Zimbabwe: Tax system in a nutshell

Zimbabwe tax system previous hitinnext hit previous hitanext hit previous hitnutshellnext hit
Celia Becker
Celia Becker
ENSafrica, South Africa
Celia Becker is Tax Advisor at ENSafrica previous hitinnext hit Johannesburg.
I. Background
The Zimbabwean tax system is sourced-based, with previous hitanext hit standard corporate income tax rate of 25 percent and maximum personal income tax rate of 45 percent. previous hitAnext hit three percent AIDS levy is imposed on both corporate and personal income tax
The disposal of immovable property and marketable securities are subject to capital gains tax at rates ranging from one percent of gross proceeds to 20 percent of the net gain.
VAT is imposed on the supply of goods and services previous hitinnext hit Zimbabwe and on the importation of goods into Zimbabwe. VAT on imported services only applies to services not utilised for the making of taxable supplies.
Withholding tax is deducted at source on specified payments both to residents and non-residents. Withholding tax is generally an advance tax previous hitinnext hit the case of residents and previous hitanext hit final tax previous hitinnext hit the case of non-residents.
previous hitAnext hit compulsory national pension scheme is administered by National Social Security Authority (NSSA) and employers are also obliged to contribute to the manpower development levy and standards development levy.
II. Corporate income tax
Every person who has derived taxable income previous hitinnext hit previous hitanext hit particular year of assessment is subject to corporate income tax. “Taxable income” is calculated as gross income less exempt income and allowable deductions. Gross income is defined as the total amount received by or accrued to or previous hitinnext hit favour of previous hitanext hit person previous hitinnext hit any year of assessment from previous hitanext hit source within or deemed to be within Zimbabwe and generally excludes amounts ofprevious hitanext hit capital nature.
previous hitInnext hit the case of partnerships, each partner is liable to tax previous hitinnext hit his individual capacity on his share of the partnership income, at the corporate income tax rate.
III. Concept of permanent establishment (PE)
Non-resident companies are subject to corporate income tax on income from previous hitanext hit source within or deemed to be within Zimbabwe, irrespective of whether or not the company has previous hitanext hit PE previous hitinnext hit the country. Capital gains ofprevious hitanext hit non-resident company from previous hitanext hit source within Zimbabwe are also taxable previous hitinnext hit Zimbabwe.
The concept of PE is not defined under domestic tax rules, but is defined previous hitinnext hit the relevant double tax agreements entered into by Zimbabwe.
previous hitAnext hit. Corporate tax rates
The standard corporate tax rate applicable to both branches of foreign companies and local incorporated companies is 25 percent. previous hitInnext hit addition, previous hitanext hit 3 percent AIDS levy is due, increasing the effective tax rate to 25.75 percent.
The following industry-specific tax rates apply:

