namibia; (S15(1)(f))
Any service rendered outside Namibia by a person on behalf of the Government of Namibia or a regional council or local authority; (S 15(1)(g))
Any services rendered outside Namibia by a person ordinarily resident in Namibia as a crew member of any ship or aircraft; (S 15(1)(h))
Amounts derived by virtue of any pension or annuity for services performed in Namibia for at least two years during the last ten years immediately preceding the date on which the pension or annuity becomes due; (S 15(1)(i))
Any amount from a policy of insurance if any premium in respect of such policy was allowed in Namibia (S 15(6)).
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
Income from a source within or deemed to be within Namibia.
7. Year of Assessment
The year of assessment for individuals covers a period of 12 months and generally commences on 1 March of a specific year and ends on the last day of February the following year.
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):
- Employment: Limited amount of retirement awards (S16(1)(o))Certain retirement awards as do not exceed N$ 300 000 are exempt from tax.
- Salaries and emoluments derived by the following persons are exempt from tax: ((S16(1)(c))A person who holds office in Namibia as an official of any government;
A person who holds office as an official of the UN or one of its specialised agencies;
- Interest from stock or securities (S16(1)(i))Interest from stock or securities (including Treasury Bills) are exempt from tax.
- Dividends from Special Tax-Free Indefinite Period Shares (S16(1)(m)(iii))Amounts derived as dividends on Special Tax-Free indefinite Period Shares in building societies in Namibia as does not in any year of assessment exceed so much of the dividends on such shares as are derived in respect of that portion of the total amount invested in such shares which is equal to the amount of N$ 100 000.
- War pensions (S16(1)(k))War pensions are exempt from tax
- Compensation in respect of diseases (S16(1)(k))An award or any benefit under any law relating to the payment of diseases contracted by persons employed in mining operations is exempt.
- Dividends (S16(1)(n)): Subject to the provisions of Non Resident Shareholders Tax, dividends are exempt.
- Annuities S16(1)(ad): Annuities paid by an insurer to a person in Namibia from any purchased annuity contract entered into outside Namibia.
- One-third derived from pension, provident, retirement annuity and preservation fund (Exclusion under gross income ; S1 and 16(1)(aa))
- One ; third of pay-outs from these funds are exempt from tax on death and retirement of a taxpayer.
- Occupation allowance (S 16(1)(y))An amount received as an occupation allowance in relation to the pursuit of farming operations in an area which is a designated area as contemplated in the
- Density of Population in Designated Areas Act.
- Transfer of proceeds in funds S16(1)(z)The transfer of lump sum benefits from any pension, provident or preservation fund to another approved pension, provident, preservation or retirement annuity fund is exempt.
- Bursaries S16(1)(w)Any amount received by a person which constitute a bursary to enable that person to study at a recognised educational or research institution is exempt from tax.
- Grants S16(1)(v)Any amounts awarded to a person on obtaining a higher or additional qualification is exempt from tax.
- Alimony or allowance or maintenance: Any amount received by a person from such person’s spouse or former spouse by way of alimony or allowance or maintenance of such person or any children under an order of divorce or judicial order is exempt from tax.
- Uniforms and uniform allowances The value of a special uniform given to an employee or an allowance given in lieu of the uniform is exempt from tax.
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
General deductions:
Same as for bodies corporate.
Special deductions:
Except for minor differences, individuals are entitled to the same deductions as bodies corporate. In addition they may claim the following deductions:
Contributions to funds (S 17(2))Any sum contributed by a taxpayer to any pension, provident, retirement annuity, preservation fund and study policy is deductible. Contributions cannot exceed N$ 40 000 per tax year.
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. In addition the following expenses may not be deducted in terms of s 24:
Maintenance of family (S16(1)(a))
No deduction is allowed in respect of cost incurred in the maintenance of any taxpayer, his family or establishment.
Domestic or private expenses (S16(1)(b))
No deduction is allowed in respect of domestic or private expenses, including the rent of or expenses in connection with any premises not occupied for the purposes of trade or of any dwelling house.
