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  • Service: Tax, Global Mobility Services
  • Type: Regulatory update, Survey report
  • Date: 1/8/2014

Namibia - Income Tax 

Taxation of international assignees
Source Provisions
Types of Taxable Compensation
Tax-Exempt Income
Expatriate Concessions
Taxation of Investment Income
Taxation of lump-sum payments
General deductions
Tax rates (for all years of assessments from 1 March 2009)
Return of income and compliance
Relief from foreign tax liability
General Tax Credits
Sample Tax Calculation

Source Provisions

Although the Namibian tax legislation is source based, the Income Tax Act does not define the term ‘source’. The meaning of the source is determined with reference to case law, which establishes the meaning to be ‘originating cause’.


Therefore where a person (i.e. an ordinary resident of Namibia or a non-resident of Namibia) receives income where the ‘originating cause’ is services rendered within Namibia, the income will be subject to Namibian tax. Where the person is a non-resident, the person may receive relief from being taxed in Namibia if a Double Taxation Agreement (“DTA”) is available which provides for exemption or a credit for tax.


Ordinarily Resident


The concept of ordinarily resident is not defined in the Income Tax Act, but is widely held (from case law) to be the country which an individual considers to be his/her real home, i.e. the place where his/her permanent place of abode is, where his/her belongings are stored, which he/she leaves for temporary absences and to which he/she regularly returns after such absences. If the taxpayer is habitually and normally resident here, apart from temporary or occasional absences of long or short duration or if he/she decides to settle permanently in Namibia, Namibia is recognised as being his/her real home and the individual will become a resident by virtue of ordinary residence immediately.


Where an ordinary resident of Namibia renders services outside Namibia during any temporary absence, for or on behalf of any employer1 by whom the ordinary resident is employed in Namibia, the income received by the ordinary resident is subject to tax in Namibia, subject to DTA relief if a DTA is available.

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Types of Taxable Compensation

Generally speaking, most types of remuneration and benefits received by any person from a Namibian or deemed Namibian source for services rendered constitute taxable income regardless of whether the person making the payment is a resident of Namibia or not or where so ever payment is or is to be made subject to certain exceptions.


Typical items of an expatriate compensation package set out below are fully taxable:


  • Basic salaries, wages, leave pay, and bonuses
  • Fees, commissions, etc.
  • Contractual gratuities
  • Cash allowances (which include travelling, entertainment, or any other allowances)
  • Non-cash benefits as discussed below.

Non-cash items which are fully taxable unless otherwise indicated:


Reimbursements of Foreign and/or Home Country Taxes


  • In most cases where the Namibian taxes are by reason of tax equalisation the employer’s responsibility, the compensation should be grossedup for the tax liability. This gross-up must account for the full tax-on-tax effect of the employer paying the taxes.
  •  Where the employer reimburses taxes paid by the employee, these taxes are treated as a taxable benefit.

Home Leave Flights


  • All home leave flights in respect to the assignee’s family, which is paid by the employer or where the employer reimburses the assignee in respect to assignee’s family flight cost, are taxable in the assignee’s hands.
  •  Any relocation flight and/or flights provided for travel in conjunction with business travel paid by the employer on behalf of the assignee is not subject to tax. Where the flight cost paid by the employer relates to private purposes, the benefit is subject to tax.

Cost-of-Living Allowances


  • Cost-of-living allowances are fully taxable in Namibia.

Accommodation


  • The accommodation provided to an employee by the employer is fully taxable in Namibia. The value of the taxable benefit will depend on whether the employer owns the residential accommodation or whether the employer is renting the residential accommodation.
  •  If the employer owns the residential accommodation the taxable benefit is determined with reference to the table issued by the NIRA set out in Appendix A, less any consideration paid by the assignee to the employer. Therefore where the residential accommodation supplied by the employer has 4 living rooms and is located in Swakopmund the monthly taxable benefit will be USD1 000 less any consideration paid by the assignee.
  •  If the employer is renting the residential accommodation the taxable value is the amount of rent paid by the employer less any consideration paid by the assignee for the residential accommodation.
  •  The taxable benefit can be reduced where the employer has a housing scheme registered with the Namibian Ministry of Finance. In this case, a third of the cash equivalent of the housing benefit will be exempt for tax, that is, where the taxable benefit for housing is USD15 000, only two thirds (USD10 000) will be included as a taxable benefit and subject to tax.

Right of private use of a company car or rental car


  • The monthly taxable value of a company vehicle is 1.5% (18% per annum) of the purchase price of the vehicle, where all running, maintenance and fuel costs are carried by the employer.
  •  The monthly taxable value of a company vehicle is 1.4% (16.8% per annum) of the purchase price of the vehicle, where the fuel cost is carried by the employee.
  •  The monthly taxable value is NAD100, where the use of the vehicle is restricted to trips only between the employee’s private residence and the place of employment.
  •  The taxable value of a rental car available to the assignee for both private and business use where the employer is responsible for the rental payments is equivalent to the rental payments made by the employer.

