Malawi Taxes Overview

Malawi Personal Income Tax

The first MWK 108,000 of annual income in Malawi is tax free. Thereafter, the next MWK 36,000 is taxed at 15% and the excess at 30%.

Basis – Residents and nonresidents pay tax only on their Malawi-source income.

Residence – An individual is resident if he/she is present in Malawi for an aggregate of 183 days in any year of assessment. The tax authorities will look to the specific facts and circumstances on a case-by-case basis in the determination of whether the nonresident tax (15%) or PAYE applies (rates up to 30%).

Tax Filing status – A married couple may elect to file a joint return. Where they do so, tax on the wife’s earned income is computed as though it were the sole income of the couple and added to tax on other income.

Taxable income – Income arising from sources within Malawi is taxable in Malawi.

Capital gains – Capital gains are generally taxed as ordinary income, although certain personal transfers are exempt (i.e. transfers between spouses and those relating to a principal private residence).

Tax Deductions and tax allowances – While the first MWK 10,000 of interest income is not taxable, there is generally no personal relief provided in the form of deductions or allowances. The first MWK 50,000 of a redundancy payment or MWK 40,000 of gratuity payable under an approved contract is not taxable. Where applicable, trading losses may be offset against employment income.

Other taxes on individuals:

Capital duty – No

Stamp duty – Stamp duty is charged at nominal or ad valorem rates on a variety of financial instruments and transactions.

Capital acquisitions tax – No
Real property tax – No

Inheritance/estate tax – The income attributable to a deceased person’s estate is taxable to the executors. Estate duty is chargeable at progressive rates up to 11% for amounts in excess of MWK 600,000. No tax is levied if the estate is valued at MWK 30,000 or less.

Net wealth/net worth tax – No
Social security – No

Administration and compliance:

Tax year – The fiscal year runs from 1 July to 30 June,

Filing and payment – Personal tax returns must be filed within 180 days of 30 June, together with any balance of tax due. Provisional tax may be payable on income not covered by PAYE.

Penalties – Late filing incurs a penalty of MWK 50,000. The underpayment of provisional tax results in a penalty ranging from 25% to 30% on the unpaid tax balance.

The corporation tax in Malawi is 30% for Malawi-registered companies and 35% for branches of foreign companies. Pension funds are exempt from taxation.

Residence – A company is resident if it is incorporated in Malawi; a trust, estate or partnership is resident if established or organised under any written law of Malawi. Where a permanent establishment exists, tax residence will follow.

Basis – Corporations are taxed on Malawi source income.

Taxable income – Taxable income comprises all Malawi-sourced receipts and accruals due to a company, including capital gains. Income specified as exempt is excluded and deductible expenses and allowances are subtracted. In general, expenditures or losses will be deductible where wholly, exclusively and necessarily incurred by the taxpayer for trade purposes or in the production of income.

Taxation of dividends – Malawi and foreignsource dividend income is excluded from taxable income. Therefore, any withholding tax incurred may not be credited against the company tax liability and related expenses may be disallowed.

Capital gains – Capital gains are generally taxed as ordinary income and may be further subdivided by whether capital allowances were available on the assets. If capital allowances were available, the gain may be computed as the sales proceeds less the written-down tax value. If no capital allowances were available, as is the case with shares and non-industrial or own-use buildings, the gain is reduced by an allowance based on an amount tied to a consumer price index (CPI). Subject to specific conditions, capital gains arising from involuntary conversions and for the replacement of assets acquired within 18 months may be deferred. In general, where there is no change of ultimate ownership, a group reorganisation will be tax-free with respect to capital gains.

Losses – Trading losses may be carried forward for 6 years, unless derived from manufacturing, mining or agriculture, in which case they may be carried forward without restriction. Capital losses of assets that attracted capital allowances are fully deductible. Other capital losses may be deducted only against capital gains realised in the same or future years.

Surtax – No
Alternative minimum tax – No

Foreign tax credit – Subject to satisfactory evidence, a foreign tax credit will be allowed against income taxed both in Malawi and a foreign country, even in the absence of a tax treaty. The credit may not exceed the Malawi tax on the income determined at the average effective rate for the total taxable income.