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)
Same as for bodies corporate.
8.4 Treatment of losses
Assessed losses may be carried forward, irrespective of whether the individual conducted a trade in the subsequent year or if income was derived in that year
9. Foreign Exchange Losses and Gains
The income tax treatment of exchange items held by a natural person as trading stock is the same as for bodies corporate.
10. Rates
Individual Income Tax Rates (all persons, incl. deceased estates and trusts) other than companies
|
Annual Taxable Income N$ |
Rates of taxes for year of assessment ending 28 February 2010 - N$ |
|
0 - 40 000 |
Not taxable |
|
40,001 - 80,000 |
27% for each N$ above 40,001 |
|
80.001 - 200,000 |
10,800 + 32% for each N$ above 80.001 |
|
200,001 - 750,000 |
49,200 +34% for each N$ above 200,001 |
|
Over 750,000 |
236,200 + 37% for each N$ above 750,001 |
11. Rebates/Tax Threshold
No rebates. Threshold of N$ 40 000 incorporated in statutory rates. ?????
12. Fringe Benefit Taxes (Benefits Flowing from an Employer-Employee or an Office Relationship)
Any benefit or advantage granted to an employee in respect of employment falls within the ambit of gross income. (S 1).
The following fringe benefits are contained in a Schedule, which is not part of the Act: The schedule contains specific provisions with regard to the determination of values for tax purposes.
The taxable values which are to be used in calculating monthly employees’ tax deductions with respect to the fringe benefits are as follows:
Meals
Meal coupons and free or subsidised meals, if used and received at residence, N$ 100 per month in respect of every family member of 6 years and older. (Otherwise, for instance at business premises, exempt).
Temporary holiday accommodation
(a) In the case of rental accommodation, the cost to the employer of the rent, meals or services;
(b) Otherwise, the lowest of N$ 40 per person per day or the tariff applicable to non-employees. Both the family and/or guests of the employee must be included in calculating the benefit, at a rate of N$ 40 per person per day.
Free housing
Depending on the location and size of the premises concerned (measured in rooms – that is living rooms) a monthly value is determined and this is reduced by any amounts actually paid by the employee.
Approved housing schemes
An approved housing scheme results in the taxable values attached to housing loans/subsidies and low cost housing, being reduced in terms of a formula.
In the case of low cost housing:
- Where remuneration of the employee concerned (excluding annual payments, overtime, pension pay-outs and the housing benefit itself) exceeds N$ 30 000 per annum, the value is reduced by one-third.
- Where remuneration is between N$ 15 000 and N$ 30 000 per annum the value is reduced:
- Firstly, by a formula which produces a deduction of 100% at a remuneration level of N$ 15 001, and moves evenly to 50% at N$ 22 500 and zero % at N$ 29 999.
- Secondly, by 1/3 of the amount remaining after the formula deduction.
- Where remuneration does not exceed N$ 15 000 the taxable benefit is reduced to nil.
Note: In the case of loans and subsidies the reduction is always one third remuneration for purposes of performing the calculation.
Services
Services are taxed on the basis of cost to the employer of either rendering the service or having it rendered, less any amount paid by the employee.
Loans (Other than housing)
The benefit taxable in respect of loans is calculated in relation to the official rate of interest in the same manner as for housing loans but there are two exceptions:
- Total exemption in the case of a loan granted to an employee for study purposes
- Loans that do not in aggregate exceed N$ 3 000 at any time during a tax year
Donation or favourable sale
Taxable benefit is calculated on the market value less any amount paid by the employee. There is an exemption for long service and bravery award taking the form of an asset (but not cash) if its value is less than N$2 000.
Company owned vehicles
If all costs are borne by the employer, the taxable value is 1,5% per month. If the employee bears the fuel costs the value is based on 1,4% per month.
Pool cars
If the use of a vehicle is restricted to trips solely between private residence and place of employment the taxable value is N$100 per month.
