Post on 04-Jun-2018
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Malawi
Blantyre +265 1 822 277 Peter Kuwani pkuwani@deloitte.co.mw
+265 1 836 341 Nkondola Uka nuka@deloitte.co.mw
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Malawi
The Minister of Finance, Honourable Dr
Ken Lipenga, delivered the 2012/13 Budget
Statement on 8 June 2012, at the New
Parliament Building in Lilongwe. Key national
objectives for the revenue policy measures
announced in the 2012/13 Budget include,
amongst others:
The restoration of macro-economic balance
and a market-based economy that will
provide the foundation for sustainable
economic growth in future. The provision of a consistent and coherent
economic policy framework to underpin the
development objectives.
The liberalisation of Malawis foreign
exchange regime.
Notes:
1. This update has been prepared basedon information contained in the writtentext of the Budget Statement, as well as,the acts that were presented and passed
by Parliament. Taxpayers are advised toseek professional advice on the precisenature and impact of changes indicatedin this update.
2. The policy measures under Customsand Excise Tax were effective frommidnight 8 June 2012, whereas theValue Added Tax (VAT), and all othertaxation measures, became effective on1 July 2012.
Income Tax
General Note
The tax measures referred to under Income
Tax include those pertaining to Pay-As-You-
Earn (PAYE).
Residents
The source basis of taxation is applied in
Malawi. Certain payments to residents are
subject to withholding taxes (WHTs) (see
Withholding Taxes below).
Income Tax Rates for Individuals: Yearsof Assessment Commencing On or After1 July 2012
Annual Taxable Income Rate of Tax
First MK180 000 0%
Next MK60 000 15%
Excess over MK240 000 30%
Notes:
1. Self-assessment Governmentencourages taxpayers to self-assess theirtax liabilities. In this regard, a tax returnwhich is prepared and delivered to theCommissioner General constitutes aself-assessment and may be accepted assuch by the Commissioner General. TheTaxation Act gives a legal basis to theself-assessment process.
2. The tax-free threshold for individualshas increased to MK180 000 per annum(MK15 000 per month) (previously,MK144 000 per annum (MK12 000per month)). Those whose income isestimated not to exceed the threshold ofMK180 000 per annum, are not requiredto pay provisional tax.
3. The threshold for WHT paid on casuallabour has increased from MK12 000 toMK15 000 per month to be consistentwith the new PAYE threshold. Thismeasure will not only increase thedisposable income of casual labourersbut align their pay to the PAYE bracket.
4. In addition, casual labour and servicesare standalone items liable to paymentof WHT at 20% as stipulated under the14th Schedule of the Taxation Act.
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5. Individuals are taxed on the value ofany benefit or advantage arising fromemployment. The employer makes aquarterly return of the taxable valuesof fringe benefits on which tax is paidat a rate of 30%. The taxable valuesare normally the cash values, except forvehicles (15% of the cost of the vehicleper annum), school fees paid directly(50% of cost) and company-ownedhousing (50% of the taxable value).
6. Under previous Taxation Law,taxpayers employed on contract basiswere provided tax relief of up toMK40 000 on their gratuity. Effective1 July 2010, Section 16 of the TaxationAct was amended to remove anytax-free contract gratuity.
7. Individuals are not liable for tax on bankinterest up to MK10 000 per year.
8. There are no personal abatements orrebates.
9. Individuals will be considered residentfor tax purposes if they are resident in
Malawi for an aggregate of 183 days ormore in any 12-month period beginningor ending in the year of assessment.
10. As from 1 July 2010, the Taxation Actwas amended to change the due date ofprovisional tax from the 30th day afterthe end of the quarter to the 25th day.
Non-ResidentsNon-resident individuals working in Malawiare subject to a 15% WHT on gross income. Anon-resident who stays for over an aggregateof 183 days within any 12-month period paystaxes at the normal rate.
Business Income Turnover TaxA Turnover Tax at the rate of 2% was introducedwith effect from 1 July 2009. This tax is payableby any person on business income where theannual turnover exceeds MK2 million but doesnot exceed MK6 million.
