Taxation of employment income Flashcards
What is considered employment income in Malawi?
Employment income includes salaries, wages, leave grants, housing allowances, fees, bonuses, commissions, fringe benefits, pensions from past employment, and terminal benefits.
How are salaries, wages, bonuses, fees, and housing allowances taxed?
They are taxed in the year they are receivable, regardless of whether they have been actually received or accrued, using applicable income tax rates.
What are leave passages, and are they taxable?
Leave passages are travel expenses incurred by an employer for recruitment, leave, and repatriation of contract employees. They may be taxable unless paid by the government for its employees or approved by the Commissioner for other employers.
How are fringe benefits taxed?
Fringe benefits are taxable in the hands of the employer.
How are lump sum payments like gratuities and pay in lieu of paid leave taxed?
Gratuities are included in assessable income. Pay in lieu of paid leave is taxed as if the leave was taken immediately after cessation of employment.
Are pensions and terminal benefits taxable in Malawi?
No, pensions and terminal benefits are not subject to taxation from the tax year 2012/2013 onwards.
What are terminal benefits, and how are they treated under Malawian tax law?
Terminal benefits refer to payments made to employees upon cessation of employment. These include gratuities, pay in lieu of leave, and redundancy pay. Terminal benefits are not taxable from the tax year 2012/2013 onwards, except for redundancy pay, where up to K50,000 is exempt and the remainder is taxed.
What types of payments are excluded from terminal benefits under Malawian tax law?
Payments excluded from terminal benefits include: - Payments in commutation of a pension - Payments on account of ill-health or disability due to cessation of employment - Employee contributions that were taxed at the time of contribution.
How is redundancy pay taxed?
Up to K50,000 of redundancy pay is exempt from tax, and the remaining amount is taxed using income tax rates.
How is the income of expatriates taxed in Malawi?
Emoluments from sources in Malawi are taxable for expatriates during their stay, unless exempted under a double taxation agreement. Expatriates present for less than 183 days in a 12-month period are taxed as non-residents.
What are allowable deductions from assessable income?
Deductions include expenses that are not capital in nature and are wholly, exclusively, and necessarily incurred in the production of income or for trade purposes.
What are specific deductible expenses under Malawian tax law?
Deductible expenses include: - Travel expenses between work locations (not between home and work) - Professional subscriptions relevant to the job - Donations of at least K250 to approved charitable organizations - Donations of at least K500 to non-profit organizations for social welfare, civic improvement, or educational development.
