New Dividend Withholding Tax

By Tilman Friedrich B Compt Hons, CA (Nam/SA), CFP®

The Ministry of Finance has proposed amendments to the Income Tax Act that will introduce a 10% dividend withholding tax on dividends paid by Namibian companies for comment. This development affects all companies declaring dividends and has specific implications for staff who participate in employee shareholding schemes or receive dividends through staff trusts.

1. The essence of the new tax

  • A 10% withholding tax must be deducted from all dividends declared by resident companies, unless the shareholder qualifies for one of the exemptions in the Act.
  • The company declaring the dividend is responsible for withholding and paying the tax to the Receiver of Revenue by the 20th of the following month.
  • The liability rests with the shareholder, but the company acts as the collecting agent.

2. Exemptions

Some shareholders who are paid a dividend are exempt, including:

  • The Government (national, regional, or local);
  • Namibian resident companies;
  • Certain tax-exempt institutions (section 16(1) entities);
  • Shareholders in a registered small and medium business (turnover below N$10 million), up to N$100,000 per shareholder per year.

3. Impact on companies

Companies must now:

  • Identify their shareholders and determine whether they qualify for an exemption.
  • Withhold 10% from dividend payments to non-exempt shareholders.
  • Submit returns and remit the withheld tax to Inland Revenue.
  • Update payroll and finance systems where staff trusts or employee shareholding schemes are in place, to ensure compliance.

Failure to withhold and pay over the tax exposes companies to penalties and interest under the Act.

4. Impact on staff shareholding schemes

Many companies reward employees through staff trusts or similar schemes that hold shares on behalf of workers. Under the new law:

  1. The company declares dividends – say N$1 million annually.
  2. A staff trust receives its share (e.g. 25% = N$250,000).
  3. Before the dividend payment, the company must withhold 10% (N$25,000) and pay it to Inland Revenue.
  4. The staff trust receives the net amount (N$225,000), which it then distributes to staff according to its trust deed.

 5. Key takeaway

  • Companies must prepare now to withhold 10% on dividends and file the required returns.
  • Staff trusts and other employee shareholding vehicles will not be exempt, meaning employees will see a reduction in the amounts available for distribution.
  • Transparent communication with staff will be important so they understand why their dividend share is slightly lower than before.

Conclusion

The new dividends tax represents a significant shift in Namibia’s tax landscape. While it enhances revenue collection for the State, it also places a new compliance burden on companies and reduces the net benefit to staff in employee shareholding schemes. Companies should review their structures, update systems, and clearly communicate the implications to both shareholders and employees.