New Laws Leaving Small Business Owners Angry, Unless Properly Guided
New tax legislation has SME’s and small business owners up in arms over what these new laws will mean to their business. As such, 99FM’s MYD Smart sat down with Tax experts, Stefan Hugo and Chantell Husselmann from PwC Namibia to find out what the new legislation means to SME’s and small business owners and how they can best prepare for these new laws.
99FM’s MYD Smart asked :
What does the amending tax legislation currently before Parliament mean to SME’s and small business owners and how will the legislation impact on their businesses?
“Amendments to the Value-added Tax Act, Act No. 10 of 2000 (“the VAT Act”) as well as the Income Tax Act, Act No. 24 of 1981, respectively have been proposed in the National Assembly of Namibia. The passing of the Amendment Bills, which sets out the proposed amendments, is at an advanced stage with final approval being foreseen early next month (October 2015).
We shall concentrate on the Income Tax Amendments first in so far as it influence SMEs in Namibia.”
Income Tax amendments 2015:
Definition of “Namibia” inserted
“A very important change to the interpretation of the Income Tax Act, which has been foreseen for a long time, is the applicability of the Income Tax Act in a geographical sense. For the first time since Independence the term “Namibia” has now been defined to bring it in line with for instance the VAT Act and the Customs and Excise Act, 1998.
In general, this means that the narrow interpretation of income tax laws only applicable up to 12 nautical miles (“the territorial sea”) from Namibia’s coastline, falls away and will be replaced with the wider interpretation, i.e. including the exclusive economic zone (up to 200 nautical miles) as well as the continental shelf over which Namibia exercises sovereign rights.
This will have a significant impact on fishing and oil exploration companies operating beyond 12 nautical miles from the Namibian coastline. Similarly smaller companies or SMEs earning income from sources up to 200 nautical miles (and beyond ), which will now become taxable in Namibia.
Existing companies and SMEs should declare income derived from the larger territory as defined in the new definition of “Namibia” once the amendments to the Income Tax Act has become enforceable.”
Lowering of withholding tax rate from 25% to 10%
“A second amendment being proposed, and which we welcome, is the reduction of withholding tax rate on services to Namibian entities by non-resident suppliers from 25% to 10%. Definitions of “resident person” and “non-resident” persons have also been widened to include for instance a branch of a company in Namibia or a trust. The date for liability withholding tax towards Inland Revenue Namibia has also been clarified to mean the effective date of payment to the non-resident supplier to address different interpretation issues as to when the services were rendered or imported into Namibia.
SMEs should therefore take note of this amendment and pay over 10% of the invoice amount charged by a foreign supplier of certain services as withholding tax to the Namibian tax office.
If not yet registered for withholding tax, SMEs in this position will be obliged to declare withholding tax and pay this tax to Inland Revenue.”
VAT amendments 2015
Raising of VAT registration threshold to N$500 000
“As announced a few times over the past 2 or 3 years, the VAT registration threshold for persons who supplies goods and services to other persons will be increased from N$200 000 to N$500 000.
This means that if a business earns income from supplying goods and services which will exceed N$500 000 in a year (or on a monthly basis about N$42 000) , that business should register for VAT in Namibia.
Failure to register for VAT can have serious consequences for the owner of a business if found out by Inland Revenue.
The Receiver of Revenue may assess you on past transactions and deny any input tax which you could have claimed had you been registered for VAT. Penalties and interest will also be calculated and must be paid on any output VAT not declared and paid to Inland Revenue due to the failure to register for VAT.
On the other hand, if you were registered previously registered for VAT under the N$200 000 threshold regime, and does not have an income exceeding N$500 000 from VAT supplies, you will be obliged to deregister for VAT. This means that you would not be able to claim any input tax anymore and may not charge VAT to clients. Any assets on hand at the time of deregistration must be declared to Inland Revenue at VAT paid on their market values.”
Voluntary VAT registration
“Previously there existed different interpretations to the VAT Act with regard to voluntary VAT registration.
One should at least have foreseen that taxable supplies will be made and approach the Receiver of Revenue for voluntary VAT registration, even if it was not certain that taxable supplies exceeding N$200 000 in any 12 month period, in fact will be made.
The VAT Amendment Bill, 2015 provides that a person who will be making at least N$200 000 in taxable supplies, may approach Inland Revenue for VAT registration. This means that once registered, output VAT should be charged to customers and paid over every two months to Inland Revenue. It also has the benefit that any supplies made to you and for which you have a proper tax invoice, may be deducted from the output tax payable.