Benefits-in-Kind


  • Benefits-in-kind generally form part of taxable compensation.
  • Employer contributions to an approved Namibian medical aid, pension, provident, retirement annuity fund and policy of insurance for educational purposes are not taxable in the hands of the employee.
  • Employee contributions to Namibian registered pension, provident, retirement annuity funds and policy of insurance for educational purposes are deductible to a maximum amount of NAD40 000 per annum.

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Tax-Exempt Income

The following items are not taxed in the hands of the employee:


  • Reimbursement of costs to relocate an employee to Namibia at the beginning and end of an assignment.
  • Compensation payable to any person (other than an ordinary resident of Namibia) who holds office in Namibia as an official of another government, or any specialized agency of the United Nations.
  •  Any allowance or alimony received from the taxpayer’s spouse or former spouse, provided that there is a divorce order or judicial order or written agreement of separation.
  •  Any dividend payment received by an ordinary resident of Namibia. There is however a 20% withholding tax charge where the shareholder is a person not ordinarily resident in Namibia, subject to DTA relief if available.
  •  Any lump-sum received as a result of relinquishment, termination, loss, repudiation, cancellation or variation of any office or employment, excluding lump-sum payments from any pension, retirement annuity or benefit fund. For the exemption to apply the relinquishment, termination, loss, repudiation, cancellation or variation must have been as a result of an employee having become redundant as a result of the employer having effected a reduction in personnel or the employer ceased or intending to carry on trade or the employee has attained the age of 55 years or relinquishment, termination, loss, repudiation, cancellation or variation is due to superannuation, ill-health or other infirmity. The amount exempted is however limited to NAD300 000.

Salary Earned from Working Abroad


  • To the extent that a non-resident individual renders services outside of Namibia, the remuneration attributable to the time worked offshore would not be taxable in Namibia, as it would not be sourced in Namibia. This apportionment will usually be done on the basis of days spent working inside and outside Namibia. It is however our recommendation that the requirement for the individual to render services offshore be detailed in a contract of employment (such as a split contract arrangement which could be entered into).

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Expatriate Concessions

  • There are no special tax concessions for expatriates.

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Taxation of Investment Income

  • Non-residents are taxable on Namibian-sourced investment income.

Interest income


  • A withholding tax at a rate of 10% is deducted by a Namibian registered financial institution, that is registered banks and unit trust schemes, which is a final tax, therefore there is no filing obligation for the person to whom the interest accrues.
  •  Interest received by an individual from the following sources is exempt from tax:
    • Interest received from a Namibian Post Office Savings Bank
    •  Any interest credited as interest in respect of any subscription share in any building society in Namibia
    • Interest income from stock or securities (including Treasury Bills) issued by the Government of Namibia.

Dividends


  • Dividends received by ordinary residents are exempt from tax.
  •  A person not ordinarily resident in Namibia is taxed on dividends from a Namibian source. A non-resident shareholders’ tax at 20% is withheld from the dividends payable to a non-resident.
  •  Where the beneficiary of the dividend is a resident of a country with whom Namibia has a DTA, tax relief may be available.
  •  Dividends on special tax-free indefinite period shares in building societies in Namibia are however not taxable for both non-residents and ordinary residents, subject to certain limitations.

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Taxation of lump-sum payments

Lump-sum payments from retirement/pension/preservation/provident funds are fully taxable unless otherwise indicated. The amount of the lump-sum payment is generally governed by the rules of the fund:


Retirement annuity fund


  • Lump-sum payments from retirement annuity funds are exempt from tax.

Pension fund


  • Lump-sum payments from pension funds are exempt from tax if the payment was as a result of:
    • Death
    • Superannuation, ill-health or other infirmity
    • Retirement

Preservation and provident funds


·         Lump-sums from a provident and preservation fund paid out as result of resignation or dismissal, termination or dissolution of the fund are fully taxable. One third of the lump-sum paid out by a provident and preservation funds is exempt, subject to certain conditions being met.


Payment of the entire lump-sum from a pension, provident and preservation fund into another approved pension, provident, retirement annuity and preservation fund, transferred for the benefit of the taxpayer during or within 3 months after the year of assessment, is not taxable.

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General deductions

The items, which are allowable as a deduction in the calculation of income tax payable by an individual, depend on the nature of the income and the trade.


Expenses of a revenue nature which are wholly, exclusively, and necessarily incurred in the production of gross income, and which are not specifically disallowed, are deducted in the computation of taxable income.


No deduction can be made in determining the taxable income, where the expenditure items include among others:


  • Maintenance costs of the taxpayer, his family or establishment
  •  Domestic or private expenses
  • Any loss or expense recoverable under any insurance contract, guarantee, security or indemnity
  • Taxation levied on income
  •  Expenditures not laid out or expended for the purposes of trade.

Individuals are entitled to the following deductions.


