MalawiTax Obligations Detailed

In Malawi, employers have various tax obligations, including PAYE, withholding tax, fringe benefits tax, and provisional tax, with specific deadlines and rates.

Employer Taxes in Malawi

As of February 5, 2025, the following employer tax obligations are applicable in Malawi:

Pay As You Earn (PAYE)

• This is a method of deducting income tax directly from employees' salaries.
• Employers deduct PAYE when payments are made (weekly, fortnightly, or monthly).
• PAYE is due on the 14th of the following month.

PAYE Tax Rates (Effective April 19, 2024):

• Monthly:

  • 0% on the first MWK 150,000
  • 25% on the next MWK 350,000
  • 30% on the next MWK 2,050,000
  • 35% on income exceeding MWK 2,550,000

• Annually:

  • 0% on the first MWK 1,800,000
  • 25% on the next MWK 4,200,000
  • 30% on the next MWK 24,600,000
  • 35% on income exceeding MWK 30,600,000

Withholding Tax

• Tax withheld on certain payments made to residents and non-residents.
• Due on the 14th of the following month.

Fringe Benefits Tax (FBT)

• Levied on non-cash benefits provided to employees.
• Taxed at a flat rate of 30% on the value of benefits.
• 15% on the original cost for motor vehicles.
• Paid in quarterly installments, due 14 days after each quarter.

Provisional Tax

• Applies to companies and individuals with business or investment income.
• Paid in quarterly installments, with 90% of the estimated annual tax due by the end of the fourth quarter.
• Due within 30 days of each quarter end.

Other Obligations

• TEVET Levy: Paid annually by April 1st. A 20% penalty applies for late payments.
• Social Security Contributions: Employers contribute a minimum of 10% of the employee's salary.

This information is current as of February 5, 2025, and might be subject to change. Always verify the latest regulations and rates with official sources or a qualified tax advisor for the most up-to-date information.

In Malawi, employee tax deductions, known as Pay As You Earn (PAYE), are calculated based on a progressive tax system and include various statutory deductions.

PAYE Calculation

As of April 19, 2024, PAYE is calculated using the following tiered system:

• 0%: on the first MWK 150,000 of monthly income
• 25%: on the next MWK 350,000
• 30%: on the next MWK 2,050,000
• 35%: on any income exceeding MWK 2,550,000

Example: An employee earning MWK 3,000,000 monthly would have their PAYE calculated as follows: (150,000 * 0%) + (350,000 * 0.25) + (2,050,000 * 0.30) + (450,000 * 0.35) = MWK 860,000.

Other Deductions

• National Pension Scheme (NPS): Employees contribute a minimum of 5% of their pensionable emoluments. Employers contribute at least 10%, up to a maximum deductible contribution of 15%. These contributions are tax-deductible for the employer but not the employee. Upon retirement, benefits received, either as a lump sum or annuity, are tax-exempt.

Fringe Benefits Tax (FBT)

Employers, excluding government entities, providing fringe benefits are subject to a 30% FBT on the taxable value of the benefit. FBT is paid quarterly, within 14 days after the quarter's end. Some examples include:

• Housing: Taxable value is either 9% (unfurnished) or 12% (furnished) of the employee's salary. This value can be reduced by 50%.
• Motor Vehicles: Taxable value is 15% of the vehicle's original cost per year.
• School Fees: If paid directly by the employer, the taxable value is 50% of the cost.

Employer Obligations

Employers deducting PAYE must remit it to the Malawi Revenue Authority (MRA) by the 14th of the following month. Employers must register employees earning above MWK 150,000 monthly (MWK 1,800,000 annually) with the MRA within 21 days of hiring. Changes in employee status (e.g. resignation) must be reported within 14 days.

General Information on Taxes in Malawi

• There are no personal income tax rebates or credits in Malawi.
• Expatriates are taxed on Malawi-sourced income regardless of payment location, but may be exempt under double taxation agreements if they stay less than 183 days and are paid offshore.
• Non-resident employers must appoint a local resident agent for PAYE purposes.

This information is current as of February 5, 2025, and might change. Consulting with a tax professional is advisable for specific situations.

In Malawi, Value Added Tax (VAT) is a consumption tax levied on most goods and services.

VAT Rates and Categories

• Standard Rate: 16.5% applies to most goods and services. As of 23 February 2024, electric motorcycles are subject to the standard 16.5% VAT, but exempt from Import Duty and Import Excise.
• Zero-Rated Supplies (0%): VAT is charged at 0%, but registered businesses can claim input VAT. Examples include:
  • Exercise books
  • Fertilizers
  • Motor vehicles for transporting goods
  • Salt
  • Laundry soap
  • Sheath contraceptives (condoms)
  • and others.
• Exempt Supplies: No VAT is charged, and businesses cannot claim input VAT. Examples include:
  • Banking and life assurance services
  • Coins
  • Live animals and animal products
  • Postal services
  • Educational services
  • Medical services and equipment
  • and others.

