When calculating Malawi taxable income, book depreciation is disallowed and replaced by deductible annual capital allowances. In certain cases, initial or investment allowances may be claimed.

Annual Allowances

Calculation of annual capital allowances for assets owned by an enterprise is based on the straight-line or declining-balance methods.

The following outlines the annual allowance rates for various asset types using the straight-line method:

Industrial buildings, farm improvements and railways lines	5%
Staff Housing for manufacturing and farming business	5%
Farm fencing	10%
New commercial buildings exceeding MWK 100 million cost	2.5%
Light machinery	10%
Heavy machinery and installations	15%
Light commercial vehicles	25%
Trucks and tractors	33.33%
Motor vehicles	20%
Other assets	10% to 40%

When using the declining-balance method, the deduction is calculated using the rates above and multiplying by a coefficient of 1.5 to 2.5 depending on the useful life of the asset.

Initial Allowances

A company can elect to deduct an initial allowance in respect of capital expenditure incurred by the company in the production of income during the year of assessment on the construction, additions or alterations of farm improvements, farm fencing, industrial buildings, machinery, implements, utensils and railway lines. No initial allowance will be claimed in respect of private passenger motor vehicles and an asset upon which investment allowance has been claimed.

Initial allowances are available in the year of expenditure for the following asset types:

Industrial buildings, farm improvements and railways lines	10%
Articles, implements, machinery, and utensils	20%
Newly constructed commercial buildings above MWK 100 million cost	2.5%
Motor vehicles	20%
Farm fencing	33.33%

Investment Allowances

Certain capital expenditures for assets are eligible for an investment allowance in the first year of use of the asset. An investment allowance of 100% is granted to a manufacturing company on capital expenditure incurred for the purposes of trade on new and unused industrial buildings, and plant or machinery. For those used by one previous owner, the investment allowance is 40%. In cases of 100% investment allowance, no annual allowance may be claimed. A company carrying on mining operations is entitled to a 100% allowance of mining expenditure incurred in the first year of assessment.

A manufacturer who is eligible for the investment will, in addition, be given an allowance equal to 15% for investment in an area designated for the purpose of such additional allowance by the Minister.

Lease, Patent, Trademark, and Copyright Premium

The tax-deductible amount of a premium paid for the right of use or occupation of land or buildings, plant or machinery, patent design, trademark, copyright, or any other property of a similar nature is one of the following:

The amount of premium or consideration divided by the number of years for which the right of occupation or use is granted; or
Where the period for which the right of occupation or use is granted exceeds 25 years, the deduction is one-twenty-fifth of the premium or consideration.

The premium is tax-deductible only where the asset or right with respect to which the premium or consideration is paid is used for the generation of income. If a taxpayer acquires ownership of the asset or right, no further deduction of the premium or consideration is allowed from the date ownership is acquired.

Training Allowance

An additional training costs allowance of 50% of the cost incurred for an employee's training/education to obtain a degree, diploma, or certificate level (training costs are also fully deductible). The employee must be a Malawian citizen.

Transport Allowance

An additional 25% of international transport costs incurred by a company for its exports are an allowable deduction.

Mining Expenditure Allowance

A company carrying on mining operations is entitled to a 100% allowance of mining expenditure incurred in the first year of assessment. The effect of this allowance is that all mining expenditure incurred prior to the first year of assessment will be allowable in the first year of assessment. Mining expenditure incurred before operations commence is allowable as a deduction in the year of assessment in which mining operations commence. However, a company engaged in mining operations will not be eligible to claim any export allowance or any transport allowance for goods, materials, or products exported from Malawi.

Allowable Deduction Sale of Timber

If land is sold and if timber that is intended for sale is growing on the land, the market value of the timber is included in the seller’s taxable income. However, a deduction is allowed. If the land was acquired by the taxpayer for valuable consideration, the Commissioner-General apportions a reasonable portion of that consideration to the timber and this amount may be deducted. If no valuable consideration was given for the land, the Commissioner-General sets a reasonable value for the standing timber, which may be deducted.

Special Allowances

Malawi offers special tax allowances, which are:

Export allowance;
International transport allowance; and
Research expenditure.

Export Allowance

An allowance equal to 30% (increased from 25%, effective 22 November 2019) of taxable income from export of processed goods and 10% of taxable income from export of unprocessed goods is granted with respect to sales of goods that are classified as non-traditional exports. The Commissioner-General has issued a directive providing that the export allowance should be calculated on “taxable” export proceeds less export-related expenses. This remains an area of controversy with much debate surrounding the interpretation of the meaning of “taxable income.” Tea, tobacco, sugar and coffee do not qualify for this allowance.

International Transport Allowance

An allowance equal to 25% of the international transport costs with respect to non-traditional exports may be claimed. Tea, tobacco, sugar and coffee do not qualify for this allowance.

Research Expenditure

Expenditure that is not of a capital nature incurred by a taxpayer during the year of assessment on experiments and research relating to the taxpayer's trade is tax-deductible. Similarly, a tax deduction is allowed on payments done by the taxpayer to any scientific, educational society or other body of a public character approved by the Minister, if the taxpayer has stipulated that the sum must be utilized solely for the purpose of industrial research or scientific experimental work connected with the trade or the taxpayer.

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