NAMIBIA Law and Practice Contributed by: Nadine van Schalkwyk, Ralph Strauss, Bonita R de Silva, Ivo dos Santos, Chrissie Turck, Jané Louw, Nicole Freygang and Natasha Nekuta, Dr. Weder, Kruger & Haikali Inc.
zones framework established under the Special Eco - nomic Zones Act 24 of 2018. Qualifying enterprises benefit where they undertake manufacturing, assem - bly, packaging, or break-bulk operations primar - ily focused on exports outside the Southern African Customs Union, subject to requirements to generate foreign exchange earnings and create employment Under the Income Tax Act 24 of 1981, each regis - tered or incorporated entity must file its own tax return independently. This framework operates strictly on a separate-entity basis, thereby prohibiting tax consoli - dation in Namibia. 5.5 Thin Capitalisation Rules and Other Limitations Since 1 January 2024, Namibia has applied thin capi - talisation and interest limitation rules to certain enti - ties, in terms of Section 95A of the Income Tax Act 24 of 1981. These rules restrict excessive leveraging by foreign, cross-border and related-party financ - ing arrangements to prevent erosion of the domes - tic tax base. Namibia currently uses a fixed limitation on interest deductions rather than the traditional 3:1 debt-to-equity ratio. 5.6 Transfer Pricing opportunities in Namibia. 5.4 Tax Consolidation Namibia’s transfer pricing framework is contained in the Income Tax Act 24 of 1981. In September 2006, the Directorate of Inland Revenue issued Practice Note 2 of 2006 (PN 2/2006), which provides guid - ance on the application of the arm’s length principle to related-party transactions and the interpretation of the transfer pricing provisions. Namibian transfer pricing legislation is broadly based on guidance of the Organisation for Economic Co- operation and Development (OECD) Transfer Pric - ing Guidelines for Multinational Enterprises and Tax Administrations. NAMRA may impose penalties where a taxpayer’s tax - able income is understated as a result of prices that were charged in affected transactions, which were not carried out at arm’s length.
Enforcement of transfer pricing laws is a priority for the Ministry of Finance, which works with, amongst others, the Finnish Revenue Authority and the African Tax Administration Forum. Taxpayers should maintain transfer pricing documen - tation showing how prices are determined in line with arm’s length standards and documentation must be available to NAMRA upon request. A transfer pricing study can reduce the risk of adjustment, shift the bur - den of proof, and protect against penalties. NAMRA may reprice transactions to arm’s length val - ues and impose severe penalties of underpaid tax interest, together with interest on unpaid amounts. The Commissioner may issue additional assessments at any time. Investors should take cognisance of the following risks: • Transfer pricing, thin capitalisation, and anti-avoid - ance rules carry heavy penalties. • Complex procedures in mining, agriculture, and manufacturing can delay projects. • Cross-border exchange payments are closely monitored by the Bank of Namibia and NamRA. • Mining (diamonds, uranium) contributes more or less 50% of export earnings. Global price swings directly impact profitability. • Agriculture and tourism are vulnerable to climate shocks and global downturns. • Namibia’s population is around 3.5 million, which limits consumer demand. • High interest rates and inflation volatility are addi - tional risks: Financing costs can erode margins. • Namibia’s dollar is pegged to the South African rand, exposing businesses to rand volatility. • 37% of Namibians avoid investment risks, pre - ferring low return savings products, which limits domestic capital formation. • Reliance on energy imports from South Africa makes Namibia vulnerable to regional power short - ages. • While ports (Walvis Bay) are strategic, inland trans - port costs remain high. • Limited broadband penetration affects modern business operations.
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