  • Contributions to Namibian registered provident, pension and retirement annuity funds as well as premiums paid to a policy of insurance for the education of a dependant, limited to an aggregated maximum amount of NAD40 000 per annum.

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Tax rates (for all years of assessment from 1 March 2013)

Taxable Income (N$)   Base Rate   0%
0 - 50 000   N$0   0%
50 001 - 100 000   N$0   18 % of the amount exceeding N$50 000
100 001 - 300 000   N$9 000 +   25% of the amount exceeding N$100 000
300 001 - 500 000   N$59 000 +   28% of the amount exceeding N$300 000
500 001 - 800 000   N$115 000 +   30% of the amount exceeding N$500 000
800 000 - 1 500 000   N$205 000 +   32% of the amount exceeding N$800 000
Exceeds N$1 500 000   N$429 000 +   37% of the amount exceeding N$1 500 000

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Return of income and compliance

  • The deadline for submission of individual returns of income, other than provisional taxpayers, is 30 June every year.
  •  The submission date for a provisional taxpayer is the last day of September every year.
  •  NIRA will assess the return of income and notify the taxpayer of any taxes outstanding or refund due.
  •  Late payment of any final tax amounts outstanding will attract penalties of 10% per month or part of a month and interest charges of 20% per annum.

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Relief from foreign tax liability

Subject to certain conditions, relief from Namibian tax will apply where the assignee is a resident of Namibia and on an assignment to a treaty country, where:


  • the individual is tax resident in a treaty country and not present in Namibia for more than 183 days in the period defined,
  •  the employer responsible for the remuneration is not a resident of Namibia, and the remuneration is not borne by a permanent establishment or fixed base of the foreign employer.

Namibia has double tax agreement with the following countries:


  • France
  •  Germany
  •  India
  •  Mauritius
  •  Romania
  •  Russian Federation
  •  South Africa
  •  Sweden
  •  United Kingdom
  •  Malaysia.

The NIRA do not adopt the economic employer approach to interpreting Article 15 of the OECD treaty. There is no indication that this approach will be adopted in the near future.

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General Tax Credits

There are no general tax credits that can be claimed against a taxpayer’s taxable income.

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Sample Tax Calculation2

This calculation assumes a married taxpayer resident in Namibia with two children whose three-year assignment begins on 1 March 2010 and ends 28 February 2013. The taxpayer’s basic salary is USD100 000 per annum and the calculation covers three years.


Year ended   2011
USD
  2012
USD
  2013
USD
Salary   100 000   100 000   100 000
Bonus   20 000   20 000   20 000
Cost-of-living allowance   10 000   10 000   10 000
Housing allowance   12 000   12 000   12 000
Company car   9 000   9 000   9 000
Relocation expense reimbursement   20 000   NA   NA
Home leave flight cost (only for the assignee and for business purpose)   5 000   NA   10 000
Pension premiums paid to a Namibian registered pension fund   3 000   3 000   3 000
Interest income from a Namibian registered bank   6 000   6 000   6 000
Exchange Rate: USD1:NAD8            

Other Assumptions


  • All earned income is attributable to Namibian sources.
  •  Bonuses are paid at the end of each tax year, and accrue evenly throughout the year.
  •  The company car, with a cost of USD50 000 is used for both business and private and the employer is responsible for maintenance and petrol costs, i.e. the taxable benefit will be 18% of the cost of the car per annum.
  • The employee is non-resident throughout the assignment.
  • Tax treaty agreements are ignored for the purpose of this calculation.
  • The employer has a housing scheme registered with the NIRA.

Calculation of Taxable Income


Year ended   2011   2012   2013
Days in Namibia during tax year   365   365   365
    NAD   NAD   NAD
Salary   800 000   800 000   800 000
Bonus   160 000   160 000   160 000
Cost-of-living allowance   80 000   80 000   80 000
Housing allowance (only 2/3 of USD96 000 is taxable)   64 000   64 000   64 000
Company car (18% *USD50 000* 8)   72 000   72 000   72 000
Relocation expense reimbursement (not taxable)   NA   NA   NA
Home leave   NA   NA   NA
Total gross income   1 176 000   1 176 000   1 176 000
Less: Pension fund contributions (limited to NAD40 000)   (24 000)   (24 000)   (24 000)
Taxable income   1 152 000   1 152 000   1 152 000
Calculation of Namibian tax liability   384 940   384 940   384 940
On an amount of USD750 000   236 200   236 200   236 200
37% on balance exceeding NAD750 000   148 740   148 740   148 740

 

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1 “Employer” is defined by the Income Tax Act as “…any person…who pays or is liable to pay to any person other than a company any amount by way of remuneration…”
2 Sample calculation generated by KPMG Advisory Services (Namibia) (Pty) Limited, the Namibian member firm of KPMG International, based on the Income Tax Act, No 24 of 1981.



© 2014 KPMG Advisory Services (Namibia) (Pty) Ltd, a Namibian company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

 

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 Namibia

Taxation of international executives