Income Tax in Namibia

Personal Income Tax

Namibia has a source-based tax system, which means that income from a source within Namibia or deemed to be within Namibia will be subject to tax in Namibia, unless a specific exemption is available.

Tax Rate

Taxable Income		Tax on Column 1	Tax on excess (%)
From	To
0	50,000	0	0
50,001	100,000	0	18
100,001	300,000	9,000	25
300,001	500,000	59,000	28
500,001	800,000	115,000	30
800,001	1,500,000	205,000	32
1,500,000		429,000	37

Withholding taxes

Withholding taxes (WHTs) are applicable where dividends and royalties (or similar payments) are declared/distributed to non-Namibian residents or where Namibian residents make use of certain services rendered by non-residents.

The gross amount of interest received by any person (other than a Namibian company) from a registered banking institution or unit trust scheme registered in Namibia is subject to WHT of 10%. A new WHT on interest of 10% applies on all interest paid by a Namibian resident to a non-resident.

Dividends

Dividends declared by a Namibian company to a non-resident person will be subject to non-resident shareholders tax (NRST), a WHT.

NRST is payable at the standard rate of 10% where a company holds more than 25% shares in the Namibian company. In all other cases, NRST payable is 20%. The rate of NRST may be reduced if a DTA is in place with Namibia.

NRST is payable within 20 days following the month in which the dividends were declared.

‘Dividends’ means “any amount distributed by a company … to its shareholders…”.

The Namibian company paying the dividend is responsible to withhold the NRST.

Interest

A WHT of 10%, calculated on the gross amount of interest, is payable on interest accruing to any person, other than a Namibian company, from a registered banking institution or unit trust scheme in Namibia. The tax withheld is a final tax, and the financial institution is responsible to withhold the tax. It is the obligation of the financial institution to withhold the tax and pay such tax over to the revenue authorities.

A WHT of 10% will also be payable on the gross amount of any interest paid by any person to a non-resident. The WHT is due 20 days following the month in which the interest was paid. Interest is deemed to be paid on the earlier of actual payment or when the interest is due and payable.

Interest paid by the state to any person and interest paid by any bank of Namibia to a foreign bank are exempt from WHT on interest.

Royalties or similar payments

WHT is levied at 10% on any royalty paid to a person other than a person ordinarily resident in Namibia or a domestic company (i.e. a non-resident), including a right to use industrial, commercial, or scientific equipment. Consequently, the tax base is now extended to include rentals for the hire of scientific, industrial, or commercial equipment from non-resident persons.

WHT on royalties is due 20 days after the end of the month during which the said liability is incurred or the said payment is made.

The Namibian company paying the royalty is responsible to withhold the tax.

Services

WHT of 10% on services applies to any Namibian resident paying a management, consultancy, or entertainment fee to a non-resident.

A resident includes (amongst others):

· a company doing business in Namibia (irrespective of whether registered in Namibia or not) and includes a branch of such company, or

· a partnership, board, trust that is formed or established or incorporated under the laws of Namibia or which is doing business in Namibia, and includes a branch of such partnership, board, or trust.

A non-resident means a person/company that is not a resident.

Management and consulting fees are specifically defined as “any amount payable for administrative, managerial, technical, or consultative services or any similar services, whether such services are of a professional nature or not”.

The legislation imposes the obligation on the Namibian resident to withhold a 10% tax on such fees paid to the non-resident. It is important to note that the legislation also specifically includes any directors fees paid to a foreign director; however, please note that the WHT applicable on director's fees payable to non-residents is 25% (effective 21 June 2016).

Treaty relief

In certain cases, tax treaties can provide a reduced rate. It should be noted that the tax treaties contain certain requirements that should be met before the reduced rate may be applied.

In certain cases, tax relief in respect of interest, dividends, royalties, and services are only applicable where the beneficial owner of such income is a company. Careful considerations should therefore be given to the requirements for application of treaty relief in the case of individuals. The definitions of dividends, royalties, interest, and services in the various treaties should also be considered.

There is no treaty relief in respect of director's fees payable to non-residents.

Residency Rule

The Namibian tax system is based on source and not on residency. Income derived or deemed to be derived from sources within Namibia is subject to tax.

The source is determined as the place where income originates or is earned, not the place of payment. If goods are sold pursuant to a contract entered into within Namibia, the source of income is deemed to arise in Namibia, regardless of the place of delivery or transfer of title.

