Starting next year, Namibian shareholders will be subject to a 10% dividend tax whereas currently only non-resident shareholders are subject to shareholders’ tax.

This new tax will work in tandem with the reduction of corporate tax to 28% by next year.

The proposed introduction of the dividend tax aims to design a fairer and more equitable tax regime while aligning with regional peers and addressing tax evasion tactics.

Deputy executive director of finance Oscar Capelao says the proposed tax will help broaden the tax base, reduce inequality and tax evasion, and bring Namibia in line with regional peers.

“It will ensure that the wealthy get to pay their fairer share of taxes, contrary to the tax avoidance tactics currently being deployed due to 100% exemption on dividends,” said Capelao.

Additionally, this new policy will encourage businesses to reinvest profits back into their operations, contrasting with the current practice of some business owners to avoid paying taxes.

Currently in Namibia, dividends received by Namibian corporates, individuals, and trusts are exempt from dividend tax.

“Companies will now be subject to a lower corporate tax rate on taxable profits, and leaving more to reinvest in their business, the moment they withdraw that money as dividends, it will be taxed,” explained Capelao.

Capelao added that this will not strain small business owners, as just like the N$100 000 income tax exemption, there will be a tax exemption on the first N$100 000 of profit for businesses. Further , the tax amendments will provide for exemptions, such as dividends paid to Namibian resident companies, retirement funds, and other exempt persons.

Foreign companies will not be paying this tax because dividends declared to foreign shareholders are subject to non-resident shareholder’s tax.

Furthermore, Namibia is currently lagging behind other regional peers who have already implemented this type of tax.

REGIONAL PEERS

South Africa levies a 20% dividend withholding tax on dividends paid by resident companies and foreign companies listed on the Johannesburg Stock Exchange to shareholders.
The initial rate of the dividends tax was 15%. This rate was later increased to 20% for dividends paid on or after 2017.
However, there are exemptions, such as dividends paid to South African resident companies, retirement funds, and other exempt persons.
Implemented in 2021, Botswana charges a 10% dividend tax for locals and 15% for non-residents.
Meanwhile, Zambia charges 15% for local dividend payouts.
In Angola, dividends are taxed at 10%, and the tax is withheld at source by the paying entity.

GLOBAL OUTLOOK

According to data by PwC, Ireland has the highest dividend tax rate among the covered European countries at 51%.

Denmark and the United Kingdom follow, at 42% and 39.4%, respectively.

Bulgaria, Georgia, and Greece have the lowest tax rate at 5%, followed by Moldova and Ukraine at 6% and 6.5%, respectively.