Namibia, Republic of

No taxation of combined operations is allowed in Namibia where operations are conducted in a group.

Transfer pricing

The Minister of Finance confirmed that enforcing transfer pricing laws are high on their agenda and that they are working with, amongst others, the Finish Revenue Authority and the African Tax Administration Forum.

Namibian transfer pricing legislation is aimed at enforcing the arm’s-length principle in cross-border transactions carried out between connected persons. It is based on guidance set out by the Organisation for Economic Co-operation and Development (OECD) Transfer Pricing Guidelines for multinational enterprises and tax administrations.

The objective of the transfer pricing legislation is to provide taxpayers with guidelines regarding the procedures to be followed in the determination of arm's-length prices, taking into account the Namibian business environment. It also sets out the Minister of Finance's views on documentation and other practical issues that are relevant in setting and reviewing transfer pricing in international agreements.

The transfer pricing legislation is essentially aimed at ensuring that cross-border transactions between companies operating in a multinational group are fairly priced and that profits are not stripped out of Namibia and taxed in lower tax jurisdictions. The legislation achieves this by giving the Minister of Finance (who essentially delegates to the Directorate of Inland Revenue) the power to adjust any non-market related prices charged or paid by Namibian entities in cross-border transactions with related parties to arm's-length prices and to tax the Namibian entity as if the transactions had been carried out at market-related prices.

In terms of the normal penalty provisions of the Income Tax Act, the Directorate of Inland Revenue may levy penalties of up to 200% on any amount of underpaid tax. Consequently, the Inland Revenue may invoke such provisions in the event that a taxpayer’s taxable income is understated as a result of prices that were charged in affected transactions, which were not carried out at arm’s length. Further, interest will be charged on the unpaid amounts at 20% per annum.

Thin capitalisation / limitation on interest deductions

Previously, a deduction of any excess interest expenses paid to non-resident related party and any realised foreign exchange losses were disallowed if the debt-to-fixed capital ratio from the foreign shareholders (and related parties) exceeds a ratio of three-to-one. 

Applicable to all entities with financial years commencing on or after 01 January 2024, the 3:1 debt to equity ratio requirements in determining thin capitalisation is replaced with a fixed limitation on interest deductions to the extent that the net interest exceeds 30% of the connected person’s tax EBITDA and the net interest expense exceeds N$3million. I.e if the net interest expense does not exceed N$3million, this section will not apply.

Interest deductions not allowed for the current year year is allowed to be carried forward for 5 years in respect of any taxpayer and 10 years for entities involved in mining, petroleum or green hydrogen industries. 

The term “connected person” is now defined as “any person…has control over another person, or where both persons are under control of the same person…” The definition includes an extensive list of when persons will be regarded as being “connected” for purposes of Section 95A and also provides for instances when a person will be regarded as having “control over another person”. 

The section applies to the Petroleum Taxation Act, however, banking institutions and registered insurers / re insurers are exempt. 

Controlled foreign companies (CFCs)

CFC rules are not applicable in Namibia.