Mining companies in Malawi are obliged to pay income tax, resource rent tax, withholding tax, customs duty, VAT and royalties.
Resource Rent Tax
Under the Taxation (Amendment) Act, of 2016, a mining company is obliged to pay the minimum resource rent tax of 15%. For licenced mining operations or mining projects, resource rent tax is mandatory.
For royalties, royalty rates range from 5 to 10% of their royalty base. Separate rules for the administration of royalty are provided in the Seventeenth Schedule to the Taxation (Amendment) Act, 2016 Act. Mineral royalties are allowable as a deduction for tax purposes.
There is a preferential non-resident tax (NRT) at the rate of 10% on payments by a mining project by way of interest, royalty, and management fees. The normal NRT rate is 15 per cent.
Ring-fencing of mining projects
There is ring-fencing of mining projects for income and expenses for tax purposes. Income and expenses from one mining project cannot be transferred to or offset against or aggregated with incomes and expenses of another mining project. However, section 11 to the 16th Schedule of the Taxation (Amendment) Act 2016 provides that when a mining project ceases to be subject to a mining permit, all assets are taken to be disposed of by the taxpayer in relation to their project at their market value, all liabilities are taken to be discharged by the person in relation to their project at the then value, and for purposes of the Act, the mining project is taken to continue connected with the person’s obligations as a taxpayer in relation to its tax affairs.
The following are some of the incentives fixed by Parliament under the Taxation (Amendment) Act, 2016 and the Customs & Excise Act:
- Capital Expenditure
- A taxpayer that is carrying on mining operations or a project and happens to incur mining expenditure is entitled to an allowance equal to 100% of such expenditure in the first year of assessment. The expenditure shall include the purchase of machinery, plant, and exploration equipment. A taxpayer is obliged to submit a return of income attaching proof of capital expenditure at the end of the financial year. Separate rules and regulations on the determination of income, deductions and capital allowances are provided under the Sixteenth Schedule to the Act.
- Investment, export, and transport allowances are not applicable to any mining project.
- Customs Duty on Specialized Goods
- No duty and no VAT is levied on the importation of specialised goods (machinery, plant, and exploration equipment) for use in mining.
- Stability Period and Tax Holidays
- There is also a stability period where any changes to the tax regime would not apply and affect a mining project for a period of 10 years from the time the said mining project is commissioned
- Companies may go on corporate tax holiday upon approval by the Minister of Finance and the Minister of Mines, Energy and Natural Resources.
Procedure to access the Incentives
To access the incentives, the Government of Malawi requires a mining company to apply to the Commissioner General of the Malawi Revenue Authority accompanied by:
- A valid mining licence or permit issued by the Ministry of Mines, Energy and Natural Resources.
- Certificate of Incorporation.
- Tax registration certificate.
- Malawi Investment and Trade Centre certificate.
- Investment registered with the Reserve Bank of Malawi under the Exchange Control Department.
There is a possibility for discretionary incentives borne out of negotiations between the government and the investor or mining company