www.pwc.com/mw/en Global Mobility Services: Taxation of International Assignees - Malawi Taxation issues & related matters for employers & employees 2017/18
Last Updated: June 2018 This document was not intended or written to be used, and it cannot be used, for the purpose of avoiding tax penalties that may be imposed on the taxpayer.
Country: Malawi Introduction: International assignees working in Malawi 4 Step 1: Understanding basic principles 5 Step 2: Understanding the Malawi tax system 6 Step 3: What to do before you arrive in Malawi 9 Step 4: What to do when you arrive in Malawi 10 Step 5: What to do when you leave Malawi 12 Appendix A: Rates of tax 13 Appendix B: Double-taxation agreements 14 Appendix C: Malawi contacts and offices 15 Additional Country Folios can be located at the following website: Global Mobility Country Guides Global Mobility Country Guide (Folio) 3
Introduction: International assignees working in Malawi PwC is the world's leading provider of professional services. The People and Organisation group works together with its clients to find solutions for the challenges they encounter when transferring people from one country to another. This brochure is intended to inform foreign nationals and their employers about tax, social security and immigration issues in Malawi. This guide is not exhaustive and cannot be regarded as a substitute for professional advice addressing individual circumstances. Nevertheless, answers will be found to most of the questions raised by an expatriate or his/her employer. More detailed advice should be sought before any specific decisions are made about these issues. More information can be obtained from our Malawi office specializing in People and Organisation, Global Mobility (see Appendices). 4 People and Organisation
Step 1: Understanding basic principles The scope of taxation in Malawi 1. A foreign national working in Malawi will, in general, become liable to Malawi tax on Malawi income. The main taxes are: Income tax; Wage tax; Dividend tax; Real estate occupancy tax; Capital gains tax The tax year 2. The Malawi tax year runs from 1 st July to 30 th June. The return filing deadline is 31 st December. All non-resident taxpayers, including individuals, have to submit a tax return in respect of the income whose source is Malawi. Partners 3. Every person is supposed to file a tax return. However, spouses may elect to file a joint return of income where the spouse has an earned income whose source or deemed source is Malawi. Determination of residence 4. Malawi s tax system is based on the source principle other than residency. That implies that the basis for taxing residents and non-residents are the same in respect of income earned from a source within or a source deemed to be Malawi. A person is considered resident for tax purposes in Malawi if he or she is physically present in Malawi for an aggregate period of 183 days in any 12-month period. Income is deemed to be from a source within Malawi if it is derived from the carrying on in Malawi of a trade. For this purpose, trade covers any employment, profession, business, calling, occupation, or venture, including the leasing of property. Foreignsource income is exempt from tax. Global Mobility Country Guide (Folio) 5
Step 2: Understanding the Malawi tax system Employment income Any amount, in cash or kind, received by or accrued, or in favour of the person, in respect of or by virtue of rendering services or employment or the holding of office, will be considered employment income. It also includes the value of benefits or advantages granted in respect of services, employment or the holding of office. The benefits or advantages are generally referred to as fringe benefits. Employment income (remuneration) thus includes salaries, wages, leave pay, overtime, bonuses, allowances, commissions, fee, emolument, pensions, annuities, superannuation, gratuities, retiring allowance or stipend and certain lump sum payments. All amounts in kind are called fringe benefits and common examples of taxable fringe benefits include, amongst others: Housing benefits; Motor Vehicles; Holiday passages and related travel benefits; School fees; Gardeners, guards, watchmen and household workers; The settlement by the employer of an employee s debt; and Loan interest if the rate for a loan acquired from the employer is less than market rate. All cash benefits are subject to Pay as You Earn (PAYE) while benefits in kind are subject to Fringe Benefits tax. While PAYE is borne by the employee, employers are responsible for FBT of their employees. Taxation of investment income Foreign nationals working in Malawi who are tax resident in Malawi are not taxed on their investment income from sources outside Malawi. However, Malawi sourced investment income will be subject to Malawi income tax. Interest Withholding tax of 20% is levied on interest received from commercial banks. Dividends Dividends suffer a 10% withholding tax upon distribution. This is a final tax and dividend income need not be included in the return of income. Where there is a DTA, there may be relief from tax dependent on the provisions of the specific DTA. Capital gains Malawi does not have a separate capital gains tax but all capital gains are included in a person s income and taxed accordingly. Capital gains realized by an individual on the disposal of personal and domestic assets not used in connexion with any trade are exempt from tax. Further, gains realized from the disposal of one s principal residence are not subject to tax. Gains are not recognised where assets are transferred a. between spouses; or b. between former spouses; or c. to a spouse from the estate of a deceased spouse; and d. to a child from the estate of a deceased parent. Utilities; 6 People and Organisation
