InVestment Incentives
Tax incentives in Malawi are enshrined in the main tax legislations that include the Customs and Excise Act, the Income Act and the Export Processing Zones (EPZ) Act, to encourage investment; the Government offers the following incentives:
General Incentives:
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100 percent investment allowance on qualifying expenditure for new building and machinery;
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Allowance up to 40 percent for used buildings and machinery
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50 percent allowance for qualifying training costs;
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Allowance for manufacturing companies to deduct all operating expenses incurred up to 25 months prior to the start of operations;
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Loss carry forward of up to seven years, enabling companies to take advantage of allowances;
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Additional 15 percent allowance for investment in designated areas of the country such as Kanengo, Chirimba and Luwinga Industrial sites;
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Free repatriation of dividends, profits, and royalties.
INCENTIVES FOR INDUSRTRIES RAW MATERIALS UNDER INDUSTRISL REBATE SCHEME
Introduction
Aims to encourage value addition, self sufficiency in manufactured goods, create employment, save forex and earn forex. Granted on raw materials used in production process in Malawi. Mra is prepared to facilitate any manufacturer as long as the investors are compliant to provisions of the law. MRA will grant Special Delivery Order (SDO) to enable industries to use the raw materials for production processes, required to pay for only VAT and should be prepared to pay full duties when the application has not been approved.
Process for applying Industrial Rebate Scheme
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Applicant required to fill Form Number 81 and attach a brief summary of the manufacturing process;
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Provide Tax Payer Identification Number (TPIN);
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Submit Names and Particulars of the Directors including their TPIN;
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Provide Cost of Raw Materials and quantity thereof per unit of finished product;
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Submit Total cost of production of the product to be manufactured per unit; and
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Submit Value of the product before a markup;
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Furnish MRA with a percentage of value addition as a result of manufacturing process.
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Applications will be considered by a committee set up for this purpose.
Criteria for Consideration
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Proof of value addition is key to the process;
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Honest declarations
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Compliant to existing Customs and Excise Laws
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Formula is [Direct Cost – (Cost, Insurance and Freight + Production Cost)] = 20%;
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Need for industries to employ qualified accountants to assist in proper costing.
Car Hire and Safaris except used motor vehicles.
The concessionary rates for customs duties, excise and VAT is 10%, 20% and 16.5% respectively. This is subject to the following criteria:
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Specialized vehicles for safaris and Car Hire licensed under the Tourism and Hotels Act;
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Production of registration certificate for Income Tax and Value Added Tax
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Vehicles should be brand new not used or reconditioned.
INCENTIVES FOR HOTELS, LODGES AND INNS
The following items enjoy duty, excise and VAT free direct importation except the building materials for hotels, lodges, conference centers and inns:
(i) Glass, china porcelain, earthenware and stone articles of tableware; enamelware and
hollowware for table use Electro Plated Nickel – Silver (E.P.N.S) and plated ware; knives, forks, spoons and similar articles for cutlery and marked linen permanently or indelibly engraved, etched, stamped or in any other manner marked with the name (or other identification satisfactory to the Commissioner General) of the hotel licensed under the
Tourism and Hotels Act (Cap.50:01), and solely for use therein; industrial catering equipment, motor boats, scuba diving, jet skis, kayaks, wind surfers, pedallos, air conditioners, generators, gym equipment, massage equipment, industrial washing machines, bar fridges, sauna, hot steam baths, For furniture and furnishings the hotel, lodge or inn should have 50 rooms or more.
(ii) Materials and Equipment for the establishment of a Conference Centre of a seating capacity of 200 people being: Public Address System, Video Conferencing Equipment, Television Screens, Amplifiers, LCD equipment and, industrial catering and bar equipments permanently or indelibly engraved, itched, stamped or in any other manner marked with the name of the organization or other identification to the satisfaction of the Commissioner General.
INCENTIVES FOR THE DAIRY FARMING INDUSTRY:
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No customs duty, excise and VAT on specialized machinery, equipment, machinery and other related goods;
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No excise duties on purchases of raw materials and packaging materials made in Malawi.
INCENTIVES FOR FISHING INDUSTRY
Specialized goods for use in fishing industry enjoy customs duty, excise and VAT free. These include machinery, plant, laboratory equipment and materials, aerators, pumps, blowers, diamond mesh, nets, measuring equipment, separators, specialized tanks and diffusers, boat engines and trawlers for deep sea fishing.
