This country-specific Q&A provides an overview to tax laws and regulations that may occur in Zambia.
It will cover witholding tax, transfer pricing, the OECD model, GAAR, tax disputes and an overview of the jurisdictional regulatory authorities.
This Q&A is part of the global guide to Tax. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/tax-4th-edition/
How often is tax law amended and what are the processes for such amendments?
The usual cycle of amendment is once a year. This usually follows revenue measures announced by the Government in its annual budget which is presented in the last quarter of the year. The Amendment proposals are presented to parliament in the forms of what are known as Bills of Parliament. They are usually approved in December but the amendments take effect on the 1st of January of each fiscal year.
In rare circumstances it is possible that an amendment will be made in the middle of the fiscal year however, this is extremely rare. In 2019 the Government made an attempt to change the fiscal regime of consumption tax from value added tax (VAT) to sales tax midway in the fiscal cycle however, due to practical reasons this failed and the introduction of sales tax is scheduled to take effect on 1st January, 2020 assuming there is no change in Government policy not to abolish VAT.
The process of amending tax legislation like any other legislation is by submitting the proposed amendments to Parliament through Parliament. It is usual for the Minister of Finance to invite for proposals in the third quarter of the year that should be considered for amendment. This however, is not a mandatory procedural legal requirement. Once presented to Parliament the Bills are then deliberated upon. Should Parliament approve the proposed amendments, after passing through the three stages, namely, first reading (Presentation Stage), second reading (Committee and Report Stage) and third reading (Approval stage) the amendments are then incorporated in the existing legislation and published as amended law in the Government Gazette.
At this stage the law either takes effect on publication in the Government Gazette or on issue of a Commencement Order by way of Statutory Instrument.
What are the principal procedural obligations of a taxpayer, that is, the maintenance of records over what period and how regularly must it file a return or accounts?
Tax payers are expected to comply with provisional and final income tax requirements with respect to the Income Tax Act. Tax returns with respect to provisional tax are expected to be filed quarterly and tax returns with respect to final income tax are expected to be filed on or before the 30th day June.
With respect to VAT, a tax payer is requested to make a monthly return. The return should be made by the 16th or 18th day of the month following the transaction period. The former date being with respect to manual returns and the latter being for electronic returns.
With regard to Customs Duty, a tax payer is requested to make a return upon importation.
The Excise Duty return should be made by the 14th day of the month following the transaction period.
Who are the key regulatory authorities? How easy is it to deal with them and how long does it take to resolve standard issues?
The Zambia Revenue Authority (ZRA) is the tax regulatory body in Zambia. The period it takes to resolve standard issues varies from experience disputes are resolved within a reasonably short time, this however entirely depends on the complexity of the matter.
Are tax disputes capable of adjudication by a court, tribunal or body independent of the tax authority, and how long should a taxpayer expect such proceedings to take?
The dispute resolution system is two tier. The first is the ZRA internal Appeal process which usually takes the form of an appeal against a tax assessment to the Commissioner under which jurisdiction the relevant tax falls. In the event that a party is dissatisfied with a decision of the Commissioner, he can then appeal to the Commissioner General whose office has a tax appeals Unit.
If a tax payer is dissatisfied with a decision of the Commissioner General, the tax dispute is adjudicated upon by the Tax Appeals Tribunal. Thereafter an appellate process is available to the Court of Appeal. Special Leave is required for a party to appeal to the Supreme Court. Length of adjudication depends on the complexity of the matter.
Are there set dates for payment of tax, provisionally or in arrears, and what happens with amounts of tax in dispute with the regulatory authority?
The Income Tax Act provides that Provisional Tax is due and payable on the following dates in a respective charge year:
- 1st instalment – 31st March, payable by 10th April;
- 2nd instalment – 30th June, payable by 10th July;
- 3rd installment – 30th September, payable by 10th October; and
- 4th instalment – 31st December, payable by 10th January;
- The final income tax instalment is payable on or before the 30th day June.
Withholding Tax should be paid within 14 days of the transaction.
Property Transfer Tax should be paid within 14 days of ZRA raising the tax assessment upon filing a return.
The VAT Act provides that a monthly return should be made by the 16th or 18th day of the month following the transaction period. The former date being with respect to manual returns and the latter being for electronic returns. The tax payer is expected to pay simultaneously with the filing of the return.
With regard to Customs Duty, a tax payer is requested to make payment upon assessment at the port of entry.
The Excise Duty should be paid within 14 days of the date of the transaction.
Is taxpayer data recognised as highly confidential and adequately safeguarded against disclosure to third parties, including other parts of the Government? Is it a signatory (or does it propose to become a signatory) to the Common Reporting Standard? And/or does it maintain (or intend to maintain) a public register of beneficial ownership?
Section 8 of the Income Tax Act and section 21 of the Zambia Revenue Authority Act provides that the information is confidential but that confidentiality does not extend to investigations by law enforcement agencies.
Zambia Is not a signatory to Common Reporting Standard. However, the Patents and Companies Registration Agency, pursuant to section 21 (2) of the Companies Act No 10 of 2017 has now made provision for a beneficial ownership registrar.
What are the tests for residence of the main business structures (including transparent entities)?
