Republic of Malawi

Malawi’s income tax structure is administered by the Malawi Revenue Authority (MRA) and is primarily based on a progressive taxation system in which individuals are taxed at increasing rates as their income rises. Residents are taxed on their worldwide income, while non-residents are generally taxed on Malawi-sourced income. Employment income is subject to Pay As You Earn (PAYE) where employers are responsible for deducting income tax from employees’ remuneration at the time of payment and remitting it to the MRA. Withholding tax applies to certain payments, typically at rates ranging from 15% to 20% depending on the nature of the income. In certain cases, payments to non-residents may be subject to withholding tax at a flat rate (commonly 15%), depending on the nature of the income. Taxable income includes salaries, wages, bonuses, allowances, pensions and other forms of compensation, while approved deductions such as pension contributions may reduce taxable income.

Payroll taxes are primarily governed by the PAYE system, which requires employers to deduct income tax from employees’ earnings and remit it to the MRA on a monthly basis. In addition to PAYE, employers and employees must contribute to the National Pension Scheme (NPS) in accordance with the Pension Act. Employers contribute a minimum of 10% of the employee’s pensionable earnings, while employees contribute a minimum of 5% of pensionable earnings. These contributions must be submitted to a licensed pension fund administrator, and employee contributions are generally deductible for income tax purposes. Fringe benefits provided by employers are subject to a separate Fringe Benefit Tax (FBT) at a flat rate of 30% on the taxable value of the benefit. Employers are also required to pay the Technical, Entrepreneurial and Vocational Education and Training (TEVET) levy. The TEVET Act sets the rate at 2% of the basic annual payroll; however, the employer’s effective contribution is 1%, with the remaining portion effectively covered by the government. There is no social security tax or health insurance contribution system currently in place under a national scheme.

Employers must remit monthly PAYE deductions to the MRA by the 14th day of the month following the month in which the tax was deducted, along with the submission of a monthly PAYE remittance return (Form P12). Similarly, statutory pension contributions to the National Pension Scheme must be submitted to the designated pension fund provider within approximately 14 days after payroll processing. The tax year runs from 1 April to 31 March, and employers must submit an annual PAYE return (Form P16) within 180 days after the tax year ends and issue tax certificates (Form P9) to employees within 30 days after the end of the tax year. The TEVET Act allows employers to pay the levy in a manner that aligns with their cash flow. Employers may choose to pay in lump sums or on a biannual, quarterly or monthly basis. Employers may submit returns and make payments electronically through the MRA’s Msonkho Online portal.

Employers are required to maintain accurate and comprehensive payroll records to comply with Malawi’s tax and labour regulations. This includes details of employee personal and tax information, employment contracts, employee earnings and allowances, PAYE deductions, pension contributions and any other statutory deductions. Tax-related documents, including PAYE registers and supporting documents, must be kept for at least seven years. Employee-specific payroll records (e.g. payslips, deductions) must be kept for three years. The records must be available for inspection by the MRA on request. Failure to comply with record-keeping requirements and tax obligations in Malawi can lead to substantial monetary penalties, interest charges, criminal prosecution and administrative assessments.