Housing subsidies and loans
In the case of a low interest loan provided to an employee by his employer for the purpose of acquiring his residence, a taxable benefit will accrue to the extent that the interest actually paid by the employee falls short of the official rate of 15% per annum.
13. Allowances
Allowances are generally paid to employees to meet expenditure incurred on behalf of an employer. The Act does not specify any specific treatment of the allowances except that the unexpended portion of such an allowance must be included in the employee’s taxable income. The most common types of allowances given to employees are travelling, subsistence and entertainment allowances.
14. Treatment of Pension, Provident or Retirement Annuity Fund Income
Annuities received from these funds are taxed as ordinary income. The capital portion of a purchased annuity is exempt from tax.
Lump sum benefits (one-third) derived from these funds are not subject to tax on retirement or death. The remainder is taxed at the marginal rate.
Contributions to these funds are allowed as a deduction. The limit is N$ 40 000 for a year of assessment and it also include contributions to a study policy (S17(2)).
No excess may be carried forward to a next year of assessment.
15. Treatment of Professional Income
No special treatment.
16. Treatment of Investment Income
Treated as ordinary income.
17. Withholding Taxes
Similar as for bodies corporate.
18. Beneficiary of Revenue
State Revenue Fund.
D. Income Tax on Non-Residents (National Government)
1. Name of Tax and Levied in Terms of Which Act (Name, Number and Year
Income Tax, Income Tax Act 24 of 1981
2. Department Responsible for Administration
Inland Revenue Directorate.
3. Included in Tax Base
Namibian sourced income.
4. If Sourced-Based, Define (If Not Already Done)
4.1 Actual source
Same test as for Namibian resident- taxpayers
4.2 Deemed source:
Same as for Namibian resident-taxpayers
5. Rates
Same rate as for Namibia-resident taxpayers
6. Beneficiary of Revenue
State Revenue Fund
E. Income Tax: Treatment of Dividends, Interest, Royalties and Fees
1. Dividends
The term dividend is widely defined in section 1 of the Act to include all amounts distributed by a company to its shareholders. Domestic dividends are exempt from tax. Non-resident shareholders’ tax applies to dividends declared by a Namibian company to a non-resident. Generally, Non Resident Shareholders Tax must be deducted at a rate of 10%. (S 42). Foreign dividends are not taxable.
Amounts derived as dividends on Special Tax-Free Indefinite Period Shares in Building Societies in Namibia as does not in any year of assessment exceed so much of the dividends on such shares as are derived in respect of that portion of the total amount invested in such shares which is equal to the amount of N$ 100 000 is exempt from tax (S16(1)(m))
2. Interest
The Act does not contain a definition of the term interest. Interest from stock or securities (including Treasury Bills) and interestfrom deposits in the Post Office Savings Bankare exempt from tax (S16(1)(i)).
Any amount credited as interest in respect of any subscription shares in any building society is exempt from tax (S16(1)(m)(ii)).
3. Royalties
A person or a company which incurs a liability to pay any person not ordinarily resident in Namibia any amount (royalty) for the use of any patent, design, trademark, copyright or any property of a similar nature or of any motion picture film or for the imparting of any scientific, technical, industrial or commercial knowledge, is required to deduct royalty tax from the royalty payable. The tax is calculated at the company rate applicable to the recipient company’s year end, on 30% of the gross royalty payable. Double taxation treaties may vary the position (S 35).
4. Fees
Fees derived by Namibian residents are treated as ordinary income. Non-Namibians who derive fees will be taxed in Namibia if the fees are considered to be from a Namibian source. The source of the fees is usually the country in which the services in respect of which the fees are paid are rendered.
5. Rents
The Act does not contain a definition of the term “rent”.
Rent derived by Namibian resident taxpayers are treated as ordinary income.
Non-Namibian residents who derive rent will be taxed in Namibia if the rent is considered to be from a Namibian source. The source of rent is the country in which the immovable property is situated or the country in which the taxpayer conducts business.
