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Africa Tax Landscape

Zambia

30 Dec 2022

Zambia's tax landscape overview highlights the country's tax landscape together with other regulatory considerations of setting up an entity in Zambia.

Doing business in country

Overview of tax system (residence versus source)

One is considered to be a resident for tax purposes if he/she has been living in Zambia for more than 183 days in any charge year. Remuneration from employment will be taxed in the contracting state in which the employment is exercised.

Type of companies that can be set up (e.g., Close corporation, Partnership etc.,)

Companies incorporated in Zambia are a public company and private company.

Requirements for locals to own shares/stake in the company

The Company's Act requires that 50% of the directors should be residents.

Implications of physical presence versus online presence

“Permanent establishment” means a fixed place of business through which the business of an enterprise is wholly or partly carried on.

An enterprise of another country shall not be considered to have a permanent establishment in the Republic merely because it carries on business in the Republic through a broker, general commission agent or any other agent of an independent status if the persons are acting in the ordinary course of their business.

Process of opening a bank account

The process differs from bank to bank.

Corporate income tax

Viable option from a tax perspective (branch versus subsidiary)

The procedures for establishing a subsidiary and a branch are nearly the same, however, the costs for establishing a branch and filing annual returns are higher than those for establishing a subsidiary.

Additionally, there are no distinctions between how a non-local resident's branch and subsidiary may be taxed locally.

Process of registering and setting up a branch or subsidiary

A letter from the Holding company authorising the company to operate in Zambia and use its name and names of directors, secretaries, and agents appointed in Zambia. The letter is to be signed by the CEO or Chairman.


A letter from each one of the directors and secretary accepting appointment to act in the respective positions. The Companies Act states that the number of directors, including an executive director, resident in Zambia, shall not be less than half the number of directors appointed.

Lodging of tax returns with the local Revenue Authority

Annual tax returns are due on 21st June and Provisional tax return is due on 31st March.

Corporate tax rate for branches and subsidiaries

The normal corporate tax rates for both are 30% (2022). Rates vary depending on the industry a company is operating and if they have tax incentives.

Tax rules on repatriation of after-tax profits for branch and subsidiary

Any branch profits distribution is taxed at 15%.

Withholding taxes applicable

WHT is at the rate of 15% for residents and 20% for non-residents.

Capital gains tax implications

There is no capital gains tax in Zambia. Where management decides to dispose of the company’s assets/transfer its shares, the disposal/transfer will attract Property Transfer tax at the rate of 5%.

Value-Added Tax (VAT)

VAT rate applied

16%.

Imposition of VAT

VAT returns are submitted monthly. Output and input VAT is declared in the returns.

System of submitting VAT returns (manual versus automated)

Automated (Leghetho Live system and CMS system).

What are the export requirements that must be adhered to?

Subject to certain conditions, the export of taxable goods is zero-rated for
VAT. To zero-rate at exportation, the goods must be supplied (i.e. sold)
direct to a business abroad by or on behalf of the supplier. To qualify
for a zero rating, the following proof of exportation will be required to be
produced:

  • Copies of export documents for the goods, bearing a certificate of
    shipment provided by the Authority.
  • Copies of import documents for the goods, bearing a certificate of
    importation into the country of destination provided by the customs
    authority of the country of destination or copies of transit documents
    for goods bearing a certificate of transit provided by the customs authorities of the country of transit.
  • Tax invoices for the goods exported.
  • Documentary evidence proving that payment for the goods has been
    made in the exporter’s bank account in Zambia; and
  • Such other documentary evidence as the authorized officer may
    reasonably require (transport waybills, contracts or agreements in respect of the transportation of goods etc).
VAT registration requirements

Compulsory registration is P1 million turnover and P500 000 voluntary registration (12 months period).

VAT on electronic services

The standard VAT rate is 16% for general supplies and the provision of goods. Some of the electronic services include websites, software updates, transfer of copyright among others.

VAT registration requirements for the registration of a Group/Branch

Company registration documents and certificates will be required when registering for VAT. There is no group registration in Zambia, each company must be registered separately.

VAT refunds for non-residents

VAT refund is only applicable to companies whose inputs exceed outputs. There are currently no refunds to foreigners.

Recordkeeping requirements

Records should be kept for 10 years.

Employees Tax

Tax year for Individuals

1 January to 31 December.

Is employees’ tax is collected from employers via payroll?

Yes, and the employer is responsible for remitting the tax to ZRA.

Collection of Unemployment Insurance Fund (UIF) and Skills Development Levy (SDL)

Only for Skills Development Levy.

Should employers register and file returns with both the Revenue Authorities?

Not applicable.

When is the monthly submission and payment of the EMP201 tax return due for each month following the collection?

15th of the month following the deduction.

Submission of the employee's tax reconciliation return?

Not applicable.

Method of calculating individuals tax

PAYE is calculated using tax bands which are updated by the Ministry of Finance during the National Budget speech. Adjustments are done annually.

Labour law registration requirements for employers

They are required to register with the following: 

  • National Health Insurance Management Authority (NHIMA)
  • National Pensions Scheme Authority (NAPSA); and
  • Workers Compensation Fund Control Board (WCFCB
Is the system manual or automated?

Automated. 

Transfer pricing

Transfer pricing documentation guidelines or regulations

Yes.

Transfer pricing documentation materiality limits or thresholds in relation to transactions or revenue

The annual turnover threshold to prepare and maintain TP documentation is K50 million.

Statutory deadline for submitting transfer pricing documentation

Within 30 days of the written request being duly issued by the Commissioner-General.

Penalties imposed for non-submission and/or incomplete documentation.

Yes, K24,000,000.

International tax

Tax nexus (Permanent Establishment)

One is considered to be a resident for tax purposes if they have been staying in Zambia for more than 183 days in any charge year.

For a company, a permanent establishment will exist if there is a place of management, a branch an office, a factory, a workshop, a building site or a construction or assembly project which exists for more than nine months; or supervisory activities for more than nine months on a building site or construction or assembly project.

Effective Management

An agent of independent status acting on behalf of an enterprise and habitually exercises in the Republic an authority to conclude contracts on behalf of the enterprise shall be deemed to have a permanent establishment in the Republic in respect of any activities which that person undertakes for the enterprise.

Controlled Foreign Company

None.

Exchange control

There are no exchange control laws in Kenya, however, there are restrictions on the deductibility of interest and foreign exchange losses for thinly capitalised CFCs. The Finance Act, of 2021 replaced the thin capitalisation rules with EBITDA-based interest limitation on the deductibility of interest expenses for CFCs, effective 1st January 2022.

The thin capitalisation rules however still apply to the deductibility or deferral of foreign exchange losses. Deemed Interest is applicable on interest-free borrowings received by foreign-controlled entities in Kenya at a rate prescribed by the Commissioner of Domestic Taxes.

The Finance Act, 2022 also introduced new legislation with regard to the applicability of withholding tax on deemed interest arising from a bearer bond issued to non-residents outside Kenya of at least 2 years. The Finance Act, 2022, amended the Income Tax Act, to include a preferential tax regime within the scope of Transfer Pricing, effective 1st January 2023.

This will apply to foreign jurisdictions which do not have a framework for the exchange of information with Kenya, among other criteria specified in domestic law.

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