INCENTIVES FOR TELECOMMUNICATION SECTOR
Specialized goods for direct use in telecommunication industry imported by organizations in public telecommunication service as approved by the Commissioner General enjoy customs duty, excise and VAT free. These include Telecommunication transmission, Apparatus and accessories such as core switching equipment, vas equipment, BSS equipment, satellite equipment and antennae.
INCENTIVES FOR MINING INDUSTRY
Mining machinery, plant and equipment will enjoy customs duty, excise and VAT free.
INCENTIVES FOR WATER SUPPLY SECTOR
Goods for use in water supply being plant, machinery, equipment, water meters and water treatment chemicals imported by water boards approved by the Minister responsible for water management enjoy customs duty, excise and VAT free.
INCENTIVES FOR ELECTRICITY GENERATION, TRANSMISSION AND DISTRIBUTION
Goods for use in electricity generation and distribution being plant, machinery, equipment and electricity supply meters, by an organization approved by the Minister responsible for electricity management enjoy customs duty, excise and VAT free.
EXPORT INCENTIVES
INCENTIVES FOR ESTABLISHING OPERATIONS IN AN EXPORT PROCESSING ZONE (EPZ) INCLUDE:
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Zero corporate tax rate; ;
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No withholding tax on dividends;
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No duty on capital equipment, machinery and raw materials;
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No excise taxes on purchases of raw materials and packaging materials made in Malawi.
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No Value Added Tax (VAT)
INCENTIVES FOR MANUFACTURING UNDER BOND INCLUDE:
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Export tax allowance of 12 percent of export revenues for non-traditional exports.
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Transport tax allowance equal to 25 percent of international transport costs, excluding traditional exports.
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No duties on imports of capital equipment used in the manufacture of exports.
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No VAT
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No excise tax or duty on the purchase of raw materials and packaging materials.
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Timely refund of all duties (duty drawback) on imports.
EXPORTERS ARE ENTITLED TO THE FOLLOWING PRIVILEDGES:
Transport allowance
An additional 25% of international costs incurred by the taxpayer for his exports.
Training allowance
An additional 50% of the costs incurred by the taxpayer during the year of assessment in the training of an employee who is a Malawian, intended to enable him/her to attain a qualification at the degree, diploma or certificate level.
Losses allowance
From the amount of assessable income there shall be deducted any assessed loss arising solely out of trading operations in Malawi.
Investment allowance
This is given to taxpayer who is also a manufacturer. The allowance is equal to 40% of the cost of new and unused industrial building and plant and machinery and equal to 20% of the cost of used industrial buildings and plant and machinery.
Annual allowance
This is given in respect of capital expenditure incurred by the taxpayer.
Initial allowance
This is given in respect of expenditure incurred by the taxpayer during the year of assessment at 40%.
Other incentives include:
VALUE ADDED TAX
The Value Added Tax Act is relatively new, compared to the Taxation Act and the Custom and Excise Act. As such, we are still refining and harmonizing some of the provisions in the VAT Act with those in the other taxation acts. VAT is at 16.5% and payable monthly. Specific goods are Surtax exempt or zero rated .
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Exempt goods include: Animal products, petroleum products, certain insecticides and fungicides, agricultural and horticultural appliances, water pumps, tractors etc.
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Zero-rated include: fertilizers and pharmaceutical products.
TAXATION OF BIO FUELS
Due to the good economic policies of the current Government, a lot of foreign companies are showing interest in investing in Malawi. For example, Jatropha will be processed into biodiesel which can be used as motor vehicle fuel. To promote the production of biodiesel in Malawi, Government will be providing a special taxation package for the biofuels industry. This special package is being developed.
INCOME TAX MEASURES
Government granted an exemption from taxation of investment income of pension funds operating within the country with a view to assisting businesses that may need funding for investment in productive enterprises. The extent to which the realized additional money is actually being invested in productive enterprises in the country remains questionable. There is a huge disparity from incomes generated by investments from pension funds and the amount paid out to pensioners. There is a proposal of a 10 percent income tax on incomes arising from investment of pension funds. These measures will bring equality in the tax treatment of all forms of income.
WITHHOLDING TAXES
The rate of withholding tax on supplies is to be reduced to 3 percent of gross sales. Payment for such goods supplied will therefore be made net of the withholding tax. The withholding tax so deducted will then be remitted by the buying organisation directly to the MRA. This measure does not affect the supplies of services
For more information contact:
The Commissioner General
Malawi Revenue Authority
Private Bag 247
Blantyre
MALAWI
Tel: 265 1 822 588
Fax: 265 1 822 302
E-mail: mrahq@malawi.net
Website: www.mra.mw
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