F. Income Tax: Specific Industries
1. Mining Tax
The taxable income of a person from mining operations is determined in the same manner as that from any other trade except where prospecting, capital development and rehabilitation expenditure is concerned. The term mining is defined in the Act to include any method or process by which minerals, including natural oil, is won from the soil or from any constituent of the soil. Although mining technically includes mining for natural oil, oil and gas extraction is dealt with under the Petroleum Taxation Act, 1991.
Exploration expenditure:
Exploration (prospecting) operations are of a preparatory or ‘capital’ nature when conducted by a mining company, but are the direct revenue earning operations of a specialised prospecting company. The distinction is important because a specialised prospecting company is not dealt with under the rules discussed here, but under the general rules of the Act.
Generally, prospecting by a specialised prospecting mining company would entitle the company to deduction current operating expenditure incurred during a year and to claim normal capital allowances on capital assets. However, in the case of ‘exploration operations’ conducted by a mining company, the ‘operating’ expenditures are of a capital nature and they, together with the infrastructure expenses, are dealt with under the specialised mining provisions of the Income Tax.
“Exploration expenditure” is all expenditure, both revenue and capital, incurred directly or indirectly on exploration and including salary and wages, the acquisition of vehicles, machinery, pipes, drilling and sub-surface equipment, repairs to equipment, rentals, fees and similar charges in respect of land or buildings and general administration costs.
All the above expenditure is carried forward to the year in which a mine commences production for the first time and is deducted in that year. To the extent that this deduction exceeds income from mining operations for the year concerned, it will create an assessed loss for carry forward or for set off against other income of the taxpayer. Once a mine has commenced operations, further exploration in other areas by the same entity is immediately deductible.
Development expenditure:
Development operations includes shaft sinking, the installation of machinery and other equipment, the construction of production, conveyance and storage facilities and office, residential, recreational and other facilities for personnel and the construction of roads.
Development expenditure includes all operating and capital expenditure incurred in connection with development operations, including wages and salaries, the acquisition of vehicles, pipes, production, treatment and processing equipment, whether surface or sub-surface and including off-shore requirements; the acquisition of rental of warehouses, terminals, harbours, vessels, aircraft, water and sewerage plants and fixed property generally occupied for purposes of carrying out development operations; general administration expenses.
Development expenditure is carried forward until the year in which a mine commences production for the first time. Such accumulated development expenditure is then written off in three equal instalments, commencing in the year of production. Development expenditure incurred thereafter is written off over three years commencing with that in which it is actually incurred.
Operating expenditure of a mine:
Normal operating expenditure which does not fall under the categories of exploration or development expenditure is dealt with in terms of the normal provisions of the Act and is generally deductible as and when incurred.
Rehabilitation expenses:
Any rehabilitation expenditure actually incurred during a year is deductible. A provision made for future expenditure to be incurred in the future upon the cessation of mining operations will be deductible if approved by the Minister. Provisions not utilised in the year they are raised will be added back to income in the succeeding year and a new provision calculated. If a provision is expended in a manner other than for the said purpose it will be likewise added to income. The period over which provisions may be raised is also subject to negotiation. (S 18(1)(b) and (2)).
2. Insurance Business
Long-term insurance (S 32(1))
Taxable income is:
- 40% of investment income (including rental) on capital derived from carrying on insurance business inside or outside Namibia, but excluding:
- Non-Namibian source income in respect of non-Namibian insurance business income;
- Income attributable to pension, provident fund and retirement annuity business; and
- Income attributable to certain non-Namibian annuity business.
- plus 40% of management fee income from any companies in which at least a 10% interest is held.
Note: Life insurance premiums do not form part of taxable income and expenditure is not deductible at all.
Short-term insurance (S 32(2))
All premiums, including reinsurance premiums received, are included in income.
The following deductions are permissible:
- Reinsurance premiums paid;
- Net claims incurred (after any claims recoverable under reinsurance);
- An allowance in respect of the unexplored period of current policies (‘unexpired risk’)
- An allowance for claims intimated but not paid; and
- An allowance for claims neither intimated nor paid (based on a statistical probability).
