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Tax Implications – Indirect shareholding in a company owning mining rights in Namibia

With effect from December 2015 paragraph (“o”) of the definition of gross income was amended to read as follows – “any amount received or accrued, whether in money or in kind, as consideration (or payment of like nature) or the open market value by way of a sale, donation, expropriation, cession, grant or other alienation or transfer of ownership of a mineral licence, or right to mine minerals in Namibia, and includes a sale, donation, expropriation, cession, grant or any other alienation or transfer of ownership of any share or member’s interest in a company that holds a mineral licence or mineral right whether directly, or indirectly, less the acquisition cost of the mineral licence or mineral right, but the acquisition cost of the licence or right may not create a loss;”.

The previous paragraph (“o”) read as follows – “any amount received or accrued from another person as consideration (or payment of like nature) or the open market value by way of a sale, donation, expropriation, cession, grant or other alienation or transfer of ownership of a mineral licence as defined in the Minerals (prospecting and Mining) Act, 1992 (Act 33 of 1992), or right to mine minerals in Namibia, and includes a sale of shares in a company for a mineral license or right to mine minerals in Namibia”.

The distinct difference in the amendment was that the interpretation of the previous paragraph (“o”) only included direct disposals relating to the ownership of the right in the Namibian company, whether it be a sale of the actual license or the shares in the said company. The new paragraph (“o”) makes specific reference to a direct or indirect disposal relating to either the actual license or the shares in the said company.

Putting the above into context, Co B wishes to dispose of its 65% shareholding in Co C to Co E thus disposing of their indirect shareholding in Co D through Co C who owns 100% of the shareholding in Co D which owns a right to mine minerals in Namibia. The interpretation of the current paragraph (“o”) is that the amount received or accrued by Co B from disposing its shares in the Mauritius entity would trigger a gross income inclusion thus having to pay tax at the corporate rate of 32% on this receipt, less the acquisition cost of the mineral licence or mineral right.

Location

In practise, the income tax registration is done automatically when a company is registered with the Ministry of Industrialization, Trade and SME Development (“ITS Ministry”). Assuming Co B has no other operations in Namibia, it would be safe to assume that there is no current registration with the ITS Ministry and consequently no income tax registration.

It will be interesting to see how Inland Revenue plans to administer this, which further emphasises the importance of stakeholder consultation and ensuring the administration of taxes aligns with legislation amendments to make it easier for taxpayers to be in compliance.

For more information:

Memory MbaiMemory Mbai
Tax Manager, KPMG Namibia
E: mmbai@kpmg.com
T: +26461387500

About Femi Oke

Relentless passion for creativity and digital acumen to help a professional services firm thrive in the digital space. Femi is an individual with a rich experience on regional African knowledge, its diverse business culture and he understands the continent’s economic drive. He thrives on selfless service and lasting mutually beneficial relationships with colleagues and especially clients encountered in the course of his duties. He is creative, practical and self-motivated with business judgement in corporate, brand and strategic communications, social, digital & traditional media and executive profiling. Roles in the firm include New Media, Digital Communication, Corporate Communication, executive profiling and Brand Management execution. Working on the multi-million dollar Africa high growth market project stands out for femi; besides this, managing all KPMG’s digital communication for the World Economic Forum on Africa is another project that gives him great delight. Femi holds a Masters Degree in Global Marketing from the University of Liverpool.

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