• pension funds’ income from trade and investment is subject to 15 percent tax;
• manufacturing companies exporting 50 percent or more of their output is subject to corporate income tax at the rate of 20 percent;
• the holder of previous hitanext hit special mining lease is subject to corporate income tax at 15 percent;
• approved Build-Own-Operate-Transfer (BOOT) or Build-Operate-Transfer (BOT) arrangements are tax exempt for the first five years and then subject to 15 percent tax for the next five years and 25 percent after 10 years;
• licensed investors, industrial park developers and tourist facilities previous hitinnext hit an approved tourist development zone qualify for previous hitanext hit five year tax holiday.
B. Minimum tax
Zimbabwe does not apply an alternative minimum tax.
C. Capital gains
The sale of immovable property (land and buildings) and marketable securities (shares previous hitinnext hit public or private companies) previous hitinnext hit Zimbabwe are subject to capital gains tax previous hitinnext hit terms of the Capital Gains Tax Act (Cap 23:01).
Capital gains tax is levied at previous hitanext hit rate of 20 percent of the net gain realised on the disposal of unlisted marketable securities acquired on or after February 1, 2009, whereas such securities acquired before February 1, 2009 are subject to tax at five percent on the gross proceeds. The disposal of shares previous hitinnext hit companies listed on the Zimbabwe Stock Exchange (ZSE) is subject to previous hitanext hit flat rate of one percent of the gross proceeds.
The gross proceeds of the disposal of immovable property acquired before February 1, 2009 is subject to tax at five percent, whereas the net gain realised on the disposal of immovable property acquired on or after February 1 is subject to 20 percent tax.
D. Deductible expenses
Generally, any revenue expense which is incurred for trading purposes during the year of assessment is deductible.
E. Carry forward losses
Trading losses may be carried forward for previous hitanext hit period of six years. Losses arising from mining operations may be carried forward without any restriction.
Capital losses arising from the disposal of immovable assets or marketable securities may be carried forward without restriction.
F. Tax treaty network and transfer pricing
Zimbabwe has entered into double tax agreements with Bulgaria, Canada, France, Germany, Kuwait, Malaysia, Mauritius, the Netherlands, Norway, Poland, South Africa, Sweden and the United Kingdom.
Zimbabwe does not have specific transfer pricing legislation. However, transfer pricing is dealt with under the general anti-avoidance provisions, previous hitinnext hit terms of which the Commissioner-General has the power to make adjustments to inter alia any transaction, operation or scheme which has created rights or obligations which would not normally be created between persons dealing at arm’s length under previous hitanext hit transaction, operation or scheme of the nature of the transaction, operation or scheme previous hitinnext hit question.
G. Withholding taxes
Withholding tax is applicable on specified payments made to resident and non-resident companies. previous hitInnext hit respect of payments to resident companies, this tax is generally an advance tax.
The withholding tax rates applicable to payments to non-residents may be reduced or eliminated previous hitinnext hit terms of previous hitanext hit double tax agreement entered into between Zimbabwe and the recipient’s country of residence.
previous hitAnext hit final withholding tax of 15 percent applies to dividends paid to both resident and non-resident companies. Securities listed on the ZSE qualify for previous hitanext hit reduced dividend withholding tax rate of 10 percent. Dividends paid by an industrial park developer are exempt from withholding tax.
Royalties paid to previous hitanext hit non-resident are subject to 15 percent withholding tax. No withholding tax is levied on interest paid to non-residents, but interest earned by previous hitanext hit resident on fixed-term deposits (having previous hitanext hit tenure of at least 90 days) is subject to 5 percent withholding tax and other interest is subject to 15 percent withholding tax.
There is no branch profit tax previous hitinnext hit Zimbabwe, but previous hitanext hit 15 percent withholding tax is levied on remittances of allocable expenditure of previous hitanext hit technical, administrative, managerial or consultative nature by previous hitanext hit Zimbabwean branch to its non-resident parent.
previous hitAnext hit 10 percent withholding applies to every payment over US$250 to resident contractual suppliers that do not have previous hitanext hit tax clearance certificate. This is not previous hitanext hit final tax.
IV. VAT
VAT at previous hitanext hit standard rate of 15 percent is imposed on every taxable supply of goods and services made previous hitinnext hit Zimbabwe, and on every importation of goods into Zimbabwe or taxable supply of any imported service. Generally imported services would only subject to VAT if the recipient of an imported service is not previous hitanext hit registered operator or the service is not for making taxable supplies.
Any person who makes taxable supplies of goods or services with an annual turnover previous hitinnext hit excess of US$60 000 should register for VAT purposes as previous hitanext hit “registered operator”.
V. Individual or personal taxation (employment income)
Individuals who are “ordinarily resident” previous hitinnext hit Zimbabwe are subject to income tax previous hitinnext hit respect of taxable income from previous hitanext hit source within or deemed to be within Zimbabwe. Tax is levied at previous hitanext hit progressive scale with the maximum rate of 45 percent. previous hitInnext hit addition, the three percent AIDS levy also apply to individuals.
The term “ordinarily resident” is not defined previous hitinnext hit the Income Tax Act, but previous hitinnext hit terms of the common-law interpretation which applies, an individual is ordinarily resident previous hitinnext hit previous hitanext hit country:

• previous hitinnext hit which he/she would naturally and as previous hitanext hit matter of course return from his/her wanderings;
• which is his/her usual place of residence; or
• which is, more aptly, previous hitinnext hit comparison to other countries, the person’s real home.
Employment income earned by previous hitanext hit non-resident individual from previous hitanext hit source within or deemed to be within Zimbabwe, is subject to income tax previous hitinnext hit Zimbabwe, and levied previous hitinnext hit terms of the PAYE system. Employment income is deemed to be from previous hitanext hit source within Zimbabwe if:

