ZambiaInvest explains the fiscal framework in place in Zambia, from corporate tax and income tax, capital gain tax, transfer pricing and thin capitalisation rules, double tax treaties in place and other taxes in Zambia.
Basis of Taxation in Zambia
Tax is levied on a source or deemed source basis. Residents are taxed on domestic-source income and certain types of foreign income.
Non-residents are taxed on Zambian-sourced income and are subject to a range of withholding taxes (WHT) – some of which may be reduced under a double tax treaty negotiated with the country of residence of the recipient.
Zambia Income Tax
The Income tax Act (Chapter 323 of the Laws of Zambia) is the legislation that governs Income tax in Zambia. Income tax is tax on profits made by Limited Companies, Partnerships and Self-Employed individuals as well as on emoluments earned by employees.
All profit making organizations (Limited Companies and businesses carried on by Individuals or partnerships) have an obligation to pay Income tax on their profits. Similarly, all individuals in employment have an obligation under this Act to pay tax on their emoluments.
Zambia Corporate Tax Rates
| Corporation Tax - Resident Companies | |
|---|---|
| Manufacturing and other | 35% |
| Manufacturing of organic and chemical fertilizers | 15% |
| Mining - base metals/ gemstones/ precious metals/ other mining | 30% |
| Hedging income | 35% |
| Export duty on copper & cobalt concentrates | 10% |
| Import of copper blisters | 15% |
| Export duty on all other unprocessed or semiprocessed mineral ores | 10% |
| Telecommunication companies | First ZMW 250,000 – 35% Above ZMW 250,000 – 40% |
| Banks | 35% |
| Public benefit organisations | 15% |
| Farming | 10% |
| Import of non-traditional products | 15% |
Zambia Value Added Tax (VAT)
Who Pays VAT in Zambia
By its nature, Value Added Tax is incurred by the final person in the chain of supply who is not registered for VAT. Persons registered for VAT will claim back, through the return, the input VAT incurred in the course of their business, and remit to Zambia Revenue Authority, the Output VAT collected in excess of their input VAT. Therefore, registered suppliers do not pay VAT.
Zambia Standard VAT Rated Supplies: These are supplies that attract VAT at the prescribed standard rate 16 %.
Zambia Zero VAT Rated Supplies: These are supplies that attract VAT at 0%.
Zambia VAT Exempted Supplies: These are supplies that do not attract any VAT at all.
Source of VAT Law in Zambia
The VAT Law is premised on five (5) broad areas. These are:
1.The Value Added Tax Act −The Principal Act.
2.The Value Added Tax General Regulations − The Principal Regulations/ Minister’s Regulations
3.The VAT General Rules − The Principal Rules/ Commissioner General’s Rules
4.The Case Law −The Precedence
5.Common Practice −Practice Notes
Capital Gains Tax
There is no capital gains tax in Zambia.
Zambia Mineral Royalty
Mineral Royalty is charge under the Mines and Minerals Act Chapter 213 of the Laws of Zambia on any holder of large-scale mining licence, small-scale mining licence, gemstone licence, or artisan mining right for extracting the minerals from the earth.
The Commissioner-General of Zambia Revenue Authority has the responsibility of administering and collecting the Mineral Royalty.
| Zambia Mineral Royalty Rates | |
|---|---|
| 6% | of the norm value of base metals produced or recoverable under the license |
| 6% | of the gross value of the industrial minerals produced or recoverable under the license |
| 6% | of the gross value of the energy minerals produced or recoverable under the license |
| 6% | of the norm value of the precious metals produced or recoverable under the license |
| 6% | of the gross value of the germstones produced or recoverable under the license |
Transfer Pricing And Thin Capitalisation Rules
The Income Tax Act (ITA) only provides guidance on the acceptable level of debt to equity ratio for mining companies, which is currently 3:1. However, there is no specific guidance on the acceptable level of debt to equity ratio applicable to other industry sectors.
The transfer pricing legislation is detailed in Section 97A of the ITA, which the Zambia Revenue Authority (ZRA) is enforcing. We understand that the rules will be revised next year to provide for stricter rules and documentation requirements.
Based on our understanding of the legislation, the onus is on the taxpayer to ensure that the tax returns submitted are adjusted for any non-arm’s length transactions.
Management should ensure that there is sufficient evidence to demonstrate that transactions with connected entities are undertaken in line with the arm’s length principle.
The existing Anti-Avoidance Provisions have been amended in the ITA and Transfer Pricing Regulations to align it with international best practice. Among other changes, it provides for the Minister of Finance to prescribe transfer pricing documentation rules.
Zambia Property Transfer Tax
The Property Transfer Tax Act CAP 340 provides for the charge of property transfer tax on the transfer of property.
Property is defined as:
a. Land, including any improvements on it
b. Shares issued by a company incorporated in the Republic.
c. Mining right or interest granted under the Mines and Minerals Development Act
The rate of tax for property transfer tax in Zambia is 10%.
Zambia Inheritances And Donations
Estate duty was abolished. There is no gift tax in Zambia.
Zambia Double Tax Treaties
The countries that Zambia has signed Double Taxation Agreements (DTA) with include Canada, Denmark, Finland, France, Germany, Holland, India, Ireland, Italy, Japan, Kenya, Mauritius, Norway, Romania, South Africa, Sweden, Tanzania, Uganda, United Kingdom, Yugoslavia and Zimbabwe.
| Country | Dividends | Interest | Royalties | Management fees |
|---|---|---|---|---|
| Canada | 15% | 15% | 15% | 0% |
| Denmark | 15% | 10% | 15% | 0% |
| Finland | 5%/15%** | 15% | 5/15% | 0% |
| France | New DTA yet to be signed. Old one still in force. | |||
| Germany | 5%/15%** | 10% | 10% | 0% |
| India | 5%/15%** | 10% | 10% | 10% |
| Ireland | 0% | 0% | 0% | 0% |
| Italy | 5%/15%** | 10% | 10% | 0% |
| Japan | 0% | 10% | 10% | 0% |
| Kenya | 0%* | 15% | 20% | 20% |
| Mauritius | 5%/15%** | 10% | 5% | 0% |
| Netherlands | 5%/15%** | 10% | 10% | 0% |
| Norway | 15% | 10% | 15% | 0% |
| Romania | 10% | 10% | 15% | 0% |
| South Africa | 15% | 15% | 20% | 20% |
| Sweden | 5%/15%** | 10% | 10% | 0% |
| Switzerland | 5%/15%** | 0% | 0% | 0% |
| Tanzania | 0%* | 15% | 20% | 20% |
| Uganda | 0%* | 15% | 20% | 20% |
| United Kingdom | 5%/15%** | 10% | 10% | 0% |
* Rate applies if dividend subject to tax in country of recipient.
** The 5% rate applies if the recipient is a company which controls directly or indirectly at least 25 per cent of the voting power in the company paying the dividends.
Since the domestic withholding tax rate for interest and dividends is 15%, the maximum rate suffered by
any person is restricted to 15%.
The domestic withholding tax rate for royalties and management fees is 20%, therefore the maximum
rate suffered by any person is restricted to 20%.
Sources: Zambia Revenue Authority, KPMG, PWC.