Any person who is liable to pay turnover taxmay elect, by writing to the Commissionernot to be subject to turnover tax, in which
case the other provisions of the Taxation Actwould apply. Turnover tax is paid/collected ona monthly basis in order to afford the taxpayerthe opportunity to pay the tax when cashis available and has not accumulated into asignificant amount.
Turnover tax does not apply in respect of rentalincome, management fees, training fees,income of incorporated companies, and anyincome which is subject to a final WHT. Wherethe aggregate business turnover does notexceed MK2 million, such person is deemed tobe under the taxable threshold and as a resultno tax is payable.
Companies
Income Tax Rates for Companies: Years of Assessment
Commencing On or After 1 July, 2008
Note Rate of Tax
Normal company tax 1, 4 30%
Branches of foreign companies 35%
Life assurance companies 21%
Pension funds Investment income 8, 9 15%
Notes:
1. A minimum tax based on turnover,which was re-introduced for taxyears beginning 1 July 2011, for allbusiness entities, including individualsin sole proprietorship, partnership andcompanies that make a loss for taxpurposes, has been removed as it isdeemed to be anti-development.
2. Consistent with the foregoing,Government has increased investmentallowances from 40% to 100% for newand unused industrial buildings andplant and machinery; and from 20%
to 40% for qualifying used assets forsectors such as manufacturing, tourism,energy and agriculture.
3. Government has increased theadditional allowance on internationaltransport costs, incurred by taxpayerson non-traditional exports, from 15%to 25%.
4. Government has increased the corporatetax rate for cell phone operators from30% to 33%.
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5. Government has reviewed the socialcontributions made towards theconstruction of schools, hospitals,and sponsorship on school sportsdevelopment activities to be taxdeductible up to 50% of the totalexpenditure incurred.
6. Tax losses may be carried forward untilutilised by the same taxpayer, subjectto certain restrictions in the event ofchanges in shareholding which capitalise
on tax losses. The deduction of assessedlosses arising solely from tradingoperations (other than manufacturing,agriculture and mining) may only becarried forward for up to six years.
7. Rollover relief applies to encourageincreased investment from the privatesector. Under this relief, a business doesnot have to pay tax on the capital gainfrom selling an asset, provided thatthe gain has been used to acquire aqualifying replacement asset similar to orrelated in service or use to the asset so
disposed. A qualifying replacement assetmust be acquired within 18 months fromthe date of voluntary disposal.
8. A modern mining tax regime includes arate of Mining Income Tax in line withthe general rate of 30% or 35%, as thecase may be, a deduction equal to 100%of mining expenditure incurred in thefirst year of assessment, a new ResourceRent Tax on returns generated by highcommodity prices at 10% of after-taxprofits, and special exemptions fromimport customs duties and VAT.
9. A 15% income tax on incomes arisingfrom investment of pension funds hasbeen proposed.
10. Pension fund contributions of employersare tax deductible up to 15% of theemployees annual salary whilst thecontributions of employees will be net ofPAYE. Pension benefits that accrue to apensioner will be exempt from tax.
11. The international transport allowancehas been increased from 15% to 25%.However, the actual expend iture oninternational transport will remain an
allowable deduction.
Withholding Taxes (WHTs)
Certain payments made to non-residents at an
address outside Malawi, whether corporate or
individual, are subject to WHT (non-residents
tax). In addition, certain payments to residents
are also subject to WHT. These rates are set
out below.
Withholding Tax Rates
Note Residents Non-Residents
Dividends 1, 5, 6 10% 10%
Interest 2 20% 15%
Services 20% 15%
Casual labour 20% 15%
Royalties 20% 15%
Fees 10% 15%
Rents 15% 15%
Contractors 9 4% 15%
Other receipts 4, 10, 12 3% 15%
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Notes:
1. Both residents and non-residents aresubject to a final WHT on dividendsunless specifically excluded by a tax treaty.
2. The first MK10 000 of bank interestpayment to resident individuals is exemptfrom income tax.
3. These WHTs are final taxes in Malawi inrespect of non-residents.
4. WHT rates of 3% apply on the paymentfor any supplies including foodstuff,
tobacco and other products.5. Malawi has double taxation agreements
(DTAs) with France, the Netherlands,South Africa and the United Kingdom(UK). Except for rents in the case of SouthAfrica management fees, the WHT isnormally not applied where there is a DTAand the income is taxable in the othercountry.