Certain types of income arising outside Namibia may, in the hands of a Namibian tax resident, be deemed to arise in Namibia and be taxed as such. Examples are interest and certain copyright royalties arising outside Namibia.

Otherwise, residence, domicile, and citizenship are not normally relevant, and there are no special concessions for non-residents unless a tax treaty applies.

Taxable Income

Employment income

Gross employment income includes all receipts in respect of services rendered, in cash or in kind, including, but not limited to, the following:

· Remuneration (e.g. salaries and fees).

· Fringe benefits (e.g. free use of company assets or benefits provided by the employer).

· Allowances and subsidies, subject to deductions for business expenses.

· Deemed value of accommodation provided by employer.

· Deemed value of the use of a company motor vehicle.

Business income

Business and farming income earned by individuals may be subject to certain provisions of corporate taxation. It is recommended that tax advice is obtained in this regard.

Capital gains

Namibia does not have capital gains tax. The profits on the sale (or any other form of alienation) of mining and petroleum licences/rights, and the transfer (or any other form of alienation) of any share/interest (whether directly or indirectly) in a company owning a mineral/petroleum licence or right, is taxable in terms of the specific inclusions in gross income.

Dividend income

Dividends are exempt from tax.

Interest income

The originating cause of the interest and the place where the underlying activities are performed will determine the source of interest.

Interest is subject to 10% WHT.

However, the following exemptions apply in the case of natural persons:

· Interest received from stock or securities (including treasury bills) issued by the government.

· Interest received from the NAMPOST Savings Bank.

Exempt income

The principal exemptions on salaried income are as follows:

· Under certain conditions, the remuneration of heads of foreign governments and United Nations (UN) employees stationed in Namibia is exempt from taxation.

· Relocation expenses paid directly by the employer are not taxed as fringe benefits in the employee's hands.

· Reimbursement of actual business expenses paid on behalf of the employer is not taxable.

· Where an approved scheme by the Receiver of Revenue is established for the provision of employee housing, the taxable fringe benefit arising from provision of accommodation, housing allowances, or mortgage interest subsidies is reduced by a maximum of one-third. Proof of housing expenses should be retained by the employer to verify the tax benefit provided to the employee.

· Employer contributions to approved Namibian retirement funds and medical aid schemes (private health insurance) are not taxable in the hands of employees.

Deductions from Income

Employment expenses

There are no standard deductions for employees for business expenses. Travel, entertainment, and motor vehicle expenses are potentially deductible, but the onus is on the employee to prove they were incurred in the production of taxable income. Where allowances are provided by the employer, this onus is more readily discharged, but the deduction cannot normally exceed the allowance.

An employee may deduct contributions of up to NAD 40,000 per annum to an approved pension, retirement annuity, provident, and educational policy fund registered in Namibia.

Personal deductions

Personal and domestic expenses (e.g. mortgage interest) are not deductible.

Losses

Namibian tax legislation does not provide for the carrying back of tax losses.

Ring fencing of losses from certain trades

Ring fencing entails that a taxpayer may not offset losses from certain trades against income from other trades.

Ring fencing is applicable on the following types of loss-making trades:

· Trades incurring losses for at least three of five years from 1 March 2011 onwards, or

· Trades involving:

o   Sporting activities.

o   Dealing in collectables.

o   Rental of residential accommodation (unless 80% is used by non-relatives for at least half of the year of assessment).

o   Rental of vehicles, aircraft, and boats (unless 80% is used by non-relatives for at least half of the year of assessment).

o   Animal showing.

o   Farming or animal breading, unless carried on a full-time basis.

o   Carrying on of creative arts.

o   Gambling or betting.

The ring fencing will only apply to natural persons with taxable income in excess of NAD 200,000 per year (disregarding any losses).

Ring fencing can be avoided where a taxpayer can prove that the trade:

· constitutes a business with a prospect of being profitable, and

· generated taxable profits for at least five years out of ten years from 1 March 2011 (provided that further requirements are met, we propose further consultations with our tax experts).

Corporate Income Tax

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

Namibia’s taxing rights extend to the exclusive economic zone and the continental shelf.

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

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

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

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

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

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

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

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

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

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

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

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

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Note: Information placed here in above is only for general perception. This may not reflect the latest status on law and may have changed in recent time. Please seek our professional opinion before applying the provision. Thanks.