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Income Tax Amendment Act – Act 15 of 2011, Gazette 4864 of 30 December effective 1 January 2012 for companies and 1 March 2012 for taxpayers other than companies, except paragraph 4 which is deemed to have come into effect on 1 March 2009.

This Act is effective 1 January 2012 for companies and 1 March 2012 for taxpayers other than companies, except certain changes to the regime with regard to withholding tax on interest, which is deemed to have come into effect on 1 March 2009.

In this newsletter we draw the readers’ attention to any action required to be taken. In a special newsletter on this Act circulated early January, more detail is provided, which can be accessed at this link to our website.

1. Employer Funded Policies

What to do?

Companies:

A number of retirement arrangements have been set up in the past capitalizing on a ‘loop hole’ in the Act. This allowed employers to deduct premiums paid in respect of life policies taken out on the lives of employees (e.g. funeral policies, keyman policies, group life schemes outside an approved fund etc.). The ‘loop hole’ allowed the policy proceeds due in the event of death of any employee to be paid to the employee’s dependents or nominees tax free.

Policy proceeds upon the death of an employee are now taxable in the hands of the employer, if the employer claimed any premiums in respect of the relevant policy for tax purposes, in the past. An employer who maintains such a life assurance scheme needs to introduce a new employment policy to define its intention regarding the impact of tax on the gross proceeds. i.e. will the employer carry the cost or will the cost be passed on to the beneficiary/ies? If the tax is to be recovered from the gross proceeds before affecting payment to any beneficiary/ies, procedures and controls need to be introduced to ensure that the gross proceeds are reduced by the tax effect before paying a benefit.

2. Commutation of Small Pension Fund Annuities

What to do?

Trustees:

Trustees need to consider whether they want to draw their pensioners’ attention to this opportunity, recognizing that the payment of every annuity normally attracts a fee either based on the annuity capital, or a transaction based fee or both.

3. Education Policies

What to do?

Companies:

This means that where one of your staff members claims premiums towards an educational policy against the taxable income administered by your company, we suggest that you consider the following:

  1. the employee to provide a copy of the policy to prove that the policy complies with the definition per the Act;
  2. your HR/payroll department to diarise the maturity date of the policy and to introduce a strict routine to follow up on maturity date;
  3. the employee to sign an undertaking, to inform HR/payroll department immediately upon cashing in the policy proceeds and to indemnify your company against any penalty as contemplated in section 11A of schedule 2, should he/she fail to inform your company immediately upon having cashed in the policy proceeds.

Individuals:

To ensure that proceeds from an education policy are not subjected to income tax, the employee needs to ascertain that the purpose of the policy is to provide capital for -

  • education or training at an educational institution of public character;
  • the purpose of obtaining a post-school qualification.

4. Withholding Tax on Interest

What to do?

Individuals:

For financial planning purposes, take into account that there is no withholding tax on bills and bonds issued by Government, regional and local authorities or on negotiable instruments issued by a local bank.

5. Withholding Tax on Services Payments to Non-residents

What to do?

Companies, trustees and individuals:

Ascertain whether you have any business dealings with any foreigner, where no double taxation agreement exists with Namibia (note that SA has a double taxation agreement with Namibia). If you do, ascertain whether these dealings fall into the ambit of the definitions of “entertainment fee”, “management or consultancy fee” or director’s fees. If they do, inform your business associate that you will be obliged to withhold 25% as from 1 January 2012 (all companies), respectively 1 March 2012 (all tax payers other than a company). Institute systems and procedures to identify taxable services, separately record the tax withheld from the gross amount, ascertain that all amounts withheld are paid over to Inland Revenue on or before the 20th of the month following the month in which any amount was withheld and complete the required form to accompany such payments.

Trustees and directors of unit trust management companies take note that funds and unit trusts are defined to be a ‘company’ and are therefore required to start deducting withholding tax as from 1 January 2012.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

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