Malawi tax: Transfer pricing and turnover tax rules introduced

The 2009/2010 Malawi budget includes measures that introduce the country's first transfer pricing rules and a new turnover tax. The measures, which have been passed into law, are effective as from 1 July 2009.

The transfer pricing law will provide a mechanism to address the shifting of business profits from one taxing jurisdiction to another, with the tax authorities given power to deem profits to have accrued in situations where non-arm's length transfer pricing is believed to exist. A new section 127A has been inserted into the Taxation Act to provide a legal instrument for addressing transfer pricing issues; regulations (which likely will follow the OECD Guidelines) are expected to be issued in due course by the tax authorities.

A turnover tax, at a rate of 2%, will be payable by any person on business income where the annual turnover exceeds MWK 2 million but does not exceed MWK 6 million. Turnover tax will not apply in respect of the following:
- Rental income;
- Management fees;
- Training fees;
- Income of incorporated companies; and
- Income subject to a final withholding tax.

A person who qualifies to pay turnover tax may elect, by writing to the Commissioner, not to be subject to the tax, in which case the normal provisions of the Taxation Act would apply.