Malawi
Overview
VAT was introduced in Malawi on 1 October 2002 to replace surtax, and its imposition is the Value Added Tax Act.
The Malawi Revenue Authority administers VAT and the head of VAT administration is the Commissioner General.
Release date: May 2023
Rates and scope |
VAT is levied at the standard rate of 16.5%. Zero-rated supplies are charged at 0%. Exempt supplies are not subject to VAT. VAT is levied on:
VAT will be paid:
There are a few exempt and relief supplies that fall outside the scope of the VAT system. |
VAT registration |
Compulsory registration A person is registrable if:
A person who is not registered, but is liable to be registered, is a taxable person from the beginning of the tax period immediately following the period in which the duty to apply for registration arose. A person must apply for registration within 30 days of becoming qualified or having reason to believe that he will qualify and upon the acquisition of an Electronic Tax Register. The Commissioner General notifies a taxable person when registered and issues a certificate of registration which is exhibited at the principal place of business. |
Voluntary registration Any business with a turnover below the registration threshold amount may apply for voluntary registration to the Commissioner General who shall notify the person when registered and issue a certificate of registration. |
Group registration A group of taxable persons may, with the approval of the Commissioner General, be treated as one designated taxable person for VAT purposes. |
Non-residents Non-residents do not qualify for VAT registration. |
Deregistration A taxable person must apply in writing for deregistration within 30 days of ceasing to carry on business in relation to which a registration was made. The registration of a taxable person will be cancelled where the Commissioner General is satisfied that the registered person no longer carries on business. A registered person may also apply for deregistration when it no longer meets the requirements for registration. Any deregistration will take effect from the end of the tax period in which the registration is cancelled. |
Output tax |
Standard rated supplies The standard rate for VAT is 16.5 per cent, calculated on the value of taxable supplies or imported services. Prices are normally quoted exclusive of VAT. However, in certain circumstances prices may be quoted inclusive of VAT. |
Exempt supplies Supply of exempt goods and services is an exempt supply and therefore not subject to VAT. Exempt supplies are classified in conformity with the harmonised commodity description and coding system also known as ‘The Harmonised System’. Exempt supplies include specific items such as:
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Zero-rated supplies Zero-rated supplies include, but are not limited to:
Zero-rated items, other than exports of goods and services and goods shipped as stores on aircraft and vessels leaving the territory of Malawi, are defined by reference to specific Customs Tariff Headings and Customs Procedure Codes. Reference should be made to the actual Customs Tariff Headings and Customs Procedure Codes to determine whether an item is zero-rated. |
Input tax |
Deductible input tax At the end of the tax period a taxable person may deduct, from the output deductible due for the period, Value Added Tax on goods and services purchased in Malawi or goods and services imported by him or her and used wholly, exclusively and necessarily in the course of his or her business. The maximum period for claiming input tax is 12 months from the date the deduction accrued. |
Input tax expressly denied Input VAT is not claimable in the following situations:
The minister may prescribe other classes, types or description of goods and services on which input tax is not deductible. During Malawi Revenue Authority tax audits, input VAT claimed on transactions such as residential property expenses incurred by employers and security costs at residential properties is sometimes disallowed and penalties charged. The claiming of such input tax is not excluded by the VAT Act and no order for such has been gazetted. If a taxpayer receives a claim for the recovery of input tax incorrectly claimed, and the expense does not fall within the categories above, the taxpayer is advised to request a copy of the relevant gazette. If no gazette is produced, the taxpayer may consider following the appeal procedures. |
Partial exemption Where a taxable person makes both taxable and exempt supplies, but cannot directly attribute the input tax to the taxable or exempt supplies, the taxpayer may deduct as input tax an amount that bears the same ratio to the total VAT incurred as the taxable supplies bear to the total supplies, applying an apportionment formula where:
If taxable supplies amount to less than 5% of total supplies, the taxpayer may not claim any input tax for the period. If taxable supplies amount to more than 95% of total supplies, the taxpayer may claim all input tax for the period. |
Preregistration input tax A taxable person who is registered from a specified effective date and who has in stock on the effective date goods on which VAT has been paid, may claim credit or refund of the VAT, provided that:
