Amendments to the Income Tax Act

Good news after the following amendments to the Income Tax Act was published in the Government Gazette on Friday, 30 April 2010.

1. The corporate tax rate has been reduced to 34% (previously 35%) effective for financial years beginning 1 January 2009. This affects tax rates for financial year ends from 31 December 2009 onwards.
2. The retirement fund lump sum payouts exemption threshold has increased to N$ 50,000 (previously N$ 20,000) with effect from 1 April 2010.
3. The tax exemption of a lump sum payment on retrenchment, ill-health or retirement at the age of 55 has increased to N$ 300,000 (previously N$ 100,000) with effect from 1 March 2009.
4. The tax exempt portion of a lumpsum payment form a pension or retirement fund has increased to N$ 50,000 (previously N$ 20,000) with effect from 1 April 2010.
5. The Income Tax Act has been amended to delete the allowable deductions to mining companies in respect of rehabilitation expenditure, effective for financial years beginning 1 January 2009.

WITHHOLDING TAXES IN NAMIBIA

Relating to the budget speech as given in 2008, withholding tax on interest received by persons (including a trust) and foreign companies is effective as from the 1st of March 2009. This will require Namibian registered Banks and Namibian registered unit trust management companies to withhold a final tax at a flat rate of 10% from interest accruing to an individual, trust and the estate of a deceased person. Interest paid to a Namibian company is specifically excluded from the withholding tax. As a result of the above withholding tax provisions, the interest exemption of N$ 500 applicable to natural persons will be removed.

Kindly note the following amendments to the withholding tax on interest:

1. Withholding tax will not be payable on interest received on negotiable instruments.
2. Interest earned by a partnership of which a Namibian company is a partner is subject to withholding tax at 10%. The interest should still be included in the company’s taxable income, while the pro rata share of withholding tax paid by the partnership may be deducted from taxes payable by the company.
3. Where a taxpayer (excl Namibian company), receives interest from a partnership that was already subject to withholding tax, the interest should be excluded in the partner’s tax calculations, effective in the year of assessment commencing 1 March 2009.
4. Interest from a unit trust scheme registered in Namibia should be subject to withholding tax at 10%, where the interest accrues to or is in favour of an undisclosed principle represented by an agent (excluding a stockbroker), even if the undisclosed principle may be a Namibian company.
5. Interest earned by a unit trust scheme should be subject to withholding tax where the interest is not distributed by the unit trust to its unit holders before the end of its financial year.
6. Unit trust schemes should submit a return to Inland Revenue within 2 months after their financial year in respect of the total amount of net interest accrued to the unit trust scheme, and not distributed to its unit holders by the end of the financial year.
7. The following persons are exempted from withholding tax on interest: (a) persons (excluding Namibian companies) receiving interest from a trust or partnership which received interest on which tax was already withheld, (b) persons who are exempted from Income tax by some form of legislation, and (c) foreign banking institutions which control and manage accounts of Namibian banking institutions.
8. If banking institutions and unit trust schemes fail to pay over any amount of withholding tax as a result of incorrect information provided by a stock broker, the Ministry may recover such tax, interest and penalties directly from the stock broker.