The same principles as set out above under “Raising of VAT registration threshold to N$500 000” however, will apply when your taxable supplies fall below the N$200 000 threshold in which case you should apply for deregistration and pay output tax on assets on hand at time of deregistration at their market value, to Inland Revenue.
It will also mean that once deregistered, you will not be claim any input tax on supplies made to you but on the other hand you will not be required to charge VAT to clients anymore.”
Introduction of security for import VAT account holders
The VAT Bill, 2015 makes provision that the Commissioner for Inland Revenue may by notice require from import VAT account holders to provides sufficient security for the import VAT liability deferred per the import VAT account number (ending on -016) of importers.
It also provides that no import may be allowed to be cleared at Customs Namibia at the point of entry, unless this security has been put in place.
Although further information is not available at this stage, we understand that Inland Revenue and Customs Namibia will consult further on this to agree on the procedures to be applied in this regard.”
What advice do you have for SME’s and small business owners to become compliant with the law?
“Firstly, if in any doubt as to the effects of the amending legislation, the seeking of professional advice and more information is important to find yourself in a situation where Inland Revenue will enforce the tax laws even if you did not fully understand them. The rule is that if a law is published in the Government Gazette, all citizens are deemed to have notice of it and must comply as spelled out in the published law.”
Income tax amendments
Wider application of Income Tax Act
“Fishing companies and marine exploration companies should note the income tax net has been thrown wider to include the exclusive economic zone (“EEZ”) of Namibia (200 nautical miles) and even beyond to the continental shelf over which Namibia exercises its sovereign rights.
Where is was not required to declare income derived beyond the territorial sea (12 nautical miles), the Income Tax Act has been made applicable, as with the VAT Act and Customs and Excise Act, to include the EEZ and the continental shelf.
If you have operations or intend to have operations which will extend beyond the 12 nautical miles from the coastline of Namibia, you should include income derived from the larger territory in your tax returns.”
Lowering of the withholding tax rate from 25% to 10%
“If services are rendered from outside Namibia to a business, that business should register for withholding tax and pay over the withholding tax at the rate of 10% on the invoice by the non-resident to Inland Revenue.
A special number will be given to you if you register and the correct return with all the particulars of the services rendered by a foreign entity must be submitted with the payment.
Non-compliance with this will lead to penalties and interest being assessed by Inland Revenue.
It must be noted that you do not specifiy on your payment terms to the foreign supplier that the withholding tax will be charged separately, you should pay this tax from own funds. This means you cannot recover it by law from the foreign supplier.
The Income Tax Act will also be amended to make it clear that the due date payment of withholding tax is linked to the date you make payment to the supplier, i.e. not the date the services were imported. This is to avoid any difficulties from an administrative point of view based on different interpretations.”
How can an SME or small business owner capitalise on these new laws in their business?
“It is of course not wise to structure your business around any tax and see how one can benefit from the introduction of a tax. However, it is suggested that you obtain professional advice and information as how to ensure that you pay the correct tax over to Inland Revenue.
The benefits of VAT registration has been spelled out above and with regard to income tax, it would be wise to comply with payment of the taxes, due dates for filing returns.
Should you however think that you have to structure your business properly to not only comply with the law but also ensure that you obtain tax savings legitimately, it is strongly suggested that you approach a professional tax consulting firm for proper advice. Each business is different and a standard solution is not possible for SMEs to capitalize on tax amendments.”
Anything else SME’s or small business owners need to know about the new laws?
“The VAT Amendment Bill has gone through the necessary stages at the Namibian Parliament and it will be signed very soon by the State President where after it will be published officially in the Government Gazette of Namibia.
Once published, the effective date of entry into force is from the first day of the month following the date of publication, i.e. if it is published during October 2015, it will be enforced as from 1 November 2015.
The Income Tax Bill follows shortly on the VAT Bill and should be ready for signature by the State President in the very near future also. Once signed and published in the official Government Gazette of Namibia, the provisions embodied in the Act will commence on the date of publication. With regard to corporate tax being lowered from 33% to 32%, it will commence at the beginning of the year of assessment of a company on or before 1 January 2015.”
Should you need further clarification or more information on other amendments envisaged by the above two Bills, please contact PWC Namibia as follows:
Stefan Hugo, Tax Leader PwC Namibia
Office: +264 61 284 1102 | Mobile: +264 81 141 0504 | Fax: +264 61 284 1602
344 Independence Avenue, Windhoek
Chantell Husselmann, PwC Indirect Tax Partner/Director
Office: +264 61 284 1327 | Mobile: +264 81 122 4181 | Fax: +264 61 284 1827
344 Independence Avenue, Windhoek
Or view the PWC Namibia website here : PWC Namibia