As Namibia’s mining sector continues to attract attention from international stakeholders and local miners expand their search for critical minerals, a key topic to be addressed in mining operations is the revenue paid to the state via various taxes. This article is meant to be a brief but comprehensive guide to mineral taxes, royalties and export levies in Namibia.
This article begins by providing a summary of key taxes features and royalties such as corporate taxes, mining company taxes, capital gains, value-added taxes and withholding tax etc.
The article goes on to discuss tax issues unique to the mining sector such as the deductibility of exploration and development expenditures, depreciation of capital expenditures, taxes on the sale of mineral licences and treatment of rehabilitation provisions etc. The article closes by providing a summary of export levies payable for the export of specific minerals to certain areas of the world.
This article focuses on critical minerals such as copper, aluminium, cobalt and Lithium. This article does not consider precious stones (i.e. diamonds), nuclear materials (i.e. uranium) or minerals not considered critical minerals.
Overview of Taxes and Royalties payable
Generally, mining companies are treated similarly to other companies under the Income Tax Act 24 of 1981 with regards to reporting, the tax treatment of most expenditures, VAT, capital gains tax and a host of other tax features. However, the two key exceptions that do exist are the fact that mining companies have different tax rates and different capital expenditure deductions during the exploration and development stages.
Kindly see below the key tax figures in Namibia:
Corporate tax for companies: 32%
Corporate tax for (non-diamond) mining company: 37.5%
Royalties on precious, base and rare metals (e.g. gold, copper, Zinc): 3%
Royalties on Industrial Minerals (fluorspar, salt, etc.): 2%
Tax holidays: None
Deduct exploration costs (when mineral discovery progresses to mine development): Yes, 100% in the first year of mining
Deduct development costs: Yes, 100% in the first three years of mining
Ring-fencing: No
Forwarding carry of losses: Yes, indefinitely
Depreciation: Yes, 33.3% Straight
Capital gains tax: 0%
Value-added tax: 15%
Non-resident Shareholder’s Tax (NRST): 20%
NSRT- If a Non-resident recipient of dividends is a company which holds at least 25% of the capital of Namibian company paying the dividend: 10%
Withholding tax: 10%
Deductibility of Exploration and Development Expenditure and Ring-fencing
Section 36 of the Income Tax Act provides that the capital expenditure to be deducted from income derived from mining operations for tax purposes may consist of exploration expenditure, development expenditure, or both.
All exploration expenditure that is, directly or indirectly, actually incurred will only be deemed to have been incurred once the mine starts production. The expenditure can only be deducted in the first year of assessment in which the mine starts production.
Exploration expenditure can include expenses related to the acquisition of vehicles, machinery, labour, fuel, repairs, charges, fees, and administration directly connected with exploration operations. Exploration operations refer to operations carried out for or in connection with the exploration for minerals, including surveys, feasibility studies, and environmental impact studies.
All development expenditure incurred before a mine starts production is deemed to have been incurred in the year the mine starts production. Development expenditure will be deducted as follows: (1) A third in the year of assessment in which such expenditure was incurred; and (2) A third for each of the two ensuing years of assessment.
Development expenditure can include various types of expenses, such as the acquisition of machinery, furniture, tools, labour, fuel, repairs, charges, fees, and administration directly connected with development operations. Development operations refer to operations carried out for or in connection with the development of a mine, including the sinking of shafts, installation of machinery, construction of facilities, and roads.
Namibia has no ring-fencing provisions and zero tax on capital gains.
Tax treatment of rehabilitation costs, depreciation and taxes on sale of licences
Mines often have a provision on the balance sheet for rehabilitation costs and closure costs. These provisions are usually an estimate and have conditions attached to them. For tax purposes, the provision is not deductible as the expense was not actually incurred yet. The amount must be added back to the tax calculation.
Depreciation are deductible in equal instalments over three consecutive tax years for the acquisition of vehicles, aircraft, seagoing craft, machinery, implements, appliances, and articles used in a trade or business.
Although Namibia does not have a capital gains tax, there is a tax consideration for mining companies that must be noted. The sale of mineral licenses or transfer of ownership of any share or member's interest in a company that holds a mineral license has been included in the definition of gross income for tax purposes – making revenues of such sale taxable. The costs of acquiring a mineral license can be deducted from the income received, however, a loss may not result from the deduction.
Export Levies
The export of minerals from Namibia attracts certain export levies. Export levies are determined based on which mineral is being exported and the destination one is exporting to. See below a table indicating the export levy applicable for the export of specific critical minerals to certain destinations.
About the Author
Zach Kauraisa is a mining lawyer in Namibia. He holds an LLB, LLM in Oil and Gas Law and an MSc in Finance and Law (Candidate). He has mining law experience from working in a leading law firm and research hubs on 3 continents (Namibia, U.K. and U.S). He has broad experience in advising local and international mining companies on commercial matters including drafting contracts, acquisition of mining licences and providing regulatory advice. He serves as the Country Director for the Africa Energy and Mineral Management Initiative. Email: kauraisaz@gmail.com (This article was drafted with the assistance of Leezola Zongwe - PHD Candidate and Doctoral Researcher).