Rental income For non-residents, rental income will be fully taxable if the income arises from a source in or deemed to be Malawi. The general rule is that the source of rental income is where the relevant property is located. Generally speaking, expenditure incurred to produce rental income will only be deductible in so far as the rental income is taxable. Management and directors fees All fees are subject to a 10% withholding tax. However, management and directors fees paid to non-residents suffer a 15% withholding tax except where there is an existing DTA and it specifically excludes these fees from suffering withholding tax. Exchange controls Repatriation of funds outside Malawi is only possible where a prior exchange control approval has been granted by the Reserve Bank of Malawi. It is particularly important that where investment income is anticipated, the foreign investment should be notified to the Reserve Bank of Malawi and then an exchange control approval be sought. Customs and temporary residents Foreign nationals working in Malawi temporarily or on a contract basis may import their personal effects into the county without any customs duty and VAT being levied. These include household effects and other movable articles, such as equipment necessary for the exercise of a calling, trade or profession, television and hi-fi sets and general household appliances. All of these items must be imported for their personal use only, and must be brought within a period of six months from the date of entry into Malawi. These goods may also not remain in Malawi on a permanent basis and must be returned overseas upon departure Global Mobility Country Guide (Folio) 7
of the expatriate, unless the foreign national obtains permanent resident status or citizenship in Malawi during the period of stay An inventory of all imported personal belongings must be furnished, together with the work permit and submitted to the Malawi Revenue Authority for upfront approval. The goods will subsequently be cleared free of duties and VAT at the port of entry. This clearance is normally obtained by a shipping agent arranging the transfer of the assets and must be obtained prior to the goods arriving in Malawi. Pets may not enter Malawi unless a permit has been issued by the Department of Agriculture. Should a foreign national wish to bring a private motor vehicle into Malawi for personal use, it is necessary to apply to the Malawi Revenue Authority for permission to import the vehicle. In such an event a concessionary customs duty rate and import VAT has to be paid before the vehicle is imported. Should you need to import a personal vehicle and household goods, please contact your local PwC consultants for assistance. 8 People and Organisation
Step 3: What to do before you arrive in Malawi Immigration formalities in Malawi In terms of the Immigration Act, any person who intends to enter or reside in Malawi for the purpose of employment or conducting a business or carrying on a profession or occupation is required to have a valid employment or residence permit. Depending on the purpose and duration of the visit or stay in Malawi, different immigration applications are required by the Ministry of Home Affairs and Internal Security. It is only when application forms are completed in full, all requirements are met and the relevant required documents have been submitted to Immigration office, will an application be considered. The respective immigration applications for Malawi can be obtained and submitted at the nearest Malawian Embassy in the home country of the applicant or the Ministry of Home Affairs and Internal Security in Lilongwe. Your PwC consultant will be able to assist you with work permit applications and any related queries. Visitors Permit A visitors permit is required for a person visiting Malawi in any of the following: looking for prospects to set up formal business, exploration for business opportunities, business people attending meetings at branches or subsidiaries, official government visits, attending conferences, corporate events (not work) and meetings for which no remuneration is received, attending short training courses (not more than 30 days), sports events, expositions and trade fairs. This visa is initially valid for 30 days and can be renewed for a further period upon payment of MK5000. Nationals from most of the Commonwealth and certain countries are exempt from the application and payment of visa fees. Temporary Employment Permit A temporary employment permit (TEP) is required for any person who intends to enter Malawi for the purpose of employment or conducting a business or carrying on a profession or occupation. The local employer should prove that the skills that the expatriate is bringing are not available in Malawi. The TEP should be granted to the individual prior to entering the country except where prior approval has been sought from the Immigration Department. In addition to completing application forms, consideration of the application will be made only if there is a police clearance from country of origin together with a medical report. The medical report can be obtained locally. The TEP is valid for a period not exceeding 2 years and is subject to renewal. Global Mobility Country Guide (Folio) 9
