A loan from a foreign lender to a Namibian company is referred to the Bank of Namibia's exchange control department through an authorised dealer, and interest and repayments leave Namibia against that record. Equity is recorded differently, so decide the mix before the money moves.
What is approved for a foreign loan?
Section 23.1 of the manual says borrowing abroad must be referred to the exchange control department via an authorised dealer. The application sets out the lender and its country, the relationship between lender and borrower, the currency, principal, rate and margin, the purpose, any security, the tenor, any fees and a copy of the loan agreement. It must confirm that there is no direct or indirect Namibian interest in the foreign lender.
What limits apply to interest and fees?
The manual sets criteria that must be strictly met:
- The tenor is at least one month.
- In foreign currency, third party interest may not exceed the base lending rate plus 3%, and shareholder loan interest may not exceed the base lending rate in the country of the currency.
- In N$, third party interest may not exceed prime plus 5%, and shareholder loan interest may not exceed prime.
- No commitment, raising or administration fees are payable upfront. After the funds are received and converted, such fees may be paid from Namibia up to 5% of the principal.
- The funds may not come from a Namibian resident's foreign assets or foreign earnings kept abroad.
Which later changes need a new submission?
The manual lists cases that go back to the department: capitalising or compounding interest, converting the loan to share capital, consolidating loans, early redemption, and any case where the criteria cannot be met. Capital repayments are made through an authorised dealer strictly in line with the loan terms. Interest is transferable abroad once the dealer is satisfied that the loan and its rate were approved (section 10.2).
What tax applies to the interest?
Section 35B of the Income Tax Act requires the payer to withhold 10% of interest paid to a non resident. It is a final tax, due on the 20th of the month following deduction.
The borrower's deduction is limited as well. Under section 95A(3), a connected person's net interest expense is not deductible above 30% of tax EBITDA, and the limit does not apply to net interest expense up to N$3,000,000.
How is equity recorded?
Securities owned by non residents carry a "non resident" endorsement placed by an authorised dealer. The manual says this lets the proceeds of a later sale go abroad or into a non resident N$ account. The bank reports every cross border transaction to the department, and the company completes an integrated form for each inward and outward payment.
Andersen view
A shareholder loan and a share subscription are two different exit routes. Loan interest is capped by the manual, deductible subject to section 95A(3) and taxed at 10% on the way out. A dividend is taxed at 10% or 20%. The right mix depends on the investor's home country, the expected cash flow and the exit plan, and we model it before the term sheet is signed.
The criteria also work as a checklist for the agreement. A clause for an upfront arrangement fee, or a rate above the cap, sends the file back to the department, so we draft to the criteria and request approval once.
Frequently asked questions
Can the loan be converted into shares later?
Conversion of a loan to share capital is on the list of cases submitted to the department, so plan the conversion route at the start.
Can the foreign lender charge an arrangement fee upfront?
No. Fees may be paid from Namibia after the funds are received and converted, and fees above 5% of the principal need a separate application to the department.
Can a Namibian related party sit behind the lender?
No. The criteria require that there is no direct or indirect Namibian interest in the foreign lender.
Andersen in Namibia drafts the loan agreement to the Bank of Namibia criteria, prepares the authorised dealer submission, models loan against equity and sets up the tax withholding. Contact Andersen in Namibia: WhatsApp +264 81 315 7942, info@na.andersen.com, +264 61 402520 or na.andersen.com.
