Spotlight on Namibia – 2024 Tax Changes

Namibia promulgated its Income Tax Amendment Act on 16 September 2024, which implements changes proposed in the 2024 Budget speech. Although some welcome relief is provided to taxpayers with, for example, the reduction in tax rates, the Act also implements some other fairly significant changes, which we unpack today.

Tax Rates

The tax rate for companies on taxable income derived from a source other than mining, is reduced to 31% for financial years which commenced on or after 1 January 2024. The tax rate will be further reduced to 30% for financial years which will commence on or after 1 January 2025.

The tax thresholds for individual taxpayers have been increased from N$50,000 to N$100,000 with effect from 1 March 2024.

According to a statement issued by the Minister of Finance, it is the responsibility of employers to refund employees’ PAYE which has been over-deducted for the period from 1 March 2024. The reimbursed PAYE should be deducted from the monthly employee’s tax amount due to the Namibian Revenue Agency (“NamRA”).

Youth Internship Allowance

A youth internship allowance has been introduced, which will allow an employer to claim an internship allowance, based on a formula, in addition to the actual cost incurred by the employer, where an intern and employer are parties to a registered internship agreement.

Limitation of Assessed Losses

Section 21 has been amended to limit the amount of assessed losses which may be deducted. The set-off against taxable income of the balance of assessed loss incurred by the taxpayer in any previous year and which has been carried forward from the preceding year of assessment is now limited to N$1?000 000, or 80% of taxable income, whichever is greater, before taking into account the provisions of section 21 or section 36 of the Income Tax Act (“ITA”). An assessed loss incurred in a current year of assessment is similarly restricted.

In addition, a restriction has been introduced in respect of the number of years for which a loss may be carried forward. In terms of this amendment, no assessed loss shall be carried forward as a deduction for more than five years in respect of any taxpayer or 10 years in respect of entities involved in the mining, petroleum or green hydrogen industry.

Transfer Pricing Rules and Connected Persons Definition

A definition of a “connected person” has been introduced into section 95A of the ITA, which is the section containing transfer pricing rules. (A definition of a “connected person” was previously contained in the Practice Note relating to transfer pricing, and not in the ITA).

A “connected person” is defined as any person who, based on all the relevant facts and circumstances, has control over another person, or where both persons are under the control of the same person, and contains a number of specific inclusions.

In the case of a company, a connected person will include:

• any other company that is part of the same group of companies as that company;
• any person, other than a company, that alone or together with any other connected person or persons, directly or indirectly controls at least 20 per cent of the voting power or equity share capital in that other company or the beneficial interest in that other company;
• any other company if at least 20 per cent of the equity shares or voting rights in the company are held by that other company, and no holder of shares holds the majority voting rights in such company;
• any other company in which the person referred to in the second point above, directly or indirectly, controls at least 20 per cent of the equity share capital or voting rights in that other company or the beneficial interest in that other company; or
• any other company which is managed or controlled by the same person, either alone or together with other connected persons.

The term “control over another person”, in relation to a connected person, is also now defined in section 95A and includes, for example, the circumstances where a loan is advanced by one person to another person which constitutes? at least 70 percent of the book value of the total assets? of the other person? (excluding a loan from a financial institution, which is not a connected person).

In addition, the thin capitalisation (3:1 debt to equity ratio) rule has been replaced with an interest deduction limit.?

Section 95A now provides that no deduction shall be allowed for the purposes of ascertaining the taxable income of any connected person in respect of any amount of net interest expense for any year of assessment that exceeds 30 per cent of such connected person’s tax EBITDA.

The section does not apply where the net interest expense does not exceed N$3 000 000. It appears that the restriction only applies to interest on loans from connected persons, or where a connected person has guaranteed the loan.

VAT Registration Threshold

In addition to the income tax amendments, the VAT registration threshold is to be raised from N$500?000 to N$1 million.

Key Take-Aways

Namibia’s 2024 Income Tax Amendment Act represents a significant overhaul of the country’s tax landscape. While offering some welcome relief through reduced corporate tax rates and increased individual tax thresholds, it also introduces more stringent regulations, particularly in areas such as assessed losses and transfer pricing. The new youth internship allowance demonstrates a commitment to addressing unemployment, while changes to VAT registration thresholds may ease the burden on smaller businesses. As these changes take effect, both individuals and companies operating in Namibia will need to carefully review their tax strategies to ensure compliance with the tax amendments. This comprehensive reform signals Namibia’s intent to modernise its tax system, balancing the need for revenue generation with efforts to stimulate economic growth and investment. Get in touch if you’d like to discuss how these changes impact you or your business.

Meet the author

Kendra Saunders

Kendra Saunders is an admitted attorney and senior international tax consultant at RvR, based in Cape Town. Contact Kendra at [email protected].