Namibia Embassy Berlin -

Introduction

Namibia’s economic growth largely depends on its ability to engineer export-led industrialisation by taking advantage of its strategic location and superb economic infrastructure.

The Ministry of Trade and Industry concentrates on creating a conducive environment for foreign and local investment.

It has also made considerable effort to put competitive tax and non-tax incentives in place in order to attract foreign investment to the Export Processing Zones and to encourage both foreigners and locals to invest in the manufacturing sector.

Namibia’s incentive regimes include the Foreign Investment Act and its provisions for a Certificate of Status Investment, the Special Incentives for Manufacturers and Exporters as well as the Export Processing Zone Incentives.

Export Processing Zone Regime

As a far-reaching incentive for manufacturers, the Namibian Government adopted a policy for the establishment of an Export Processing Zone (EPZ) regime to serve as a tax haven for export-oriented manufacturing enterprises in the country, in exchange for technology transfer, capital inflow, skills development and job creation. This policy decision was translated into law through the passage in Parliament of the Export Processing Zone Act (Act No. 9 of 1995). The implementation of this initiative started in 1996.

Export Processing Zone (EPZ) Incentives
Enterprises which undertake manufacturing, assembly, re-packaging and break-bulk operation and gear all or almost all of their production for export, earn foreign exchange and employ Namibians, will be eligible for EPZ status, which confers an attractive range of both tax and non-tax benefits. Tax incentives for EPZ enterprises
Enterprises with EPZ status do not pay:

• corporate tax;
• import tax;
• sales tax, stamp and transfer duties on goods and services required for EPZ activities.

These benefits are of unlimited duration.

Other incentives for EPZ enterprises
Because Government recognises the considerable costs of establishing new operations and training a new workforce, EPZ enterprises investing in upgrading the skills and productivity of Namibian workers will receive a grant to cover a substantial part of the direct costs of on-the-job and institutional training. The grant is paid by the Government on the basis of pre-approved training plans, once training is complete.

• EPZ enterprises are allowed to hold foreign currency accounts in local banks.
• They also enjoy industrial calm as no strikes or lock-out are allowed in the EPZ-regime.
• Companies operating under the regime are free to locate their operations anywhere in Namibia.

Through the Offshore Development Company, EPZ enterprises also have access to factory facilities rented at economical rates.

Special Incentives for Manufacturers and Exporters

The Government of the Republic of Namibia is committed to stimulate economic growth and employment and to establish Namibia as a gateway location in the Southern African region. Incentives are largely concentrated on stimulating manufacturing in Namibia and promoting exports into the region and to the rest of the world. Incentive regimes in place are designed to give Namibia-based entrepreneurs who invest in manufacturing and re-export trade a competitive edge. These tax and no-tax incentives are accessible to both existing and new manufacturers.

Manufacturing activities in all sectors, including local value-added processing of Namibia’s minerals, fish and agricultural products currently exported largely in raw form, stand to benefit from these incentives.

These incentives are designed for entrepreneurs whose main target market is the Southern African Customs Union (SACU). Namibia-based entrepreneurs exporting their products outside the SACU market are still entitled to benefits under the scheme. Manufacturers receive greater benefits than mere exporters of finished goods. To benefit from the scheme, an investor must register with the Ministry of Finance as a manufacturer or an exporter of manufactured goods. The Namibia Investment Centre assists investors with the registration process. Manufacturing Status registration form
The following tax general regulations are indicative of Government commitments:

• Non-resident Shareholders’ Tax is only 10 percent;
• Dividends accruing to Namibian companies or resident shareholders are tax exempt;
• Plant, machinery and equipment can be fully written off over a period of three years;
• Buildings of non-manufacturing operations can be written off, 20 percent in the first year and the balance at 4 percent over the ensuing 20 years (manufacturers operations have even more generous allowances);
• Import or purchase of manufacturing machinery and equipment is exempted from value added tax (VAT);
• Preferential market access to the EU, USA and other markets for manufacturers and exporters is provided.

To make manufacturing in Namibia more competitive, Government has introduced a further package of tax and non-tax incentives, applicable to both existing and new manufacturing enterprises.

Tax Incentives for Manufacturers

Tax abatement
The Government has allowed an 18 per cent special tax deduction on the taxable income derived from manufacturing enterprises for a period of 10 years. This abatement is applicable to all operations approved and registered as manufacturers by the Ministry of Finance in consultation with the Ministry of Trade and Industry.Establishment tax package for new investments
Where companies wish to establish a new manufacturing venture in Namibia, or relocate an existing operation to Namibia, a special tax package may be negotiated through the Ministry of Trade and Industry, which then makes appropriate recommendations to the Ministry of Finance. The Minister of Finance is empowered to grant, in consultation with the Minister of any line Ministry, special conditions to certain manufacturing enterprises on:

• the rate of tax payable, and
• the terms under which this rate shall apply.