Step 4: What to do when you arrive in Malawi Registration as a taxpayer A foreign national rendering services and earning income in Malawi is supposed to register as a taxpayer with the local office of Malawi Revenue Authority. Application for registration must be made by completing the Registration Forms. Upon registration, the Malawi Revenue Authority will allocate you a taxpayer identification number (TPIN). Provisional tax Provisional tax is the payment of the income tax liability for a tax year in four advance installments. This avoids having to make substantial tax payments on assessment after the end of the tax year. Provisional tax may be compared to employees' tax deducted from the remuneration of an employee, except that the individual and not the employer is responsible for the payment thereof. Provisional tax payments are based on estimated taxable income for the tax year and are made no later than the 25th day of the month following the end of the quarter. Provisional tax payments have to equal at least 90% of the total tax liability. The remaining 10% has to be paid upon filing of a tax return within 180 days after the end of the taxpayer s accounting year. For these taxpayers, an underpayment of provisional tax will result in penalties being charged on the underpayment and is collected summarily with the tax by the Malawi Revenue Authority. Employees' tax Employees' tax is income tax (Pay-As-You-Earn PAYE ) an employer must deduct from remuneration paid to an employee, and pay over to the Malawi Revenue Authority. The amount of PAYE tax deducted is calculated in accordance with the prescribed rates. All employers in Malawi paying remuneration have an obligation to account for employees tax. In the case of an employer who is not resident in Malawi, any agent of such employer in Malawi having authority to pay remuneration is required to assume the obligations of the non-resident employer. Penalties may be imposed by Malawi Revenue Authority if employees tax is not paid on time. Important tax compliance dates to remember Submission of annual income tax return: Salaried individual is within 45 days after the end of the fiscal year. Business individual is within 180 days after the end of the financial year. Submission of installments of 90% provisional tax and related returns: 25 th of each month following the end of a quarter Submission of tax return and remaining 10% provisional tax: Within 180 days after the end of the taxpayer s financial year. 10 People and Organisation
What to do at the end of the tax year - Tax returns At the end of the year, the employer collates all records in terms of the remuneration, other cash benefits, tax deducted and tax paid to the Malawi Revenue Authority to complete the tax return. A certificate of tax deducted is also prepared and given the employee before the returns are filed with the tax authority. Where an individual is paid outside Malawi there is still a requirement for the employer to prepare and submit their returns, and other year-end forms to the Malawi Revenue Authority. Your PwC tax consultant will prepare the tax return for you, if authorised to do so. In order to prepare a tax return, the tax questionnaire should be completed and returned to your PwC tax consultant. Notice of assessment If there is an outstanding amount of tax to be paid, an income tax assessment is issued by the Malawi Revenue Authority after submission of an income tax return. If you authorize a PwC consultant to prepare your return, you will be advised before the return is filed of any shortfalls that have to be settled before the return is filed. Objections or appeals may be lodged against the assessment, within 30 days of the date of assessment, if the individual does not agree with the assessment, decision or determination or the reduction by the Commissioner General. Each notice of objection and appeal should clearly state the grounds for the objection/appeal. Payment of taxes Where the final tax liability in the notice of assessment exceeds the tax paid, the balance of the tax will be due, interest will be charged by Malawi Revenue Authority on the outstanding amount after the expiry of the time for the submission of a return of income. Social Security Following the passing of the Pension Act (2010), every employer as well as each employee excluding expatriate employees with a temporary employment permit should be a member of the National Pension Scheme through a pension fund of their choice. Employee contribution to the pension fund is 5% based on the employee s gross salary. The employer contributes at least 10%. Besides being a member to a pension fund, the law also requires that every employee should be insured for death benefits in multiples of at least an annual salary. Global Mobility Country Guide (Folio) 11
Step 5: What to do when you leave Malawi It is advisable to discuss the date of your departure with a tax adviser, as the timing can alter your tax liability. Furthermore, all reasonable steps should be taken to avoid the possibility of dual residence or double taxation after your departure. Any payments or bonuses received after departure in respect of Malawi employment may be liable to tax in Malawi under certain conditions. Planning for such payments, if any, should be undertaken with care. 12 People and Organisation
Appendix A: Rates of tax Personal income tax rates for 2017/18 Taxable income Percentage rates More than But not exceeding 0 360,000 0% 260,001 420,000 15% 420,001 3,000,000 30% 3,000,001 35% The above rates apply to residents, a flat rate of 15% applies to non residents on all income. Global Mobility Country Guide (Folio) 13
Appendix B: Double-taxation agreements United Kingdom Republic of South Africa Sweden Switzerland Norway France 14 People and Organisation
Appendix C: Malawi contacts and offices Contacts Vyamala Moyo Senior Manager Tel: + 265 1 820 322 Email: vyamala.moyo@pwc.com Dyna Mwale Senior Associate Tel: + 265 1 820 322 Email: dyna.mwale@pwc.com Global Mobility Country Guide (Folio) 15
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