Foreign tax credit
Malawi does not have a provision for recognition of a foreign tax credit because the taxation regime is based on source.
Exporters, including those manufacturing in bond, are entitled to claim additional tax allowances for non-traditional exports:
- On the export of non-traditional products, there is a 25% tax allowance on taxable income derived from exports.
- There is a 25% transport tax allowance on international transport costs for non-traditional exports. Traditional exports are tea, coffee, cane sugar, and unmanufactured tobacco and tobacco refuse.
Export allowances may not be claimed in respect of exports from mining operations.
There is a 100% investment allowance on new and unused industrial buildings, plant, and machinery for taxpayers in the manufacturing industry. A 40% investment allowance for used versions of the same items is also applicable.
Farming operations receive a 100% allowance with respect to expenditures incurred during any year of assessment on the following:
- Stumping, levelling, and clearing of land.
- Work in connection with the prevention of soil erosion.
- Aerial and geophysical surveys.
- Water control work, including any canal, channel, dyke, furrow, and any flood control structure, whether or not of a permanent nature.
- Water conservation work, meaning any reservoir, water dam, or embankment constructed for the impounding of water. In the case of water conservation work, the Taxation Act limits the amount deductible to amounts actually paid, where the farmer incurs a liability in terms of any law relating to natural resources.
Where a farmer derives taxable income from growing timber, the farmer may elect that the taxable income is determined in accordance with the following rules:
- Carryforward the cost of planting the timber until the timber reaches maturity.
- Add annually to the cost of planting the timber an amount calculated as 5% of the cost of planting the timber until the timber reaches maturity.
- When the timber is sold, a proportionate amount of the total of the carryforward cost and annual added cost is deducted from the proceeds.
- In each year of assessment, the annual added cost is treated as taxable income in the hands of the farmer.
A farmer may not deduct any expenditure that has been recovered through a subsidy or claim a capital allowance on any assets where the expenditure has been recovered through a subsidy.
Mining operations receive a 100% allowance with respect to mining expenditures incurred during any year of assessment. Mining expenditures are defined as capital expenditures incurred in Malawi by a person carrying on or about to carry on mining operations in Malawi:
- In searching for or in discovering and testing or in winning access to deposits of minerals.
- In the acquisition of or of rights in or over such deposits, other than the acquisition from a person who has carried on mining operations in relation to such deposits.
- In the provision of plant and machinery and industrial buildings that would have little or no value to such person if the mine ceased to work.
- On the construction of any buildings or works that would have little or no value if the mine ceased to be worked.
- On development, general administration, and management prior to the commencement of mining operations.
Persons engaged in mining operations are not entitled to claim the export tax allowance on non-traditional exports or the 15% transport tax allowance on international transport costs for non-traditional exports.