6. Group relief is available on the dividendWHT. Dividends originating fromdividend income (which are distributedby a subsidiary company to a holding
company or related company) areexempted from the 10% WHT, providedthat the dividend income was subject toWHT in the first instance. The TaxationAct does not provide a definition of arelated company. The Malawi RevenueAuthority (MRA) has indicated that themain criterion is the holding of sharesin another company, but the test is notbased on the degree of control/influenceexercised or even the size of theshareholding. It would seem that anyshareholding by a company in another
company will qualify.7. Based on the Dividend Article in some
DTAs, such as the one with the UK, adividend paid by a company residentin Malawi to a resident in the othercountry is exempt from Malawi tax. TheMalawi tax authorities believe that theseagreements might be renegotiated inorder to prevent discrimination againstresident shareholders who will be taxedat 10%.
8. In the DTA with South Africa, noDividend Article is available. Therefore,
the 10% WHT will be deducted atsource and a foreign tax credit should beclaimed against South African tax.
9. The WHT on contractors applies tocontractors and sub-contractors in thebuilding and construction industries.A building site will often constitutea deemed permanent establishment(PE) so that the WHT rate applicable toresidents would apply to major buildingcontracts.
10. WHT exemption certificates are grantedby the MRA to holders of securitiespapers in secondary markets, with a
proven track record of tax compliance.Suppliers of foodstuffs and othergoods can also be granted exemptioncertificates.
11. Any payment of over MK60 000 forsupplies to traders and institutions,was previously subject to WHT, only ifthe supplies were made under tenderor under an arrangement similar to atender. With effect from 1 July 2007,the reference to tender, or any similararrangement, has been removed.Therefore, any payment of over
MK60 000 (current minimum) will besubject to WHT at the appropriate rate.
12. In order to achieve equity betweenfarmers, there is no tax exemption forfarmer clubs. As a result, all tobacco soldthrough the auction floors or directly totobacco buyers is subject to WHT of 3%of gross sales.
13. The issuance of WHT exemptioncertificates to compliant taxpayers,in order to facilitate their businesstransactions, will depend on thefollowing requirements:
The applicant has filed all incomereturns for all the years sincecommencement of the business andtimely filed an income tax return whichis due.
The applicant has paid all outstandingtaxes due including VAT and customsduties.
The taxpayer has been audited for taxpurposes.
The applicant has complied with anyspecial or general directions or hasfulfilled any special conditions which
the Commissioner General considersnecessary.
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Capital Gains Tax (CGT)
Capital gains are treated as ordinary income
and are subject to income tax at the personal
or company income tax rates. Subject to
any DTA, where non-residents sell shares
in Malawian companies, WHT at 15% is
deducted before remittance.
Capital gains and losses are calculated in
one of two ways according to whether the
capital asset has been subject to a capitalallowance claim or not. If capital allowances
were claimed in respect of the asset, the gain
or loss is the d ifference between the proceeds
from the disposal of the asset and the tax
written-down value. Capital losses are then
deductible from other taxable income without
restriction.
There is no change in the determination of
a capital gain/loss where capital allowances
were claimed on the asset, the disposal of
which gives rise to a capital gain or loss.However, in determining the adjusted basis of
an asset on which capital allowances have not
been claimed, the Consumer Price Index (CPI),
published by the National Statistical Office
(NSO), will be used. The CPI to be used is that
applicable to the year in which the purchase
or construction of the asset was affected.
Tax on capital gains can be deferred in the
case of involuntary conversion, which is
strictly defined, or in the case of a qualifying
reorganisation, which includes most
forms of corporate restructuring, provided
the substance of the transaction is not a
sale. Where an asset has been voluntarily
converted, no capital gain will be recognised
if the capital gain has been used to acquire
a qualifying replacement asset similar to or
related in service or use to the asset disposed,
provided that the new asset must be of equal
or greater value. The replacement must take
place within 18 months from the date of
voluntary disposal.
