The Zimbabwean tax system is sourced-based, with a standard corporate income tax rate of 25 percent and maximum personal income tax rate of 45 percent. A 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 in 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 in the case of residents and a final tax in the case of non-residents.
A 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 in a 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 in favour of a person in any year of assessment from a source within or deemed to be within Zimbabwe and generally excludes amounts ofa capital nature.
In the case of partnerships, each partner is liable to tax in 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 a source within or deemed to be within Zimbabwe, irrespective of whether or not the company has a PE in the country. Capital gains ofa non-resident company from a source within Zimbabwe are also taxable in Zimbabwe.
The concept of PE is not defined under domestic tax rules, but is defined in the relevant double tax agreements entered into by Zimbabwe.
The standard corporate tax rate applicable to both branches of foreign companies and local incorporated companies is 25 percent. In addition, a 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;
• 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;
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 in public or private companies) in Zimbabwe are subject to capital gains tax in terms of the Capital Gains Tax Act (Cap 23:01).
Capital gains tax is levied at a 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 in companies listed on the Zimbabwe Stock Exchange (ZSE) is subject to a 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 a 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, in 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 a transaction, operation or scheme of the nature of the transaction, operation or scheme in question.
G. Withholding taxes
Withholding tax is applicable on specified payments made to resident and non-resident companies. In 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 in terms of a double tax agreement entered into between Zimbabwe and the recipient’s country of residence.
A final withholding tax of 15 percent applies to dividends paid to both resident and non-resident companies. Securities listed on the ZSE qualify for a reduced dividend withholding tax rate of 10 percent. Dividends paid by an industrial park developer are exempt from withholding tax.
Royalties paid to a non-resident are subject to 15 percent withholding tax. No withholding tax is levied on interest paid to non-residents, but interest earned by a resident on fixed-term deposits (having a 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 in Zimbabwe, but a 15 percent withholding tax is levied on remittances of allocable expenditure of a technical, administrative, managerial or consultative nature by a Zimbabwean branch to its non-resident parent.
A 10 percent withholding applies to every payment over US$250 to resident contractual suppliers that do not have a tax clearance certificate. This is not a final tax.
VAT at a standard rate of 15 percent is imposed on every taxable supply of goods and services made in 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 a 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 in excess of US$60 000 should register for VAT purposes as a “registered operator”.
V. Individual or personal taxation (employment income)
Individuals who are “ordinarily resident” in Zimbabwe are subject to income tax in respect of taxable income from a source within or deemed to be within Zimbabwe. Tax is levied at a progressive scale with the maximum rate of 45 percent. In addition, the three percent AIDS levy also apply to individuals.
The term “ordinarily resident” is not defined in the Income Tax Act, but in terms of the common-law interpretation which applies, an individual is ordinarily resident in a country:
• which is his/her usual place of residence; or
Employment income earned by a non-resident individual from a source within or deemed to be within Zimbabwe, is subject to income tax in Zimbabwe, and levied in terms of the PAYE system. Employment income is deemed to be from a source within Zimbabwe if:
• it is from services rendered during temporary absence (not more than 183 days) from Zimbabwe;
• 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 a 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 a risk factor dependent on the type of industry the employer is involved in.
Employers are also obliged to contribute one percent of the gross wage and salary bill as a manpower development levy and 0.5 percent of gross salaries as a standards development levy.
VI. Tax incentives/favourable tax regimes
A 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 in 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 a year is exported from Zimbabwe, is subject to a corporate income tax rate of 20 percent.
Business operations in Growth Point Areas, designated as such by the Minister by notice in the Gazette, are entitled to a special initial allowances and an investment allowance of 15 percent on the cost incurred inrespect 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 in a new project in a Growth Point Area is subject to corporate income tax at 10 percent and a person engaged in a new project providing infrastructure in a Growth Point Area is subject to corporate income tax at 15 percent.
Companies engaged in an approved BOOT or BOT arrangement qualifies for an initial five year tax holiday. In the subsequent five years, the income is taxable at a reduced tax rate of 15 percent. Thereafter, the income is taxable at the normal corporate tax rate of 25 percent.
Operators of a tourist facility in 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 in respect of expenditure on fencing, clearing and stamping land, sinking boreholes and wells and aerial and geophysical surveys.
A company holding a special mining lease issued under the Mines and Minerals Act is subject to corporate tax at a 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.
The corporate tax year in Zimbabwe is the calendar year. With approval from the Commissioner-General, a 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.
A “return for provisional tax payment”, containing the estimated taxable income for provisional tax purposes, should be submitted on a quarterly basis. For taxpayers with a December 31 year end, the due days are March 25, June 25, September 25 and December 20.
In 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 a nil rate of tax, is not required to submit an income tax return, unless an employee changed jobs or was not employed for a full year. In such a case he is obliged to submit a 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 in respect of transactions and or refer any matter to exchange control.
IX. Document retention