The test for residency is set out in section 4 of the Income Tax Act as follows:
“4. (1) An individual is, for the purposes of this Act, not treated as a resident in the Republic who is in the Republic for some temporary purpose only and not with any view or intent of establishing his residence therein, and who has not actually resided in the Republic at one time or several times for a period equal in the whole to one hundred and eighty-three days in any charge year, but if any such individual resides in the Republic for the aforesaid period he shall be treated as resident for that year.
(3) In this Act, a person other than an individual is resident in the Republic for any charge year
(a) if the person is incorporated or formed under the laws of the Republic; or
(b) central management and control of the person's business or affairs are exercised in the Republic for that year.”
Have you found the policing of cross border transactions within an international group to be a target of the tax authorities’ attention and in what ways?
Yes, the policing of cross border transactions within an international group has been a target of the tax authorities’ attention. This is seen through the introduction of Property Transfer Tax at share transfers which occur at international group level. The introduction of Transfer Pricing Regulations in the form of the Income Tax (Transfer Pricing) (Amendment) Regulations No. 24 of 2018.
Is there a CFC or Thin Cap regime? Is there a transfer pricing regime and is it possible to obtain an advance pricing agreement?
Yes, Thin Capitalisation limit on interest deductions exceeding 30% of EBITDA has been introduced effective 1st January 2019. Our law requires that the transaction is undertaken at an arm’s length rate by reference to :
- the appropriate level or extent of the issuing company’s overall indebtedness;
- whether the amount issued would have been provided as a loan on an arm’s length basis; and
- the rate of interest and other terms that would apply to such an arm’s length loan
Yes, Zambia has the Income Tax (Transfer Pricing) (Amendment) Regulations No. 24 of 2018
Is there a general anti-avoidance rule (GAAR) and, if so, in your experience, how would you describe its application by the tax authority? Eg is the enforcement of the GAAR commonly litigated, is it raised by tax authorities in negotiations only etc?
Yes anti-avoidance regulations are provided for under the provisions of Section 95 of Income Tax Act. This was applied in the case of D DONKIN SENIOR & D DONKIN JUNIOR v ZAMBIA REVENUE AUTHORITY 2002/RAT/43.
Have any of the OECD BEPS recommendations been implemented or are any planned to be implemented and if so, which ones?
Yes, The Income Tax (Transfer Pricing) Rules, Interest deduction restrictions, Section 95 of the Income Tax Act on anti-avoidance. Zambia has joined the inclusive framework.
In your view, how has BEPS impacted on the government’s tax policies?
It has resulted in the introduction of Transfer Pricing Regulations and introduction of the Thin Capitalisation Variation Rules.
Does the tax system broadly follow the recognised OECD Model? Does it have taxation of; a) business profits, b) employment income and pensions, c) VAT (or other indirect tax), d) savings income and royalties, e) income from land, f) capital gains, g) stamp and/or capital duties? If so, what are the current rates and are they flat or graduated?
Yes, they generally follow the OECD Model especially with regard to OECD BEPs programme base erosion and profit shifting.
- Rates for business profits/corporate – 35%
- Employment Income/Pay As You Earn(PAYE) – 37.5%(upper limit);
- Pension/Gratuity – 0%
- VAT – 16%;
- Withholding Tax on Dividends by a local Company – 20%;
- Withholding Tax on Royalties by a local Company to a Non-Resident – 20%; and
- Withholding Tax on interest by a local Company to a Non-Resident – 20%.
Is the charge to business tax levied on, broadly, the revenue profits of a business as computed according to the principles of commercial accountancy?
Are different vehicles for carrying on business, such as companies, partnerships, trusts, etc, recognised as taxable entities? What entities are transparent for tax purposes and why are they used?
Yes. Companies limited by shares and Partnerships are the most common vehicles for business simply because their structures are well understood and their regulatory environment well established.
Is liability to business taxation based upon a concept of fiscal residence or registration? If so what are the tests?
It is based on source of income. However the residence test, is set out in section 4 of the Income Tax Act. The liability under section 4 of the Income Tax Act requires that for Income to be taxed under the Zambian Tax Act it must be deemed to be from a source within the Republic of Zambia. In the case of JAYESH SHAH V ZAMBIA REVENUE AUTHORITY it was held that section 14(1)(a) of the Income Tax Act does not differentiate between a resident or non-resident regarding imposition of tax on income received from a source deemed to be from the Republic of Zambia.
Are there any special taxation regimes, such as enterprise zones or favourable tax regimes for financial services or co-ordination centres, etc?
Are there any particular tax regimes applicable to intellectual property, such as patent box?
Is fiscal consolidation employed or a recognition of groups of corporates for tax purposes and are there any jurisdictional limitations on what can constitute a group for tax purposes? Is a group contribution system employed or how can losses be relieved across group companies otherwise?
Are there any withholding taxes?
Yes. There is withholding tax on management fees, consultancy fees, royalties, interest and dividends.
Are there any recognised environmental taxes payable by businesses?
Is dividend income received from resident and/or non-resident companies exempt from tax? If not, how is it taxed?
Yes it is taxed by way of withholding tax.
If you were advising an international group seeking to re-locate activities from the UK in anticipation of Brexit, what are the advantages and disadvantages offered?