Malawi applies a territorial tax system. Resident companies are subject to tax only on income sourced or deemed to be sourced in Malawi. Income derived through a “trade” in Malawi is deemed to be sourced in Malawi. The term trade covers, in particular, any profession, business, occupation or venture.

Assessable income is defined as gross income as reduced by expenditure, not of a capital nature, that is wholly and exclusively incurred for the production of taxable income unless specifically disallowed.

Malawi tax legislation is uniformly applied to all the different types of persons who derive income from a Malawian source or deemed source. According to tax legislation, a person includes an individual, a partnership, a company, a corporation, a trust, a club, a society, an organization, a public authority or an association. Income, in relation to any year or period of assessment is defined as the total amount in cash or otherwise, including any capital gain, received by or accrued to a person from a source within or deemed to be within Malawi.

Income Deemed to Arise in Malawi

Arrangements to have payments made outside Malawi do not automatically exclude the income from being considered of a Malawi source and taxed in Malawi. Malawi tax legislation expressly provides that income received by any person, regardless of where the person is situated, will be deemed to have been received or accrued to the person from a source within Malawi in the following situations:

Remuneration for services rendered in Malawi, whether payment is made by residents in or outside Malawi;
Pension or annuity received for services rendered in Malawi;
Dividend attributable to the taxable income of a company incorporated in Malawi;
Amounts incurred, claimed, or claimable in connection with a permanent establishment in Malawi, regardless of the place of residence of the recipient, or the place of payment, of such amount;
Foreign exchange gain or foreign exchange loss realized in connection with a permanent establishment in Malawi;
Capital gain or capital loss realized in respect of tangible property located in Malawi or property representing an interest in a company incorporated in Malawi; and
Interest not charged on a loan by a lender to another person. The deemed interest on such a domestic loan is charged at the prevailing bank interest plus 5%, while the foreign loan is charged at the prevailing London Interbank Offered Rate (LIBOR) plus 5% on the US dollar equivalent of the loan.

Dividends

Dividends received by a resident company from another resident company are subject to withholding tax which is the final tax.

Capital Gains

Capital gains generally form part of the taxable income and are subject to tax at the standard corporate tax rate applicable to the particular entity.

Where the asset qualified for a capital allowance, the gain is determined as the difference between the sale price and the written down value. Otherwise, the gain is determined as the difference between the sale price and the cost or value at acquisition. For the purposes of determining the capital gain, the acquisition price is adjusted for inflation as per the consumer index relevant to the year of acquisition.

Capital gains on the sale of shares that are listed on the Malawi stock exchange are not taxable provided they are held for at least one year prior to disposal.

Capital losses on assets that qualified for a capital allowance can be offset against other income. In contrast, capital gains on assets not eligible for capital allowances may only be offset against capital gains (or deducted during a cessation of business).

Capital Gains Rollover Relief

No capital gain is recognized on the disposal of a business asset, if the gain is used to acquire a qualifying replacement asset similar, or related in service or use, to the asset so disposed. The taxpayer must acquire the qualifying replacement asset within 18 months from the date of disposal and must also declare these transactions in the corporate tax return.

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