25 June 2019

Namibia: Withholding Tax Explained

Citizens of all countries have an obligation, by regulation, to contribute to and invest in the development of their country by paying taxes.

Taxes are utilised for the development of infrastructure, the provision of health and social services, national defence, education and so forth. The most popular forms of taxes on individuals include income tax, collected monthly in the form of Pay-As-You-Earn (PAYE) and Value Added Tax (VAT) on goods and services purchased.

Withholding tax on interest (WTI) collects taxes on returns from interest-bearing investments. Previously, interest income was to be included as part of annual income tax, and taxed at the marginal tax rate.

Institutions that offer interest-bearing investment products such as deposits and unit trusts are required by law to withhold 10% tax on interest earned by individuals and foreign companies, and to pay it over to Inland Revenue. WTI does not apply to Namibian companies, as defined in the Income Tax Act, as interest income is taxed as part of a Namibian company's annual income tax.

Also known as retention tax, WTI is a form of tax where tax is deducted from interest before distributions are made to the individual. The individual receives a 'net-of-tax' amount, and has no further tax obligation towards Inland Revenue on this interest received. The bank or financial institution is responsible for payment of WTI to Inland Revenue. Where WTI is withheld by institutions, individuals who are employed full-time and earn salaries are required to submit a tax return form to Inland Revenue once a year. In certain instances, the WTI must be reflected on the income tax return.

Regarding the interest and dividends received on Namibian unit trusts, the income tax return can be completed as follows:

- Local dividends: Add this to Schedule 21: Dividends (Not Subject to Taxation) in the line 'Dividends received from Namibian sources'.

- Local interest: Exempt for Individuals: Add the combined value in Schedule 20: Namibian Income Not subject to Taxation in the line 'Other Income (excluding dividends)'.

The 10% WTI withheld by financial institutions affords individuals peace of mind, knowing that they do not have to concern themselves with paying taxes on interest income in future.

* James Chapman is the chief financial officer at Bank Windhoek.

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