malawi deloitte

8/13/2019 Malawi Deloitte

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Malawi

1 Guide to Fiscal Information

Malawi

Blantyre +265 1 822 277 Peter Kuwani [email protected]

+265 1 836 341 Nkondola Uka [email protected]

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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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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.

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