No capital gain is recognised on the disposal
of an individual taxpayers principal residence,
transfers between spouses, or transfers from
a deceased parent to a child. The exemption
available for the disposal of shares held
in a company listed on the Malawi Stock
Exchange (MSE) for more than one year has
been removed. When the exemption wasabolished on shares listed on MSE on
1 July 2011, the MRA directed that the shares
listed on the MSE will assume the tax base
of their market value as on 30 June 2011.
This implied that there was no meaningful
difference between the deemed tax base
and the revalued amount to the time the
law has been reversed (the reversal has been
done within the year). However, assuming
that there was a significant movement which
resulted in deferred tax provisions, then such
provisions will have to be reversed since any
gains/losses on disposal of such shares listed
on MSE will now be tax exempt.
Any capital gain realised by an individual on
the disposal of a personal and domestic asset,
not used in connection with any trade, is
exempt from tax. Roll-over relief is available
on the disposal of business where these are
replaced by similar assets. The gain has to be
reinvested in the replacement assets within a
period of two years.
A proposed CGT Act, to regulate capital gains
taxation as a separate tax, will be developed
in due course.
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Transfer Pricing
Tax law on transfer pricing provides a
mechanism for dealing with the shifting of
business profits from one taxing jurisdiction
to another, or from one taxing jurisdiction
to nowhere, a practice sometimes common
between related parties. The tax authorities
are accordingly able to deem profits to have
accrued in cases where transfer pricing
is believed to exist. Transfer pricing rules
are provided to guide companies on theirtransactions.
Malawi has transfer pricing laws and
regulations which are modelled on the OECD
Guidelines.
Inheritances and Donations
The value of a deceased estate is subject to
estate duty at progressive rates of duty of 5%
to 11%. No tax is levied if the estate is valued
at MK30 000 or less.
Donations are not taxable in the hands of
the recipient. Donations made to approved
charities are deductible with some minor
restrictions.
Value Added Tax (VAT)
VAT Rate
Basic rate 16.5%
Notes:
1. The following VAT measures wereintroduced during the 2012/2013Budget, effective 1 July 2012: The removal of VAT on machinery in
order to attract investment. The removal of VAT on financial
services taking into considerationthat banks are now offering non-VATservices, input VAT will not beclaimable.
The removal of VAT on standard bread. The removal of VAT on newspapers
and internet services. Note that it isonly the newspaper which is exemptedfrom VAT and not the adverts. Onmixed sales (VAT and non-VAT sales),the newspapers and internet entitieswill have to examine the combinationbetween these sales as they will formthe basis for claiming input VAT. It isnecessary to determine the proportionof exempt/VAT sales over total salesand where the proportion of exempt
sales over total sales is less than 5%then no input VAT should be claimable.Where such a proportion is above 5%,but less than 95%, input VAT should beclaimable on that proportionate basis.However, where the proportion of VATsales over total sales is above 95%,then all input VAT incurred, relating tosales, is claimable.
2. Taxable persons, including all businessesearning over MK6 million in annualturnover in Malawi, but excluding certainexempt and zero-rated categories,
charge VAT on outputs and can recoverit on business inputs, other than certainnon-allowable inputs such as onentertainment and private cars.
3. Credit claims of inputs in a tax period arelimited to the cost of goods or servicessold in a month.
4. The submission date for returns is the25th day of the month immediatelyfollowing the month to which the returnrelates.
5. Bad debt relief is available.
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6. The Commissioner General cannotraise the estimated assessment after aperiod of six years after the VAT was dueand payable, unless fraud is a materialelement of the assessment.