To be considered for an establishment tax package, a full feasibility study must be presented showing that:

• existing industry will not be unfairly disadvantaged, and
• the enterprise will contribute positively to Namibia’s long term economic growth.

The conditions, as negotiated, will be published in the Government Gazette as soon as they have been approved by the Ministry of Finance.

Special building allowance

Building erected by manufacturing enterprises for manufacturing purposes (i.e. not including office buildings), can be written off at the rate of 20 percent in the first year and the balance at 8 percent per year over the ensuing 10 years.

Tax incentives for export promotion activities
The following expenditure, which is already fully deductive for tax purposes, will be allowed as an additional deduction from income according to the percentages prescribed below:

• research on the marketing of goods in a foreign country;
• advertising and soliciting of orders in a foreign country, including attendance of approved foreign trade exhibitions and outward trade missions, economy air fare, local travel and accommodation and exhibition costs;
• provision of samples or technical information to prospective customers in a foreign country;
• bringing prospective buyers from a foreign country to Namibia, including economy air fares and accommodation;
• preparation or submission of tenders or quotations in respect of goods to be exported to a foreign country;
• expenditure incurred to finalise contractual agreements;
• the appointment of agents in foreign countries.

The additional deduction in prospect of the above expenses is as follows:

• 25 percent if the current export turnover exceeds the basic export turnover (defined as the average export turnover of the preceding three years, as supported by an audit certificate) by 10 percent or less;
• 50 percent if the current export turnover exceeds the basic export turnover by more than 10 percent, but less than 25 percent; or
• 75 percent if the current export turnover exceeds the basic export turnover by 25 percent or more.

These export promotion incentives will only be granted on approval of the programme, stating details of the envisaged export promotion venture and the expected resultant exports.

Additional deductions for production line wages and training
An additional deduction of 25 percent will be allowed for registered manufacturing enterprises in respect of wages paid to production line workers and training costs.

Production line wages
As an encouragement to manufacturing enterprises to utilise more labour intensive processes, an additional deduction from income of 25 percent will be allowed in respect of wages paid to Namibian workers directly involved in the manufacturing process. For example if an enterprise has an approved remuneration package of N$100,000 to such workers, N$125,000 will be allowed as a deduction from taxable income.

Training expenses
The Government believes that efficiency in the manufacturing sector can be increased dramatically through the professional training of technical personnel. An additional deduction of 25 percent from income will be allowed on approved technical training expenses. The content, duration and costs of training programmes and a list of candidates must be forwarded to and approved by the Ministry of Finance, in consultation with the Ministry of Trade and Industry and the Ministry of Labour and Human Resource Development.

Non-Tax Incentives for Manufacturers

Grants and loans for exporters
To further assist exporters in securing new markets, export promotion funding of efforts as detailed above, will be considered, up to a maximum of 50 percent of direct costs. Such export promotion activities must be pre-approved by the Investment Centre and can, on the basis of substantive quotations and/or invoices, be paid in advance, subject to full verification of expenditure within 30 days.

Industrial studies
Studies undertaken by Government, whether on its own initiative or on request of private sector enterprises, can be made available at 50 percent of their production cost to companies that wish to develop investment opportunities. Executive summaries will be made available for perusal free of charge. Requests by the private sector for commissioning of such studies will only be considered where full project proposals and pre-feasibility studies are submitted.

Incentives for Exporters of Manufactured Goods

Tax allowance on income derived from the export of manufactured goods
Government intends to promote Namibia as a trading centre within Southern Africa. Taxable income derived from the export of manufacture goods, with the exception of fish and meat products, whether they have been produced in Namibia or not, shall be reduced by an allowance equal to 80 percent of the amount.

Registration and Implementation
All manufacturing concerns claiming incentives must first register with the Ministry of Trade and Industry, and, in respect of Taxation Incentives, must also be registered with the Ministry of Finance. The Minster of Finance is empowered to prescribe accounting procedures and regulations for manufacturing enterprises qualifying for Taxation Incentives. To promote, control and prevent the misuse of Taxation Incentives, enterprises qualifying for such incentives will not be relieved on the duty to submit fully substantiated annual tax returns.

Taxation

The following direct and indirect taxes are levied in Namibia:

• Corporation tax (applicable to Companies, Close Corporations and External Companies)
• Personal income tax
• Withholding tax
• General sales tax
• Additional sales levy
• Other taxes, include. transfer tax, stamp duty, customs duty and municipal rates.

Namibia has no capital gains tax, estate duty, inheritance tax or donation tax. Partnerships are not treated as separate taxable entities and partners are taxed on their share of net partnership income.

The Income Tax and VAT are administered by the Minister of Finance via the office of the Commissioner for Inland Revenue in Windhoek, who is also responsible for the administration of Stamp and Transfer Duties.

Double Taxation Agreements have been concluded with numerous countries including France, Germany, India, Mauritius, Romania, the Russian Federation, South Africa and Sweden.