• the services are rendered previous hitinnext hit Zimbabwe;
• it is from services rendered during temporary absence (not more than 183 days) from Zimbabwe;
• it is previous hitanext hit pension or annuity for past services rendered previous hitinnext hit Zimbabwe; or
• it is payment for services rendered to the Zimbabwean government.
Employees and employers are required to make monthly social security contributions to the National Social Security Authority (NSSA). The NSSA operates two schemes: the National Pension Scheme (NPS), to which both employers and employees are to contribute three percent of basic salary per month, with previous hitanext hit cap of US$200 and the Accident Prevention and Workers’ Compensation Scheme (APWCS) or Workers’ Compensation Insurance Fund/Scheme (WCIF), to which the employer is obliged to contribute. The employer contribution rate is calculated using previous hitanext hit risk factor dependent on the type of industry the employer is involved previous hitinnext hit.
Employers are also obliged to contribute one percent of the gross wage and salary bill as previous hitanext hit manpower development levy and 0.5 percent of gross salaries as previous hitanext hit standards development levy.
VI. Tax incentives/favourable tax regimes
previous hitAnext hit licensed investor who holds an investment licence for Export Processing Zones (EPZ) issued by the Zimbabwe Investment Authority (ZIA) under the ZIA Act qualifies for an initial five year tax holiday. After this period, the standard corporate income tax rate of 25 percent applies.
An industrial park developer qualifies for an initial five year tax holiday. Subsequently, the normal corporate tax rate of 25 percent applies. An “industrial park” is defined as any premises or area approved by the Minister by statutory instrument and previous hitinnext hit which goods or components intended for export from Zimbabwe are manufactured.
Manufacturing operations of which 50 percent or more of its total manufacturing output for previous hitanext hit year is exported from Zimbabwe, is subject to previous hitanext hit corporate income tax rate of 20 percent.
Business operations previous hitinnext hit Growth Point Areas, designated as such by the Minister by notice previous hitinnext hit the Gazette, are entitled to previous hitanext hit special initial allowances and an investment allowance of 15 percent on the cost incurred previous hitinnext hitrespect of new commercial or industrial buildings or staff housing, additions or alterations to such buildings and new machinery and utensils.
An approved company commencing manufacturing operations previous hitinnext hit previous hitanext hit new project previous hitinnext hit previous hitanext hit Growth Point Area is subject to corporate income tax at 10 percent and previous hitanext hit person engaged previous hitinnext hit previous hitanext hit new project providing infrastructure previous hitinnext hit previous hitanext hit Growth Point Area is subject to corporate income tax at 15 percent.
Companies engaged previous hitinnext hit an approved BOOT or BOT arrangement qualifies for an initial five year tax holiday. previous hitInnext hit the subsequent five years, the income is taxable at previous hitanext hit reduced tax rate of 15 percent. Thereafter, the income is taxable at the normal corporate tax rate of 25 percent.
Operators of previous hitanext hit tourist facility previous hitinnext hit an approved tourist development zone qualify for an initial five year tax holiday. After this period, the normal corporate tax rate of 25 percent applies.
Farming operations are entitled to capital deductions previous hitinnext hit respect of expenditure on fencing, clearing and stamping land, sinking boreholes and wells and aerial and geophysical surveys.
previous hitAnext hit company holding previous hitanext hit special mining lease issued under the Mines and Minerals Act is subject to corporate tax at previous hitanext hit reduced tax rate of 15 percent. Mining companies are also entitled to carry forward losses indefinitely and deduct capital expenditure on exploration, development and operations.
VII. Compliance/Administration
The corporate tax year previous hitinnext hit Zimbabwe is the calendar year. With approval from the Commissioner-General, previous hitanext hit company may have an accounting year which is different from the corporate tax year.
Corporate taxpayers must submit an annual income tax return by not later than four months from the end of its corporate tax year, supported by financial statements. Companies on the self-assessment system need not submit financial statements unless specifically requested to.
previous hitAnext hit “return for provisional tax payment”, containing the estimated taxable income for provisional tax purposes, should be submitted on previous hitanext hit quarterly basis. For taxpayers with previous hitanext hit December 31 year end, the due days are March 25, June 25, September 25 and December 20.
previous hitInnext hit respect of individuals, the tax year coincides with the calendar year. An individual whose income either consists entirely of employment income or is subject to previous hitanext hit nil rate of tax, is not required to submit an income tax return, unless an employee changed jobs or was not employed for previous hitanext hit full year. previous hitInnext hit such previous hitanext hit case he is obliged to submit previous hitanext hit return.
VAT returns are due by the 25th of the following month and returns for PAYE are due by 10th of the following month. Withholding tax returns are due within 10 days of the distribution or payment.
VIII. Exchange control
Zimbabwe has limited exchange controls regulations, with mainly capital account transactions requiring exchange control approval. Commercial banks monitor ongoing compliance and may request additional information previous hitinnext hit respect of transactions and or refer any matter to exchange control.
IX. Document retention
Documents should generally be retained for previous hitanext hit minimum period of six years.
For More Information
Celia Becker is Tax Advisor at ENSafrica previous hitinnext hit Johannesburg and she may be contacted by email at cbecker@ensafrica.com or by telephone at +27 11 269 7758.

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