7. Any person who has committed anoffence under the VAT Act, which iscompounded by the CommissionerGeneral, is required to pay a sum ofmoney equal to three times the amountof VAT involved in the offence or
MK100 000, whichever is greater.8. Zero-rated goods include amongst
others: military equipment includingvehicles, armoured vehicles, uniformsand appointments for air force, militaryor naval personnel for use by the MalawiDefence Force, Malawi Police Service,Prisons and Immigration; buildingmaterials for factories and warehouses;certain goods for use in the TourismIndustry such as buildings materials,industrial catering equipment, motorboats kayaks and pedalos; for hotels,
inns and lodges, gym equipment,massage equipment, sauna baths,industrial washing machines, generators,bar refrigerators and air conditioners;miscellaneous chemical productsincluding insecticides, fungicides andherbicides; cycle and motor cycleambulances. With effect from1 July 2009, furniture and furnishings,public address systems, videoconferencing equipment, televisionscreens, amplifiers and LCD equipmentfor use in hotels with room capacity of
not less than 50 beds; mosquito andsand-fly nets; goods for use by a retiredPresident of the Republic of Malawi asprovided for in the Presidents (Salariesand Benefits) Act (Cap 2:02); and goodsfor use by retired Vice President of theRepublic of Malawi as provided for inthe Presidents (Salaries and Benefits).
9. VAT exempt items include, amongstothers, betting and gaming (includinglotteries) and medical machinery. Lastyear, the list was extended to includemedical, surgical or laboratory sterilisers.
10. As from 1 July 2008, VAT on bettingand gaming (including lotteries) wasremoved and instead a 10% excise taxapplies.
11. Interest on outstanding VAT is calculatedat 15% of the amount of VAT whichremains unpaid and a further 5% permonth or part thereof for the periodduring which the tax remains unpaid.The Commissioner has discretion toreduce the amount of the additional
sums if explanation, satisfactory to him,is made.
12. With effect from 1 July 2008, theCommissioner is able to recover VAT viathird parties without the need to obtaina court order.
13. Customs Procedure Codes (CPCs) havebeen used by Government to promotegrowth of targeted sectors (such aseducation and transport) by allowingthe duty-free importation of variousitems. However, as an exit strategy andpart of cleaning up of the VAT system,
Government introduced the standardrate of VAT of 16.5% on the followinggoods which were zero-rated undervarious CPCs: goods carrying motorvehicles for the horticultural enterprise,educational, health, tourism institutionsand NGOs, passenger carrying motorvehicles for NGOs, motor vehicles forfaith based organisations, motor vehiclesfor new and returning residents, sportsequipment imported by the MalawiNational Council of Sports, goods foruse in water supply, goods for use in
electricity generation and distribution,and goods for use by Government.However, donations of whateverdescription to Government, as well as,pharmaceuticals will remain zero-ratedfor VAT purposes under this CPC. Theother incentives under import duty andexcise tax will continue to apply forthese CPCs. For the remaining CPCs,Government will convert the zero-rated goods into exempt; unless theconcerned entity produces a product oroffers a service on which the standard
VAT rate of 16.5% is already applicable.The full list of the VAT status on goodsunder CPCs will be produced by theMRA in a Government notice.
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Other Transaction Taxes
Stamp Duty Rate
Stamp duty Share transfers -
Stamp duty Transfer of
immovable property
3%
Note:
1. The Technical, Entrepreneurial andVocational Education and Training
(TEVET) Act imposes a tax-deductiblelevy of 1% of the value of the basicpayroll of non-governmental employers.
Tourism Levy
A tourism levy of 1% on all bills from
registered tourism units is charged.
Customs and Excise Duties
Government has reviewed excise regime on
some products whereby excise on some of
these products has been reduced to zero,
while on others it has been reduced in order
to align itself with the rates within SADC and
COMESA regions.
The following customs and excise measures
became effective from midnight 8 June 2012:
The removal of duty on point-of-sale
machines, television cameras, video
cameras, recorders and duplicating
machines.
The removal of import duty on industrial
water heaters and industrial refrigerationcompressors.
The removal of duty on all goods imported
under the SADC Trade Protocol.
The removal of import duty on specified
goods produced, grown and manufactured
in South Africa under the SADC Trade
Protocol.
The removal of duty on solar accumulators.
The reduction of import duty from 25%
to 15% on specified goods, grown and
manufactured in South Africa under
SADC Trade Protocol, such as fruit juices,powdered milk, cooking oil, ordinary bread,
sugar, cosmetics, liquor and furniture.
