SETTING UP & OPERATING BUSINESS IN MALAWI

TYPE OF BUSINESS Business may be conducted by individuals, partnerships, trusts, Malawian companies or branches of foreign companies or through joint ventures i.e. (Foreign and Malawi owned). A Malawian company may be public (name ends in Limited) or private (name ends in Limited) The private company is the most common vehicle for operating business in Malawi. It must have a minimum of three directors, majority of which must be resident in Malawi. A branch of a foreign company is regarded as an external company if it establishes a place of business or owns immovable property in Malawi, and must register as such. It must have at least one Malawian resident director. All companies whether public, private or a branch operation are subject to the provisions of the Malawi Companies Act 1984. Local registered public and private companies are required to submit an annual return to the Registrar of Companies. A branch of a foreign company is also required to submit annual returns to the Registrar of Companies together with its financial statement. TAXATION The basis is territorial or source as opposed to a residence or world-wide basis. In the main, only income arising from Malawi source is taxed. Trading profits will be taxable in Malawi if the business is conducted in Malawi or the source of profits is deemed to be within Malawi. Income from services is sourced in Malawi if the services are rendered in the course of carrying on in Malawi of any trade regardless of place of payment for such services. Malawi has double taxation agreements with several foreign countries viz Denmark, France, Kenya, The Netherlands, Norway, South-Africa, Sweden, Switzerland and The United Kingdom. In terms of these agreements, a foreign resident will only be taxable in Malawi if he\she conducts business in Malawi through a permanent establishment. Tax Rates · Corporation tax rate is currently at 38% · For companies registered outside Malawi but operating as branches in Malawi, the tax rate is 43% i.e. (38% plus an additional 5%) · Remittance of dividends outside Malawi is now tax free effective 1 April 1995. · No withholding tax is applicable on dividend income. · Capital allowances for new and used fixed assets i.e. buildings, machinery, motor vehicles etc are granted. Effective 1 July 1998, no initial allowances are granted on motor vehicles considered to be Saloons, 4x4 Double Cabins, Pajeros etc. Individuals are taxable on varying tax bands as follows:- Taxable income Tax on Band Percentage on band Over Not over K K'O 6,000 0 Nil 6,000 18,000 1,920 16% 18,000 42,000 6,480 27% 42,000 38% INCENTIVES The new regime for financial incentives is also covered in the Investment Promotion Act and these are divided into general incentives and additional incentives for export. Significantly, no cash grants are offered although substantial tax savings are possible. General Incentives · 40% investment allowance on qualifying expenditures for new building and machinery used in the trade. · An additional 15% allowance for investments in a designated area of the country. · Up to 20% allowance for qualifying training costs. · Allowance for manufacturing companies te deduct all operating expenses incurred up to 18 months prior to the start of an operation. · Indefinite loss carry forward to enable companies to take full advantage of their tax losses. · Agreements for the avoidance of double taxation. · Agreements for reduction of withholding taxes on remittances and payments. · Deferred duties on machinery and equipment for up to two years. · Full rebate of duties on heavy commercial vehicles. Additional Incentives In addition to the general incentives, there are also some special incentives for export-related companies. The most important new change here is the setting up of export processing zones (EPZ). A number of benefits are attached t locating in an EPZ including:- · Corporate tax rate of 0% · No withholding tax on dividends · No duty on capital equipment and raw materials · No excise taxes on purchases of raw materials and packaging materials made in Malawi · No value added tax · Transport tax allowance in the amount of 25% of international transport costs. Other Other general export incentives introduced by legislation include: · Export tax allowance amounting to 12% of export revenues for non-traditional exports, excluding traditional exports other than tobacco, tea, sugar and coffee. · Transport tax allowance amounting to 25% of international transport costs incurred for nontraditional exports other than tobacco, tea, sugar and coffee. · No duties on imports of capital equipment used mainly in the manufacture of exports for those manufacturing in bond. · No surtaxes (VAT) · No excise taxes on purchases of raw materials and packaging materials made in Malawi for those manufacturing in bond. · Timely refund of all duties (duty drawback) on imports of raw materials and packaging materials for those manufacturing in bond. EXCHANGE CONTROL Free access to foreign exchange is available in Malawi both for paying for imports and transferring financial payments abroad. This free access includes: no licence required for imports, and full remittance of dividends, investment capital repatriation subject to Reserve Bank approval, interest and principal payments for approved international loans and approved fees for management, licences, royalties and similar obligations. VISA REQUIREMENTS There are no visa requirements for all visitors from the Commonwealth Countries. Other countries which do not require visas are : · USA, Germany, Holland, Sweden, Norway, Finland, Switzerland, Portugal, Luxembourg, Belgium. Countries who are required to carry visas, which expire after three months are: · Algeria, Angola, Brazil, Burundi, Cameroon, Egypt, Ethiopia, France, Libya, Mexico, Morocco, Russia and other Eastern European Countries, Rwanda, Senegal, Somalia, Spain, Sudan and Zaire.