Certain goods, like fabrics and accessories for school uniforms, are duty-free. Clear beer made from maize and sorghum now falls under new tariff subheadings and attracts 25% Import Duty, 20% Import Excise, and 16.5% Import VAT. Petroleum products, iron sheets and sacks have seen increased import duties. Aeroplanes weighing between 2,000kg and 15,000kg are now subject to 5% Import Duty, 10% Import Excise, and 16.5% Import VAT.

VAT Registration

Businesses with an annual turnover exceeding MK25 million are required to register for VAT. Voluntary registration is possible for businesses below this threshold if they meet specific criteria, such as maintaining proper records and having a fixed business location. Applications should be submitted within 30 days of becoming eligible. Registered businesses must prominently display their VAT registration certificate. Those making retail sales of MK12,000,000.00 or less (including VAT) are required to register for turnover tax at 2% of turnover.

VAT Filing and Payment

Registered businesses must file monthly VAT returns by the 25th of the following month, accompanied by any payment due. This includes VAT on imported services, which the importer must account for and remit. A default surcharge penalty applies for late filing or payment. As of March 2024, Malawi will introduce a mandatory VAT e-invoicing system, replacing existing fiscal devices, further details of which are expected to be released shortly.

General Information on VAT in Malawi

• "Value added" refers to the difference between a business's sales output and the cost of inputs. VAT is levied on this value added.
• Registered businesses act as collection agents for the Malawi Revenue Authority (MRA).
• VAT invoices must be issued for all taxable supplies and include specific details, such as the supplier and customer information, a description of goods/services, and the VAT amount.

This information is current as of 05 February 2025 and may be subject to change. You should consult with a tax advisor for the latest regulations.

Malawi offers a range of tax incentives to attract investment and stimulate economic growth. These incentives target various sectors and activities, including general business operations, specific industries, and exports. As of today, February 5, 2025, the following incentives are applicable, though it is important to consult the latest official sources for the most up-to-date information as policies might change.

General Tax Incentives

• Loss Carry Forward: Businesses can carry forward losses for up to six years to offset against future profits, reducing their tax liability during profitable periods.
• Capital Allowances: These allowances, including initial and annual allowances, offset the depreciation of business assets, reducing taxable income. Specific rates vary based on the type of asset. For the agricultural sector, special allowances exist for staff housing.
• International Transport Allowance: An additional allowance of 25% of international transport costs is available for non-traditional exports.

Sector-Specific Incentives

• Priority Industries: Designated priority industries, including agro-processing, energy generation and distribution, and mega-farms are eligible for incentives, including tax holidays (potentially up to 10 years) and duty-free importation of machinery and building materials. These designations are subject to change and have a sunset clause. Companies operating in priority industries must maintain a minimum of 30% local employees in management positions.
• Other Sector-Specific Incentives: Various incentives exist for other sectors, including tourism, mining, horticulture, information technology, and telecommunications. These include duty-free importation of qualifying capital goods and, for manufacturing, duty-free importation of raw materials. VAT is reclaimable at the standard rate (currently 16.5%), and specific goods may be VAT-exempt or zero-rated. An industrial rebate scheme grants duty-free importation of raw materials for qualifying industries.

Additional Incentives and Exemptions

• Capital Gains Exemptions: Exemptions from capital gains tax apply to transfers between spouses, transfers to trusts, disposal of a principal residence, shares held on the Malawi Stock Exchange for over a year, and disposal of personal assets.
• Other Exemptions: Severance pay up to K50,000 (due to redundancy or retrenchment) and interest income up to K10,000 for individuals are exempt from income tax.

Export Incentives

• Registered exporters are entitled to a 25% income tax allowance on taxable income derived from export sales.

Customs and Excise Incentives

• General and specific customs and excise incentives exist, ranging from duty exemptions on machinery for various sectors to specific incentives for approved operators in certain sectors under agreed conditions.

Application Procedures

The specific application procedures for each incentive vary. It is advisable to contact the Malawi Revenue Authority (MRA) or the Malawi Investment and Trade Centre (MITC) for detailed guidance and application requirements.

Tax Rates (2024/2025 Tax Year)

• Residents: Progressive rates ranging from 0% to 35%, with specific thresholds applying.
• Non-Residents: Flat rate of 15%.

Fringe Benefits Tax (FBT)

Employers (excluding the government) providing fringe benefits to employees are subject to FBT at a flat rate of 30% on the total taxable value of the benefits.

This overview provides a summary of tax incentives in Malawi as of February 5, 2025. It is crucial to consult with the relevant authorities for the latest details, specific requirements, and application processes for each incentive. Regulations and policies are subject to change, and staying informed is essential for maximizing the benefits of these incentives.