The reduction of import duty from 25%
to 10% on specialised items including
conventional or ordinary bulbs, fuel pumps,
air conditioning machines, vacuum pumps,
underground telecommunication cables of
less than 1000 volts and cinematographic
projectors.
Increase in import duty from 5% to 10%
in line with COMESA Common External
Tariffs (CET) on electric transformers having
a power handling capacity not exceeding
1KVA fluorescent, hot cathode lamps
specialised for industrial or street lightning
purposes.
The reduction of excise duty on mineral
water from 10% to 5%.
The reduction of excise duty on ethanolfrom 30% to 10%.
The removal of excise duty on the following
items: biscuits, live poultry, blankets, second
hand clothes, wheat flour, furniture, suits,
vegetables, cooking oil, juices, bathing
soap, woven fabric and human hair.
The reduction of excise duty from
60% to 10% on perfumes, cosmetics,
prepared room deodorisers, skin and hair
preparations e.g. petroleum jelly, lotion,
glycerin, face powders, shampoos, hair dye.
Removal of import VAT on newspapers andother journals or periodicals from 16.5% to
zero.
Exempting import VAT on bread and
ethanol.
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In respect to CPCs, the following changes
became effective from midnight 8 June 2012:
Removal of import duty and VAT on vehicles
for returning residents under CPC 430 (C)
provided they have owned and used the
motor vehicle for a period of not less than
12 months whilst outside Malawi. This CPC
excludes: buses, pickups, lorries and any
other commercial vehicle.
The creation of new CPC 440 for duty,
excise and VAT-free clearance of new busesand buses used for a period not exceeding
five years of a seating capacity of 45
persons or more including the driver.
The removal of VAT on goods for use in
water supply being water meters and water
treatment chemicals imported by water
boards under CPC 488.
Increase in travellers rebate from MK50 000
to MK150 000 under CPC 429.
Creation of new CPC 478 to cater for
duty, excise, and VAT-free importation
of electronic fiscal devices imported byapproved suppliers.
Section XXII of the Customs and Excise
Tariffs Order has been reviewed in order
to guard against abuse when privileged
persons and organisations import motor
vehicles. A procedure has been developed
where privileged persons and organisations
will only be allowed to import directly or
purchase motor vehicles from suppliers
ex-bond and not from open stock.
Government has included diagnostic
and laboratory reagents under CPC 405,
which covers goods for medical use to be
imported duty-free by health institutions.
The removal of duty, excise and VAT on
specified raw materials imported under
Industrial Rebate Scheme (CPC 401).
Tax Administration
Penalties
The basic penalty is as follows:
MK50 000 for individuals.
MK200 000 for companies.
This penalty is for the following commissions
and omissions:
Failure to furnish or make default in
furnishing a return of income to the
Commissioner in respect of any year of
assessment. Omission, from a return of income in
respect of any year of assessment, any
amount which should have been included
therein.
Deduction or setting off of any amount, in
the return of income in respect of any year
of assessment, the deduction or setting off
of which is not allowed under the Taxation
Act.
Claiming any allowance in respect of any
year of assessment which the taxpayer is
not entitled to claim under the TaxationAct.
Record Keeping
In the 2011/12 fiscal year, Government
aligned the validity period for keeping
records to six years in all tax legislation.
Notes:
1. Other penalties on offences include:non-payment, late payment,underpayments, late submission of
returns, non-submission of returns, andsubmission of incorrect returns, refer todrawer cheques, and refusal or resistanceto registration are also applicable underthe Domestic Excise Tax, the Taxation Actand the VAT Act.
2. The MRA plans to leverage the useof ICT to enhance its operations byimplementing the use of electronic fiscaldevices in collection of VAT, automatedself-assessment system for managementof tax returns, web ASYCUDA system andthe Customs Data Processing Centre.
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Tax Clearance
The list of transactions in respect of which
a tax clearance certificate is required, now
includes:
Transfer of land and buildings.
Renewal of certificate of fitness for
commercial vehicles.
Renewal of business residence permits.
Renewal of temporary employment permits.
Renewal, extension or transfer of mining
licence or transfer of a mineral right byMinistry of Energy and Natural Resources.
