Type of Government
A multi party democracy since 1994.
The Government of Malawi is anxious to attract foreign investment in both public as well as private sectors in Malawi and is seeking to encourage the private sector to assume the leading role in developing the national economy. Malawi has opened up and liberalised its economy and is continuously reviewing the investment environment and policies to make the investment climate regionally competitive and conducive. Malawi has set up EPZ’s.
The Government of Malawi is pursuing stable macro-economic policies by exercising fiscal and monetary discipline in terms of its international obligations and maintaining a realistic rate of Malawi Kwacha , the country’s, currency and high interest rates. Specific measures to deregulate the public and private sector and create new investment opportunities and environment have already been enacted. A number of public companies have been privatised. Many public companies are to be privatised.
Forms of Business Organisation
- Private or public limited liability company
- External company (ie a branch of a foreign company)
- Partnership trading trust
- Sole trader
Formation of a Business
Companies, both local and external must be registered. Local company must have a registered office in Malawi and external company a documentary agent. For companies there must be a majority of at least 3 local directors on the Board unless exempted. Businesses not operating as incorporated companies or trusts are required to have their business names and the name(s) of the proprietor(s) of the business registered. Licences are required for certain types of business and other information is required for various purposes such as income tax, service and other taxes.
Repatriation of Foreign Investment
Exchange control still exists in Malawi and is managed by the Reserve Bank of Malawi. For data collection purposes, foreign investment capital whether in the form of equity or loan needs to be registered with the Reserve Bank of Malawi. The terms and conditions of foreign loans, foreign investment in the form of equity and remittance of dividends (and capital in the event of disinvestment), technical and management and Consultancy contracts with non-residents, licensing and royalty arrangements and similarly technology transfers require prior permission of RBM. These approvals are granted in respect of transactions concluded on internationally prevailing terms, conditions and standards.
Tax is levied on income from actual and deemed Malawi sources at the following rates-
- 30% for companies and trading Trusts (35% for branch companies) and 21% for life assurance businesses;
- 25% for Ecclesiastical, Charitable or Educational Institutions of a public character or Trust;
- graduated rates from 0% up to 30% (based on annual income) for individuals and partnerships;
- 0% for approved companies operating in export processing zone;
- 0% for 10 years or 15% for companies operating in priority industries.
Almost all taxpayers operating businesses are required to pay estimated advance tax on a quarterly basis. Although operating losses can be carried forward indefinitely, minimum tax based on turnover is payable for persons carrying on businesses. Malawi is putting a programme for Indirect Taxation (VAT) on sale of goods.
There are other taxes including, amongst others,
- Duty- charged on imports of goods other than these originating from the Comesa Group of countries;
- Surtax – charged on imports, services and locally manufactured goods,Capital Gains Tax – any gain from sale or voluntary disposition of a capital is to be included in assessable income ;
- Rates – Taxes on land and buildings based on valuation is payable to local authorities;
- Mineral Rights Duty – payable for an exclusive prospecting licence;
- Stamp Duty – Advalorem duty is payable on transfer of land and buildings, leases, securities (not capable of trading in the capital market);
- Fringe Benefits tax – tax on perks
- Training Fund Tax – 2% on basic payroll of employees. When making certain payments such as Rental, Royalties, fees and commission, bank interest and others, persons are required to withhold tax in accordance with the rates specified and remit to the Malawi Revenue Authority.
The Government of Malawi is harmonizing the duty, surtax and excise over a period of time in accordance with its regional obligations with COMESA and SADC Trade Protocols with a view to reducing taxes payable by the year 2008 in respect of goods originating from COMESA and SADC Group of Countries. Malawi has entered into double tax treaties with various countries.
There are other allowances and incentives given/allowed to businesses including, amongst others –
- Capital Allowances – in respect of capital expenditures eg 40% investment allowance in the 1st year in respect of new buildings/plant machinery to a manufacturer;
- Mining Allowances;
- Bad and doubtful debts;
- Rental paid in respect of property used in the production of income;
- Interest incurred in respect of property used in the production of income;
- Operating losses subjects to a minimum tax;
- Export allowances for non traditional export and deduction for international transport costs;
- Training allowances of extra 50% for training Malawians for approved courses;
- Malawi is reviewing investment incentives to foreign and local investors. These are to be published shortly.
Protection of patents, certain trademarks, design and copyrights is provided for by Statute.
Registries exist for trademarks, designs, patents, companies, business names and ownership of immovable or real property.
In order to pay for imports prior permission is required from authorised Dealers who process applications expeditiously. Any importation to the value in excess of US$2000 requires to be inspected by SGS.
Based on English Common Law
The local labour force is plentiful in Malawi. Wages in Malawi are low compared with those in other African countries.
A foreign resident requires a permit to reside in Malawi and may not take up employment or engage in any business, profession or other occupation unless his permit authorises such activity. Where level of investment is up to US$100,000 then an investor can obtain employment permits for 2 key position. In the case of investment in excess of US$100,000 then the requirements of the investor are considered. More seriously.