3. Farming
Farmers are taxed in the same manner as other individuals or companies but subject to special rules regarding capital expenditure. Farming is not defined in the Act and must therefore bear its usual meaning; generally it requires a genuine intent to farm coupled with a reasonable prospect of success.
Exempt income:
An amount received or accrued as an occupation allowance in relation to the pursuit of farming operations in an area designated as contemplated in the 'Promotion of the Density of Population in Designated Areas Act' is exempt from tax.
Farmers are taxed on a cash basis. It means that livestock values and the value of produce does not play any role when determining taxable income.
Livestock or produce donated or used by a farmer which would normally produce income, is included in the income of a farmer at a value which in the opinion of the Minister is its current market price and not cost.
Deductions of capital expenditure:
Deductions (which may not exceed taxable income from farming before any assessed loss brought forward) are allowed to a farmer for expenditure incurred in respect of:
- Dipping tanks, dams, wells;- Prevention of soil erosion (any subsidy received is taxable);
- Buildings used in connection with farming operations (the deduction not to exceed N$50 000 in the case of employees' houses);
- Fences, fire-breaks;
- Bush and noxious plant eradication;
- Establishment of orchards and vineyards;
- Building of roads and bridges used for farming purposes;
- Kraals (enclosures for livestock) made of bricks, concrete or wire and stone.
Any expenditure in excess of current farming income is carried forward for deduction in the following year.
Farming machinery, implements, utensils, vehicles and aircraft qualify to be deducted over three years in equal instalments.
Important concession
An important concession made to farmers at their option is that the cost of livestock bought within four years to replace losses caused by drought, stock disease or damage to grazing by fire or plague, can be deducted from the livestock sold in the earlier year. Assessments will be revised accordingly. The claim for such deduction must be made within five years after the close of the year of sale.
4. Ships and Aircraft Owners
Any non-resident who embarks passengers or freight may not receive port or airport clearance until payment has been made to Revenue of tax at the company rate on 10% of the gross transport charges applicable to the passengers or freight concerned.
If Revenue is satisfied that accounts will be lodged which satisfactorily disclose the taxable income from the operations, exemption from the withholding tax will be granted to a person (S 34).
5. Other
G. Income Tax: Administrative Procedures (National Government)
1. Payment Periods
Income tax returns are issued annually to taxpayers after the end of each year of assessment.
A distinction is made between filers and non-filers (S 56)
A non-filer is a person that worked for one employer during the tax year, did not receive interest in excess of N$ 500 and not entitled to any deductions other than contributions to a pension, provident, preservation or retirement annuity fund. The employer has to deduct PAYE in such a way that the taxpayer’s obligation is met. This is called PAYE as a final tax and the taxpayer does not have to file a return.
Tax returns must be submitted to Inland Revenue within either 120 days or seven months after the close of the tax year depending whether it is a natural person or a company. A taxpayer may apply for extension.
During 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 tax payments.
Taxpayers who are not subject to employees’ tax are provisional taxpayers. Provisional taxpayers have to make compulsory tax payments every six months after the beginning of a year of assessment and at the end of a tax year.
A final payment of tax return showing the taxable income calculated by the taxpayer, PAYE deducted, the first and second provisional tax payments and the tax owing must be filed within 120 days or seven months after the tax year end. This is called a top-up payment.
2. Rulings
2.1 Possibility of advance rulings
None
2.2 Publication of rulings
None
3. Codification of Revenue Practices
Inland Revenue Directorate issues practice notes which is currently not Gazetted but it will be done in the near future
4. Refunds
When the Commissioner is satisfied that a taxpayer has overpaid tax, he may authorise a refund. There is no time limit on such refunds. The Commissioner may also set off the refund against other taxes owed by the taxpayer. (S 94)
5. Interest, Charges and Penalties
Interest is payable to Revenue at a rate of 20% p.a. Interest is not payable by Revenue on credits (S79). Penalties may be imposed up to 200% on outstanding taxes (S 66).