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Post-registration input tax A taxable person whose registration has been cancelled is regarded as having made a taxable supply of all goods on hand (including capital goods) and will be liable for output tax, at the time of deregistration, on all goods in respect of which he or she received input tax credit. The output tax payable is based on the open market value of the goods at the time of deregistration. |
International trade |
Imports VAT is payable by the importer on the importation of goods and services. |
Exports The export of goods and services is zero-rated for VAT. If exports exceed 70% of the taxpayer’s total supplies, the Commissioner General may refund the excess input tax within the accounting period, although refunds are, in practice, difficult to obtain. There is no specific provision regarding refunds to foreigners. |
Place, time and value of supply |
Supply Supply of goods or service is any arrangement under which the owner of the goods parts with or will part with possession of the goods, including provision of goods by sale, barter, lease, transfer, exchange, gift, or similar disposition, and appropriation to own use. |
Place of supply The place of supply of goods is the place from which the goods are supplied. The place of supply of a service is the place of business of the supplier or the place from which the service is supplied or rendered. |
Time of supply Supply of goods or services occurs:
In any other case, the earliest of the date on which:
Where supplies are made on a continuous basis or by metered supplies, the time of supply shall be the determination of the supply or the first metre reading following the introduction of VAT and subsequently at the time of each determination or metre reading. Supply of goods under a hire purchase agreement or financial lease occurs on the date the goods are made available under the hire purchase agreement or lease finance. Where goods are supplied under a rental agreement or goods or services are supplied under an agreement or written law which provides for periodic payment, the goods or services shall be treated as successively supplied for successive parts of the period of the agreement or as determined by that law, and each successive supply occurs on the earlier of the date on which payment is due or received. Where two or more payments are made or are to be made for a supply of goods or services, other than a supply to which each payment shall be regarded as made for a separate supply to the extent of the amount of the payment on the earlier of the date the payment is due or received. Where the supply of goods or services is ancillary to another supply, time of supply of the ancillary supply shall be deemed to be the same as the time of supply for the main goods or services. |
Value of supply The value of a supply is:
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Supply of goods or services by an agent Supply of goods or services made by a person as an agent for another person who is the principal is a supply by the principal. However, it is provided that where a supply of goods or services is made by an agent, on behalf of the principal who is resident outside Malawi, the supply of goods or services shall be deemed to be made by the agent. |
VAT compliance |
Returns and payment of VAT A taxable person must account for VAT on a prescribed form not later than the 25th day of the month immediately following the month to which the return relates. The VAT return is in a prescribed form and states the amount of VAT payable for the tax period, the amount of input tax credit or refund claimed, and such other matters as may be prescribed. |
Penalties and interest A taxable person who fails to submit to the Commissioner General a return on the due date is liable to a penalty of MWK300,000 (±USD400) for companies and MWK75,000 (± USD 100) for individuals for the first month and a further penalty of MWK50,000(±USD65) for companies and MWK20, 000 (±USD25) for individuals for each month or part thereof during which the failure continues. A taxable person or withholding agent who fails to pay any value added tax payable by the due date shall be charged interest at the prevailing bank rate plus one-quarter of that rate for a month after the date on which it is payable. Properly charged penalty and interest not paid by the due date shall attract further interest in the same manner as interest charged on the unpaid value added tax. Any penalty and interest charged and remaining unpaid by the due date shall be recoverable as a debt. There is no interest on delayed refunds by the authority. Penalty and interest can be waived at the discretion of the Commissioner General on application and in the event of voluntary disclosure. |
Refunds A refund claim may be made if the return for three consecutive months shows that a refund is due. Such refunds must be made within 30 days of receipt of the application for refund. In practice it is very difficult to obtain a refund of VAT, and claims remain outstanding for some time, generally up to six months. In practice, the VAT refund can be used to settle other tax liabilities. If exports exceed 70% of the taxpayer’s total supplies, the Commissioner General may refund the excess input tax within the accounting period. However, exporters suffer the same problems in obtaining the actual refund as other business entities. |