Renewal of tourism licence by Ministry of
Tourism.
Renewal of energy licence by MERA.
Renewal of telecommunications licences by
MACRA.
Transfer of a business as a going concern.
Renewal of the registration of public
transport conveyances at Road Traffic
Directorate.
Renewal of any other business licences
issued by government ministries anddepartments (including other statutory
regulatory bodies).
Externalisation of funds to non-resident
service providers whose source is deemed
to be Malawi.
Renewal of a certificate of registration
under the National Construction Industry
Act.
Renewal of professional business licence
and permits of:
- Medical practitioners or dentists.
- Legal practitioners (lawyers).
- Engineers and architects who are
engaged in private practice on their
own behalf as a private practice or
in partnership with other private
practitioners.
Tax Legislation
All measures granting income tax incentives
will be enacted in the Taxation Act; similarly,
measures granting customs and VAT
incentives will be enacted in Customs andExcise Act and VAT Act, respectively.
General Investment
Information
Investment Incentives
Tax Incentives
Capital allowances Investment allowance.
This allowance is claimable by a taxpayer
who is also a manufacturer or a farmer in
the first year of use of a qualifying asset.The balance of the expenditure, if any, is
deducted as an annual allowance at the
rate of 5% for industrial buildings or 10%
to 33% for plant on the cost of the asset
in the first year, and on the tax written
down value of the asset in subsequent
years. With effect from 1 July 2011, the
investment allowance which is claimable by
taxpayers in the manufacturing, agricultural
and tourism sectors, has been revised as
follows:
PreviousRate
NewRate
New and unused
qualifying assets
40% 100%
Used qualifying
assets
20% 40%
Indefinite carry forward of losses for
mining, manufacturing or agriculture
enabling companies to take advantage of
allowances. An allowance for manufacturing companies
to deduct all operating expenses incurred
up to 24 months prior to the start of
operations.
Incentives in respect of Petroleum Storage
Facilities.
Notes:
1. The Minister proposed a 100% first yearallowance limited to two years only(from 1 July 2008), most likely in theform of an investment allowance, inrespect of investment in the constructionof Petroleum Storage Facilities.
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Export Incentives
12% of the taxable income from export
sales may be deducted from taxable income.
Government increased the rate of export
allowances from 15% to 25% in order to
promote exports.
A special additional allowance of 15%
(previously 25%) of transport costs related
to exports may be deducted from taxable
income. (The above incentives do not apply
to the export of traditional exports i.e. tea,coffee, tobacco or sugar).
100% duty-free importation of equipment
and raw materials for those exclusively
engaged in horticultural production for
export.
Exporters in EPZs benefit from an exemption
from excise duties and customs duty on
certain purchases. Further incentives for
establishing operations in an EPZ include:
no WHT on dividends, no duty or capital
requirement on capital equipment and
raw materials and no VAT. Some of thesebenefits are available to other exporters.
The Malawi Investment Promotion Agency
has been designated as a one-stop
agency to assist investors with establishing
a business in Malawi and in obtaining an
investors licence, although this is not
mandatory.
Notes:
1. In order to uphold the integrity andfairness of the tax system, Governmentreviewed some incentives applicable toEPZs as follows: All companies under EPZ are subject to
the standard corporate tax at 30% asprovided in the Taxation Act.
The additional 15% investmentallowance given to companiesoperating under EPZ was abolished inthe fiscal year 2011/12.
All other incentives provided to EPZsunder the Customs and Excise Act,remain applicable.
Other Incentives
Malawi is a uranium producer and home to
one of the worlds largest reserves of rare-
earth metals.
Low wage rates and a stable social and
political environment.
Fiscal policy supports structural reform in the
economy.
The Kwacha, the Malawi currency, was
floated in during 2012. Capital controls still
remain in place. Malawi forms part of the SADC free trade
area (FTA) aimed at furthering economic
integration and industrialisation and
eliminating tariffs and trade barriers among
member countries.
