Namibian tax liability for foreigners

In this series of articles, Cameron Kotze the Tax Partner at Ernst and Young discusses some topical tax issues for our readers.

There are two types of income tax systems that can be used by governments to collect revenue. One of them is referred to as the territorial or source system which is the older of the two.The other system is referred to as the residency system which has become popular amongst countries where the impact of globalisation may have eroded the tax base of a territorial or source system.Namibia still has a territorial tax system and it appears that this system will be in place for some time to come after a review of the tax system that was conducted in 2001 recommended that we should stick to the source basis of taxation.Namibia therefore taxes any income received from a source within Namibia or deemed to be in Namibia provided the income is not of a capital nature.It therefore does not matter if you are a non-Namibian citizen or a non-Namibian resident – if you have worked in Namibia or rendered services in Namibia you may have a tax liability in this country.Under a residency tax system you would be taxed in the country where you are resident irrespective of the fact that you may have earned the income in another country.Tax case law directs that if you earn income from exercising your wits in Namibia, then you have a tax liability in Namibia.This principle was established by the tax courts in terms of the Millin case where Mrs Millin wrote a book in South Africa and earned royalties from selling the book in the United Kingdom.Foreign nationals must therefore be aware of the potential tax liability they have if they come to Namibia to render services here.Once you have received compensation for rendering services here, the red lights should start flashing that you could find yourself in trouble with the local Revenue Department.Foreign nationals employed by diplomatic missions of another country are specifically exempted from income tax in Namibia.This exemption does not apply to Namibian nationals that are employed by these missions.A similar exemption has been granted to foreign nationals that are employed by Specialised Agencies of the United Nations in Namibia.You could get out of a Namibian tax liability if you are a resident of a country and that country and Namibia has entered into a double tax agreement.In terms of such an agreement individuals earning salary income are protected from paying tax in the foreign country if they pass all the tests contained in the article that deals with dependent income.The first test to pass is the so-called 183 day presence test – if you are a German national and earned income in Namibia you must not be physically present in Namibia for more than 183 days in any twelve month period.The second test is that the employer who has paid you must not take a deduction for that expense from the profits of a business in Namibia and the third test is that the expense must not be paid on behalf of a Namibian business.If you fail on any one of these tests you have a Namibian tax liability.You have the obligation to report your earnings to the Revenue Department and pay the taxes that are due.Failure to do so puts you at risk for having to pay a penalty of twice the tax that you should have paid.This penalty effectively wipes out all your income if it is imposed and it is not worth contravening the law.Should readers have queries, they are invited to send them to cameron.kotze@za.ey.com.One of them is referred to as the territorial or source system which is the older of the two.The other system is referred to as the residency system which has become popular amongst countries where the impact of globalisation may have eroded the tax base of a territorial or source system.Namibia still has a territorial tax system and it appears that this system will be in place for some time to come after a review of the tax system that was conducted in 2001 recommended that we should stick to the source basis of taxation. Namibia therefore taxes any income received from a source within Namibia or deemed to be in Namibia provided the income is not of a capital nature.It therefore does not matter if you are a non-Namibian citizen or a non-Namibian resident – if you have worked in Namibia or rendered services in Namibia you may have a tax liability in this country.Under a residency tax system you would be taxed in the country where you are resident irrespective of the fact that you may have earned the income in another country.Tax case law directs that if you earn income from exercising your wits in Namibia, then you have a tax liability in Namibia.This principle was established by the tax courts in terms of the Millin case where Mrs Millin wrote a book in South Africa and earned royalties from selling the book in the United Kingdom.Foreign nationals must therefore be aware of the potential tax liability they have if they come to Namibia to render services here.Once you have received compensation for rendering services here, the red lights should start flashing that you could find yourself in trouble with the local Revenue Department.Foreign nationals employed by diplomatic missions of another country are specifically exempted from income tax in Namibia.This exemption does not apply to Namibian nationals that are employed by these missions.A similar exemption has been granted to foreign nationals that are employed by Specialised Agencies of the United Nations in Namibia.You could get out of a Namibian tax liability if you are a resident of a country and that country and Namibia has entered into a double tax agreement.In terms of such an agreement individuals earning salary income are protected from paying tax in the foreign country if they pass all the tests contained in the article that deals with dependent income.The first test to pass is the so-called 183 day presence test – if you are a German national and earned income in Namibia you must not be physically present in Namibia for more than 183 days in any twelve month period.The second test is that the employer who has paid you must not take a deduction for that expense from the profits of a business in Namibia and the third test is that the expense must not be paid on behalf of a Namibian business.If you fail on any one of these tests you have a Namibian tax liability.You have the obligation to report your earnings to the Revenue Department and pay the taxes that are due.Failure to do so puts you at risk for having to pay a penalty of twice the tax that you should have paid.This penalty effectively wipes out all your income if it is imposed and it is not worth contravening the law.Should readers have queries, they are invited to send them to cameron.kotze@za.ey.com.