Objections and appeals A person dissatisfied with the decision of an officer, other than the Commissioner General, may appeal to the Commissioner General within 30 days of the notice of the decision being served on the taxpayer or the taxpayer becoming aware of the decision. The appeal must be in writing, detailing the grounds of the appeal and supported by relevant supporting documents. The Commissioner General must decide on the appeal within 30 days of receipt of the appeal. A person dissatisfied with the decision of the Commissioner General may lodge an appeal to any court of a resident magistrate. The appeal must be lodged within 30 days of notification of the Commissioner General’s decision. Unless given leave by the court, no appeal will be heard unless all returns due have been submitted and all VAT assessed or due has been paid. After hearing the appeal, and if the appellant is found to be entitled to any refund of value added tax, the interest shall be paid on the refund at the prevailing bank rate from the date of the judgement. The VAT Act does not specify any appeal procedures where the taxpayer is dissatisfied with the resident magistrate’s decision. In such an event, taxpayers are advised to obtain immediate legal advice. |
VAT records |
Tax invoices A taxable person shall issue to customers an electronic tax register generated invoice or tax invoice in such form as prescribed and shall upon issuing an electronic tax register invoice, retain a copy of the tax invoice in a serial number order. A proper tax invoice should include:
There are no specific rules regarding the language on tax invoices, however, English is normal for business transactions. Prices are often quoted in foreign exchange, with the amount being payable in Malawian kwacha (MWK). A tax invoice may be issued by the supplier (principal) or the agent, but the supplier retains responsibility. |
Credit notes and debit notes The original tax invoice may be incorrect when:
Where a tax invoice has been issued and the amount shown as VAT charged on the tax invoice exceeds the VAT properly chargeable, the taxable person making the supply must issue a credit note to the recipient of the supply. Where a tax invoice has been issued and the VAT properly chargeable exceeds the amount shown as VAT charged on the tax invoice, the taxable person making the supply must issue a debit note to the recipient of the supply. |
Record-keeping Every registered person is required to keep the following records:
These records and books of account must be produced at such place and time as the Commissioner General may require and may be kept in electronic or scanned format, but original documents may be required at the request of the authorities. The records must demonstrate adequately the completeness of supplies and accuracy of related VAT and the entitlement to claim and accuracy of any VAT claimed. The records and books may not be destroyed within a period of less than six years. They may be kept outside of Malawi as long as they can be produced in Malawi when necessary. |
Specific VAT rules |
Bad debts VAT relief on bad debts may be claimed if the supplier has obtained a court judgement for the debt or can show that all legal means of pursuing the debt have been exhausted. |
Land and buildings VAT is not chargeable on the sale or rental of residential property. VAT is chargeable on the sale or rental of non-residential property. |
Leasing Leasing or letting of goods on hire is subject to VAT. |
Second-hand goods The supply of second-hand goods is subject to VAT if supplied by a taxable person. Exports of second-hand goods are zero-rated. Input tax may be claimed on the acquisition of second-hand goods. |
Tourism industry Designated shops or outlets are accorded tax-exempt status, e.g., duty-free shops at airports. There are no other exemptions for tourism. |
Transfer of a business The authority must be notified within 30 days of cessation, sale, change of location, material change in the business or material change in ownership. |
Use of banks The Commissioner General has entered into an agreement with several commercial banks in Malawi to receive value added tax payments on its behalf. |
Warranty repairs VAT is charged on the importation of goods. Services rendered to a foreign company are taxable unless the supply is a zero-rated export. |
Other indirect taxes |
Import duty Import duty is applicable at various rates, depending on the nature and the source of the item. |
Excise duty Excise duty applies to qualifying goods produced and manufactured in Malawi and qualifying goods imported into Malawi. |
Conveyancing Conveyancing applies to land and buildings situated in Malawi. |
Stamp duty Stamp duty is charged at 3% on absolute conveyance or vesting of real property or agreement for sale. Other rates apply depending on the nature of the matter. The transfer of shares is not subject to stamp duty. |
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