H. Income Tax: Anti-Avoidance Provisions (National Government)
1. Transfer Pricing Legislation
Transfer pricing legislation was introduced and incoporated into the Income Tax Act ( Sec 95A)
2. Thin Capitalisation Legislation
No thin capitalisation legislation.
3. Controlled Foreign Entities (CFES)
No CFE legislation
4. Provide a Brief Discussion of General Anti-Avoidance Provisions (Both under common and statutory law)
Common law:
The common law substance over form doctrine or sham transactions doctrine is applied to tax planning schemes. In terms of this doctrine, a court will not give effect to the form of an agreement, but effect will be given to the substance thereof. The doctrine is applicable when an agreement entered into is a mere sham as the parties never intended to give effect to it.
Statutory law:
A general anti-avoidance provision is contained in section 95(1) of the Act. For the section to apply, four requirements need to be present:
- A transaction, operation or scheme must have been entered into or carried out;
- The transaction, operation or scheme must have the effect of avoiding or postponing liability for any tax, duty or levy imposed by ht Income Tax Act;
- It was entered into or carried out in a manner which would not normally be employed in the entering or carrying out of a transaction, operation or scheme of the nature of the transaction and it created rights or obligations which would not normally be created between persons dealing at arm’s length;
- The transaction was carried out solely or mainly for the purpose of avoiding tax. In the case of a transaction, operation or scheme in a manner that would not normally be employed
5. Transactions Between Connected Persons
No general provision dealing with transactions between connected persons exists.
I. Capital Gains Tax on Corporations (National Government)
1. Name of Tax and Levied in Terms of Which Act (Name, Number and Year
No capital gains tax levied in Namibia.
2. Institution Responsible for Administration
3. Basis of Taxation (Source-based or residence-based)
4. Time When Tax is Levied
5. Included in Tax Base
6. Exemptions/Exclusions
7. Allowable Deducations
8. Non-Deductible Expenses
9. Roll-Overs
10. Treatment of Losses
11. Rates
12. Rebates
13. Tax Period
14. Withholding Taxes
15. Beneficiary of Revenue
J. Capital Gains Tax on Individuals (National Government)
1. Name of Tax and Levied in Terms of Which Levied (Name, Number and Year)
No capital gains tax levied in Namibia.
2. Department Responsible for Administration
3. Basis of Taxation (Source-based or residence-based)
4. Time When Tax is Levied
5. Included in Tax Base
6. Exemptions
7. Allowable Deducations
8. Non-Deductible Expenses
9. Treatment of Losses
10. Rates
11. Rebates/Annual Deduction
12. Tax Period
13. Withholding Taxes
14. Beneficiary of Revenue
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
Income Tax, Petroleum (Taxation) Act, 1991
2. Institution Responsible for Administration
Inland Revenue Directorate
3. Taxpayer
Petroleum companies
4. Included in Tax Base
Taxable income means gross income less allowable deductions and losses.
Income Gross income excludes amounts of a capital nature, but includes (whether of a capital nature or not):
- Amounts actually received or accrued in or outside Namibia in respect of petroleum produced, saved, delivered during the tax year and disposed of under arm’s length sale
- The fair market value (in terms of the relevant licence) of the petroleum produced, delivered in the tax year and disposed of under a non-arm’s length sale
- The market value (as defined) of petroleum produced, saved and appropriated for refining or other purposes by that person
- One half of the market value of the petroleum produced, saved (and not lost) and which has neither been disposed of nor appropriated, or has been disposed of but not yet delivered. Any such amount will be a deduction from gross income in the immediately ensuing year, whether or not the petroleum concerned has actually been appropriated or delivered as the case may be.
- The insurance proceeds in respect of any petroleum produced and saved.
- Any proceeds from the disposal of ‘capital expenditure’ assets which, together with accumulated depreciation on those assets, exceeds their costs.
- Amounts from the sale of petroleum information.
- Any amounts specially provided for as taxable in terms of the conditions of the licence concerned
Where any amount is received or accrued prior to the year in which petroleum is first sold or otherwise commercially dealt with, it is carried over for taxation in that year.
