International tax 102: Understanding the system
Understanding a country’s tax regime is a key element in the success of investment.
Anneri Lück - In my previous article dated 22 July 2020, I did an introduction on the four main topics why tax planning is important for your company when you are trading across multiple jurisdictions. In this article I will expand on why it is important to understand the tax system in your planned country of operation/trade.
Understanding a country’s tax regime is a key element in the success of your investment.
Corporate tax rate
This will most often be one of your biggest tax exposures. It is thus not uncommon for companies to be involved in tax planning to reduce their income tax exposure. It is important, though, that the tax planning is allowed within the tax laws and does not amount to tax evasion or avoidance.
Withholding taxes
The reduction to withholding tax rates on payments used to repatriate profits by means of dividends, interest, management fee and royalties, is an important benefit tax treaties provide to investors.
Another consideration is whether there are any local withholding taxes applicable on payments made between group companies in the same jurisdiction as this will also reduce the return on investment.
The cost of compliance
It is common for group companies to have a centralised finance team in one country (e.g. the company has operations in Namibia, but its finance team overseeing all finances is based in the United Kingdom).
With manual submissions, it may cause issues where no local management is in the country of operation. The company may be required to appoint someone in the country where submission is needed, which becomes an additional cost to the company that needs to be provided for.
Furthermore, having a manual submission means that documents can easily get lost and your personnel spend a great deal of their time in ques for submission. Another disadvantage may be the backlog on the revenue authorities’ system because of the fact that the returns should be captured manually.
E-filing, on the other hand, is much more convenient, saves time and you can do submissions from anywhere in the world.
Ease of repatriating funds
Investors would be more willing to invest in countries where, together with a favourable tax regime, it is easy to repatriate their funds out of the country upon disinvestment. Recently, Shoprite Holdings Ltd announced that they are withdrawing from the Nigerian market because of the difficulties to repatriate funds from Nigeria.
Whenever a jurisdiction is considered for new opportunities it is key to understand the exchange control environment with regards to repatriation of funds. In Namibia, repatriation of funds is fairly easy, provided that all the necessary approvals were obtained and processes were followed upon the investment of the funds into Namibia.
Anneri Lück is the senior manager: corporate tax at PwC Namibia. Contact her at [email protected]
Understanding a country’s tax regime is a key element in the success of your investment.
Corporate tax rate
This will most often be one of your biggest tax exposures. It is thus not uncommon for companies to be involved in tax planning to reduce their income tax exposure. It is important, though, that the tax planning is allowed within the tax laws and does not amount to tax evasion or avoidance.
Withholding taxes
The reduction to withholding tax rates on payments used to repatriate profits by means of dividends, interest, management fee and royalties, is an important benefit tax treaties provide to investors.
Another consideration is whether there are any local withholding taxes applicable on payments made between group companies in the same jurisdiction as this will also reduce the return on investment.
The cost of compliance
It is common for group companies to have a centralised finance team in one country (e.g. the company has operations in Namibia, but its finance team overseeing all finances is based in the United Kingdom).
With manual submissions, it may cause issues where no local management is in the country of operation. The company may be required to appoint someone in the country where submission is needed, which becomes an additional cost to the company that needs to be provided for.
Furthermore, having a manual submission means that documents can easily get lost and your personnel spend a great deal of their time in ques for submission. Another disadvantage may be the backlog on the revenue authorities’ system because of the fact that the returns should be captured manually.
E-filing, on the other hand, is much more convenient, saves time and you can do submissions from anywhere in the world.
Ease of repatriating funds
Investors would be more willing to invest in countries where, together with a favourable tax regime, it is easy to repatriate their funds out of the country upon disinvestment. Recently, Shoprite Holdings Ltd announced that they are withdrawing from the Nigerian market because of the difficulties to repatriate funds from Nigeria.
Whenever a jurisdiction is considered for new opportunities it is key to understand the exchange control environment with regards to repatriation of funds. In Namibia, repatriation of funds is fairly easy, provided that all the necessary approvals were obtained and processes were followed upon the investment of the funds into Namibia.
Anneri Lück is the senior manager: corporate tax at PwC Namibia. Contact her at [email protected]
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