The cost (including finance charges) of vehicles, machinery, equipment, and other articles used by the taxpayer to generate income is deductible in three equal annual allowances claimable from the date the costs were incurred and not only when the asset was taken into use. No apportionment is allowed where an asset is held for less than 12 months.
Buildings used by the taxpayer to generate income qualify for an initial allowance of 20% of erection costs in the year they are first brought into use. Thereafter, an annual allowance of 4% is deductible for the 20 following years. Additions to existing buildings (not alterations, improvements, or repairs) qualify for the same 20% and 4% deductions. Note that the allowance is calculated on the cost of erection and not the cost of acquisition. The allowance is also only calculated for a period of 21 years from the date of erection.
Registered manufacturers can claim 20% of the erection costs of the building in the year it is first brought into use, and 8% for ten years thereafter (see Manufacturing in the Tax credits and incentives section).
Mining exploration and initial development expenditure incurred before commencement of mining production are deductible in full in the first year that income is generated from the mine. Subsequent developmental expenditures are written off in three equal annual allowances.
Capital allowances may also be deducted with respect to patents, trademarks, leasehold improvements, etc.
A recovery or recapture of allowances previously claimed should be included in the gross income of a taxpayer in the event that the allowance is recovered or recaptured by way of disposal, withdrawal from trade for non-trade purposes, or removal from Namibia. The recapture is calculated at the market value of the asset.
The amortisation of goodwill is not deductible for tax purposes and should be excluded from calculating taxable income.
The Income Tax Act allows exploration and initial development expenditure to be deducted in full during the year in which the mine commences with production. All exploration expenses incurred before the commencement of mining is therefore deferred until such time that the mine commences production.
All other industries
The general deduction formula determines that only expenses incurred in the production of income that are not of a capital nature may be claimed for tax purposes. The Income Tax Act defines income as ‘income in any year or period of assessment’.
A deduction is allowed in respect of financing expenditure incurred in respect of any financing agreement for the acquisition of fixed assets utilised in ordinary trade activities.
The general deduction formula determines that only expenses incurred in the production of taxable income that are not of a capital nature may be claimed for tax purposes. Therefore, where the interest can be argued to be incurred in the production of income, the interest expense will be deductible.
Thin capitalisation legislation may be applied to interest paid on cross-border, related-party loans (see Thin capitalisation in the Group taxation section).
The Income Tax Act allows a specific deduction for bad debts, provided that the amount written off was previously included in the taxpayer's income.
Furthermore, the Income Tax Act prohibits the following deduction from taxable income:
“any loss or expense, the deduction of which would otherwise be allowable, to the extent to which it is recoverable under any contract of insurance, guarantee, security, or indemnity”.
Accordingly, where the bad debts are recoverable under insurance, the amounts are not deductible for tax purposes.
A specific deduction for donations is allowed, provided that it is made to a registered welfare organisation or an approved educational institution. It is a further requirement that a certificate should be issued by the welfare organisation/educational institution in respect of the donation and submitted with the entity’s tax return in order for it to qualify as a deduction. However, this deduction may not create or increase a tax loss.
Fines and penalties
In terms of practise applied by Inland Revenue, tax penalties and fines are not deductible for tax purposes.
Taxes levied on income are not allowed as a deduction.
Net operating losses
Assessed tax losses may be carried forward indefinitely if the company continues the same trade. Tax laws do not allow losses to be transferred to other members of a group, and anti-avoidance provisions may be triggered by transactions designed to transfer or exploit assessed losses.
If a company ceases to trade for a full fiscal year, its assessed losses are forfeited, regardless of subsequent activities. Assessed losses are also reduced in the event of a compromise agreement with creditors.
Namibian tax legislation does not provide for the carrying back of tax losses.
Payments to foreign affiliates
For information on payments to foreign affiliates, please refer to the Branch income section, Group taxation section, and Withholding taxes section.