Participation exemption – No
Holding company regime – No

Tax Incentives – Qualifying assets in the manufacturing, agricultural and tourism sectors are eligible for a 100% investment allowance in the first year of acquisition. Companies licensed as operating in an Export Processing Zone are taxed at 0%. For companies operating in “priority” industries (not defined), the rate is either 0% for 10 years or 15% (no time limit is specified). Disposals of shares of companies listed on the Malawi stock exchange are not taxable, provided the shares have been held for 12 months.

Withholding tax:

Dividends – Dividends distributed by a Malawi company are taxed at 10% unless the rate is reduced under an applicable tax treaty. This is a final tax for recipients.

Interest – A withholding tax of 15% applies to interest payments made to nonresidents, unless reduced under an applicable tax treaty. A 20% rate applies to residents, as an advance tax.

Royalties – Royalty payments made to a nonresident are subject to a 15% withholding tax, unless reduced under an applicable tax treaty. A 20% rate applies to residents, as an advance tax.

Branch remittance tax – No

Other taxes on corporations:

Capital duty – Stamp duty at 0.75% is payable on the authorised share capital upon incorporation. Thereafter, the rate is 1% for any subsequent increase in capital.

Payroll tax – A 1% tax-deductible levy of payroll costs is payable annually to the Technical, Entrepreneurial and Vocational Education and Training Authority (TEVETA).

Real property tax – Property taxes are assessed by the local authorities, based on land valuations conducted every 5 years.

Social security contributions – There is no formal social security system in Malawi. Thus, corporations incur many social costs, with such costs generally being tax-deductible. There is no obligation to make pension contributions.

Stamp duty – Stamp duty is charged at nominal or ad valorem rates on a variety of financial instruments and transactions.

Transfer tax – There is no stamp duty on the transfer of shares. Stamp duty at 3% is chargeable on the transfer of real and personal property.

Other – Effective 1 July 2009, a turnover tax, at a rate of 2%, is payable on business income where the annual turnover exceeds MWK 2 million but does not exceed MWK 6 million. Turnover tax does not apply in respect of rental income, management or training fees, the income of incorporated companies and income subject to withholding tax. A person that qualifies to pay turnover tax may elect, by writing to the Commissioner, not to be subject to the tax, in which case the normal provisions of the Taxation Act would apply.

Fringe benefits provided to employees are taxable to the company using cost, market value or scale rates for benefits. The costs of the benefits, excluding the fringe benefits tax, are deductible expenses. The tax is payable on a quarterly basis. Mineral rights duties are charged as royalties on the sale of minerals.

Anti-avoidance rules:

Transfer pricing – Transfer pricing rules were introduced as from 1 July 2009 and the tax authorities have the power to deem profits to have accrued in situations where non-arm’s length transfer pricing is believed to exist.

Thin capitalisation – While there is no thin capitalisation legislation in Malawi, a deemed dividend will be imposed where the debt-toequity ratio exceeds 3:1.

Controlled foreign companies – No

Other – IFRS require certain related party disclosures in the annual financial statements.

Disclosure requirements – The tax authorities have power to require taxpayers to provide information regarding their tax affairs.

Administration and compliance:

Malawi Tax year – The fiscal year runs from 1 July to 30 June, but a Malawi company may adopt any date as its accounting year end. All taxable income is taxed in the fiscal year in which the accounting year ends (except for July and August year ends that are normally dated back to the previous fiscal year).

Consolidated tax returns – Consolidated tax returns are not permitted; each company within a group must file its own tax return.

Tax Filing requirements – An annual tax return must be filed and any balance of tax paid within 180 days of the company’s year end. Provisional tax is due quarterly within 30 days of each quarter end. By the end of the fourth quarter, 90% of the final tax liability must be paid. Agricultural entities and other seasonal income earners may agree on a more equitable provisional tax schedule with the authorities.

Penalties – Late filing incurs a penalty of MWK 200,000. The underpayment of provisional tax results in a penalty ranging from 25% to 30% on the unpaid tax balance.

Rulings – Rulings may be obtained on practical or technical issues and will normally be accepted as definitive provided full disclosure has been made. It is general practice to obtain an advance clearance on the tax treatment of group reorganisations.