KPMG: Namibian transfer duties

What is transfer duty all about?Transfer duty is an indirect tax imposed on the transfer of ‘property’. Transfer duty is also imposed where the value of property is increased as a result of the renunciation of an interest or restriction upon the use or disposal of property.‘Property’ includes land and any fixtures thereon; as well as any real rights in land such as a usufruct or bare dominium (Huxham and Haupt 2009, 891). In addition any right to mine minerals and a lease or sublease of such right is also included in the definition of ‘property’. It follows that the sale of a mineral licence would be subject to transfer duty. It is interesting to note that the gross proceeds from such a sale will also be subject to income tax. Different rates apply to different persons. Persons other than natural persons (companies and trusts) pay transfer duty at a rate of 12% of the value (where no consideration is payable) or the amount of the consideration. Are we subject to double or even triple tax?The sale of commercial immovable property is subject to VAT at the standard VAT rate. The sale of residential immovable property is subject to VAT at 0%. Even though VAT is effectively not charged on such a transaction, technically VAT is still imposed, just at a rate of 0%. Transfer duty would be imposed on the sale of commercial immovable property or residential immovable property. As a result such transactions are subject to double tax. Our South African neighbours have an exemption from transfer duty for the transfer of property that is subject to VAT. There has however been no indication from the Namibian Inland Revenue Authority (“NIRA”) whether such an exemption is being considered. Not only could the sale of property transaction be subject to VAT and transfer duty, it can also be subject to stamp duty. Persons, including trusts, other than natural persons pay stamp duty at a rate of N$12 for every N$1 000 or part thereof. In 2013 both the transfer duty and stamp duty rates were decreased. The Minister of Finance said in her Budget Statement that this decrease was proposed to promote the purchase of property by Namibians. This notwithstanding, the purchase of property effectively results in three layers of indirect tax relating to one transaction. The VAT is payable by the purchaser (the purchaser could claim the input VAT if registered for VAT), the transfer duty is also payable by the purchaser and the stamp duty is payable by the seller. This is on the back of soaring property prices in Namibia. As with the difficulty created by the imposition of VAT as discussed above, there has been no indication as to whether this third layer of indirect taxes is being reconsidered by NIRA. What about where effective ownership does not change?Internationally, different tax regimes provide different levels of relief in respect of transactions within a group of companies. These may include amalgamations (the disposal of all the assets of one entity to another), intra-group transactions (the disposal of an asset by one group company to another group company) and transactions relating to liquidation, winding up and deregistration (Section 44, 45 and 47 of the South African Income Tax Act No 58 of 1962). This is based on the view that a transaction can be tax-free where the shareholders have retained a substantial interest in the assets transferred. In such circumstances it is the understanding that the assets are transferred to an entity that can use them most efficiently for business purposes (South African Second Revenue Laws Amendment Act 2001, Explanatory Memorandum). Although there is an exemption on the transfer of property from a foreign entity to its Namibian subsidiary under certain circumstances, this does not address the question of transactions within a group. This is an important consideration to allow companies to structure their affairs within the group in such a way that makes sense commercially. Although suggestions have been made to NIRA regarding group restructurings no feedback has been received as to whether we could see group relief provisions being introduced.The Minister of Finance did however indicate at the 2014 Private Sector Budget Luncheon (the product of a successful partnership between KPMG, Simonis Storm Securities, Prime Focus Magazine and the NCCI held on 21 February 2014) that there will be a complete review of the tax legislation currently in force.What can we expect going forward?Whether the proposed review of the tax legislation will extend to the Transfer Duty Act is uncertain, especially in light of the redrafting of the 2012 Transfer Duty Amendment Bill (“the Amendment Bill”) after consultation with the public. One of the key amendments proposed in the Amendment Bill was the imposition of transfer duty on the sale of shares or member’s interest in an entity which holds property. This will result in transfer duty payable on the sale of shares in a company or interest in a close corporation not only holding immovable property but also mineral licences. The amendment seeks to close a loophole that has been used for years by taxpayers to organise their tax affairs in such a way that transfer duty is not payable on the transfer of property held in a company or close corporation. The workings of the Amendment Bill however resulted in some absurd implications such as transfer duty payable on the transfer of listed shares. This means that each transfer of the shares of an entity in which a certain percentage of the value of the share is attributable to property (including mineral licences) would be subject to transfer duty. The administration for such an implication could not only be very time-consuming and frustrating but may end up being very costly. It is encouraging to see that NIRA has taken the comments from the relevant stakeholders to heart and we should see a new Amendment Bill within this year which specifically exempts the transfer of shares listed on the NSX. There has however been talk of introducing a Securities Transfer Tax for such listed shares. We suspect that NIRA will be investigating this further as part of its tax reform initiatives.Company profile: KPMGTax is constantly evolving, on a global scale. Organisations of all sizes, both locally and internationally, are increasingly more exposed to new trends in tax regulation. By thinking beyond the present and beyond borders to deliver long-lasting value, our understanding of tax governance, specialist skills and industry knowledge helps our clients to stay competitive and compliant.We are tax advisors, working together to deliver business solutions to our clients. We operate as an integrated international team, linking seamlessly to tax expertise and contacts across the globe in the international offices of our firm. Through our well-established and ever-expanding African footprint, we work closely with our tax colleagues situated in 42 African offices to deliver value and cut through the complexity of operating in these dynamic and ever-expanding markets.We seek, first and foremost, to understand our clients’ issues. Then, pooling our substantial collective experience, we work together to provide you, our client, with advice that is relevant to your issues and your unique requirements, and, increasingly importantly these days, adherent to the spirit of the legislation. So when you choose KPMG, you choose to receive solutions and experience which inherently offers you peace of mind.Our clients include listed and unlisted Namibian companies, foreign investors seeking to enter Namibia, the branches and local offices of foreign entities, trusts and high net-worth individuals. We think beyond the present, see beyond borders and work with clients to deliver long-lasting value.

KPMG: Namibian transfer duties

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KPMG: Namibian transfer duties

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