Deductions
In order to be deductible, expenditure must be actually incurred in respect of the licence area in the production of gross income. Capital expenditure is subject to allowances referred to below. Apart from the general deduction, specific provision is made for the deduction of:
- Repairs and maintenance (excluding improvements) of premises, machinery and other articles.
- Interest on borrowings employed in connection with the licence area concerned.
- Rental on land and buildings, plant, machinery and other items.
- Royalties paid in terms of the Petroleum Exploration and Production Act.
- Customs duties payable in respect of the importation of movable equipment and materials.
- Wages and salaries and contributions to approved funds in respect of persons employed on operations connected with the licence area. Education and training of Namibian citizens at approved institutions and any education and scientific materials or equipment specified in a production licence.
- Consumables used in production operations and in production, conveyance and storage facilities.
- General administration charges and bad debts.
- Restoration and rehabilitation expenditure to the extent specified in terms of a licence.
Prohibited deductions:
- No rental or similar charges in respect of land or buildings unless occupied for the purposes of carrying out production operations in or in connection with a licence area may be deducted.
- No acquisition cost of land or any rights in land may be deducted.
- No payment in the nature of a royalty or similar charge on production or profits which is not levied in terms of the Petroleum Exploration and Production Act may be deducted.
- No expense incurred for the purpose of obtaining an interest in petroleum produced under a production licence may be deducted.
- General administrative expenditure incurred outside Namibia in relation to exploration or production
- Excessive expenditure incurred under an arrangement between associated persons
Capital expenditure
- All exploration and development expenditure prior to year of production is accumulated and written off over the first three years of production as follows:
- All accumulated exploration expenditure incurred in or prior to the year of production and one third of the accumilated development expenditure, will be deducted.
In each of the succeeding two years, one third of the development expenditure accumulated will be deducted.
Assessed losses
Losses incurred in any one year may be carried forward to the succeeding year and can be carried forward indefinitely. Losses in one licence area may not be offset against taxable income in other licence areas.
Withholding tax
There is no withholding tax levied on dividends paid out.
Additional Profits Tax
See discussion and formula under tax rate.
5. Tax Rate
Petroleum tax is payable annually at a rate of 35% of the taxable income received by or accrued to any person.
Additional Profits Tax (APT)
This tax is levied effectively on three cumulative cash flow ‘positions’ (after normal tax) for the year concerned based on ‘net cash receipts’. The ‘net cash receipts’ for a particular year is an amount made up from gross income less deductible operating, exploration and development expenditure and petroleum income tax payable for the year.
The accumulated ‘net cash positions’ for a year are the ‘net cash receipts’ for the current year adjusted, if such net receipts are negative, by
- 115% for the ‘first position’ (with a further inflation adjustment);
- 120% for the ‘second position’(with a further inflation adjustment) less any APT on the first position;
- 125% for the ‘third position’ (with a further inflation adjustment) less any APT on the first and second positions.
These current year adjusted amounts are added to the similarly adjusted net receipts from prior years.(If actual net receipts are positive, no adjustment takes place)
The tax rate is:
- In respect of the ‘first accumulated net cash position’ in relation to a tax year, 25%
- In respect of the ‘second accumulated net cash position’ for the tax year, a percentage (typically exceeding the 25% rate) of the second accumulated net cash position, as determined in terms of the production licence, and
- In respect of the ‘third accumulated net cash position’ a percentage (typically exceeding the rate for the second position) of the third accumulated net cash position, as determined in the production licence.
The formula may be varied by the specific terms of an agreement under section 13 of the Petroleum Exploration Act in relation to a particular area in terms of section 22 of the Petroleum Taxation Act.
6. Beneficiary of Revenue
State Revenue Fund
L. Taxation of Capital
1. Name of Tax and Levied in Terms of Which Act (Name, Number and Year
No taxation on capital in Namibia
2. Institution 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. Institution Responsible for Administration
3. Taxpayer
4. Included in Tax Base
5. Tax Rate
6. Beneficiary of Revenue