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Malawi
13 Guide to Fiscal Information
Exchange Controls
There are no restrictions on equity ownership
by foreigners. Inward investment must
be registered with the exchange control
authorities if repatriation of profits, dividends
or capital is contemplated. Once registered,
profit or dividend remittance approval
may be obtained from a commercial bank
subject to the production of the required
documentation. The commercial banks will
refer capital transactions and those relatingto royalties and technical or management fee
agreements to the Reserve Bank of Malawi.
Foreign-owned companies may borrow from
abroad with exchange control approval.
Loans must bear interest at the prevailing
rate for the currency in which the loan is
denominated. No exchange control approval
is necessary for local currency borrowings.
Expatriates and Work Permits
Temporary employment permits (TEPs) are
normally available where a specific casecan be made through the Department
of Immigration for the employment of
an expatriate. Investors or established
international organisations may be granted a
number of renewable permits for key posts.
All applications are subject to individual
scrutiny and for time posts, TEPs are
normally granted for a specific person and
employer for two years at a time, with an
expectation that the individual should not
remain in the same post beyond six years.
Expatriate individuals may, once authorisation
is obtained, repatriate up to two-thirds of
their after-tax remuneration and bonuses, as
well as, end-of-contract gratuities and leave
pay.
Trade Relations
Memberships Cotonou Agreement,
SADC, COMESA.
AGOA beneficiary country.
Notes:
1. Malawi has a bilateral trade agreementwith South Africa. As a result of thistrade agreement, a number of exportproducts may enter the South Africanmarket at reduced rates of import duty.
2. Malawi signed a preferential tradeagreement with the Governmentof Mozambique with the intentionthat Malawi export products to theneighbouring country are duty-free.The agreement was signed on28 December 2005, and came into forceon 20 September 2006. The agreementreplaces the 1959 trade agreementwith Mozambique. Certain products areexcluded from the agreement and theseinclude: beer, certain soft drinks, dressedchickens, explosives, firearms andammunition, manufactured tobacco,
petroleum products, refined edible oil,stationery excluding exercise books,sugar, table eggs, and unmanufacturedtobacco. Duties (import duty, excise dutyand VAT) are payable on these products.
3. Government is committed to aligningthe national tariff to the COMESACommon External Tariff (COMESACET) and the COMESA Common TariffNomenclature (COMESA CTN).
4. Government is also committed tofast-tracking the process of phasingdown tariffs under the Southern Africa
Development Community (SADC)Free Trade Area in order to reap theeconomic benefits of deeper integrationand regional trade.
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Malawi
Interest and Currency Exchange Rates
Prime Lending Rate:
17.75% (November 2012)
(source: National Bank of Malawi)
Bank Rate:
21.00% (November 2012)
(source: National Bank of Malawi)
Currency:
Kwacha (divided into 100 Tambala)
Exchange Rates:
ZAR1 = MK35.2869 (November 2012)
US$1 = MK311.617 (November 2012)
(source: Oanda)
Notes:
1. The Reserve Bank of Malawi intervenesin the foreign exchange market a defacto conventional peg to ensure
Kwacha stability.
Key Economic Statistics
GDP (current prices in US$ billion):
US$4.490 billion (2012 forecast)
US$5.607 billion (2011 estimate)
(source: IMF)
Market Capitalisation (in US$):
US$9.964.9408 million (October 2012)
(source: Malawi Stock Exchange)
Rate of Inflation:
25.50% (August 2012)
7.624% (2011 average)
(source: IMF)
Notes:
1. The economy has been growing atan average rate of 7.6% since 2005.In 2010, the economy grew by 6.7%.This growth rate is well above theMalawi Growth and DevelopmentStrategy (MGDS) target of 6%, and theaverage for Sub-Saharan Region whichwas 5.5%. However, during the year2011/2012 the economy faced seriouschallenges due to shortage of foreign
currency and some dry spells in certainparts of the country.
2. In 2012, real GDP growth rate wasexpected to grow by 6.9% but due tosome challenges, both macroeconomicand structural in nature, the GDP growthrate was revised to 4.3%.
3. Tobacco accounts for more than 60% ofMalawis exports and 15% of GDP.
4. The inflation rate was expected to bearound 18.4% in 2012 and is expectedto decelerate to 16.1% in 2013, as thefull economic recovery begins.