1. What are the key tax laws and regulations in Zambia that individuals and businesses need to be aware of?
- The Customs and Excise Act;
- The Income Tax Act;
- The Value Added Tax Act;
- The Property Transfer Tax Act;
- The Mines and Minerals Development Act; and
- The Skills Development Levy Act.
2. How does the Zambian tax system work, and what are the different types of taxes imposed on individuals and businesses?
The Zambian tax system requires both individuals and businesses to contribute to the government’s revenue. It encompasses a diverse array of taxes that are imposed on various economic activities. These include:
- Value added tax (VAT): A tax levied on goods or services supplied within Zambia by registered or eligible suppliers engaged in business activities.
- Withholding tax (WHT): A method of tax collection where a certain amount is deducted from payments made by a liable person (payer) at the time of payment or when the payee becomes entitled to the payment.
- Property transfer tax: A tax imposed on property transfers, such as mineral processing licences, mining rights (mining licence or exploration licence), land, shares, and intellectual property.
- Mineral royalty: A payment made as compensation for mineral extraction in Zambia, with rates varying based on the type of mineral.
- Customs duty: A tax levied on goods imported into Zambia.
- Excise duty: A tax levied on specific goods or products, regardless of whether they are imported or domestically produced.
- Pay as you earn (PAYE): A system where employers deduct income tax from employees’ salaries at the source and remit it to the Zambia Revenue Authority (ZRA).
- Skills development levy (SDL): A tax levied on employees’ gross emoluments paid by employers.
- Turnover tax: A tax designed for small businesses, charged on their gross sales/turnover, with businesses earning up to ZMW 800,000 annually subject to this tax.
- Corporate income tax: A tax on profits earned by companies operating in Zambia, applicable when their annual income exceeds ZMW 800,000.
3. Are there any specific tax incentives or exemptions available in Zambia that individuals or businesses can take advantage of?
Some notable tax incentives for companies include:
- Companies listed on the stock exchange receive a two percentage point reduction in the corporate tax rate during their initial year of listing. If at least one-third of the listed company is owned by Zambian nationals, the discount is further increased to seven percentage points for the first year.
- Public benefit organisations are taxed at 15%.
- 10% corporate tax on agriculture and agro-processing.
- 0% corporate income tax for ceramic products manufacturing for the tax years 2022 and 2023.
- Ten-year period carry forward of tax losses and disallowed interest for mining operations.
- 10% tax rate on income from non-traditional products from farming or agro-processing exports.
- 15% income tax on income received by a company from the manufacture of organic fertilisers, chemical fertilisers, and copper cathodes.
Tax incentives for investors in multi-facility economic zones or industrial parks:
- 0% corporate tax for the first ten years on exports.
- Zero tax on dividends for the first ten years.
- 0% corporate tax for the first ten years on profits.
- For years 11 to 13, only 50% of profits are taxed.
- For years 14 and 15, only 75% of profits are taxed.
4. What are the common tax obligations for businesses operating in Zambia, such as corporate income tax, value-added tax (VAT), and payroll taxes?
Some common tax obligations, include the following:
- Employers must deduct PAYE from employees’ salaries. The applicable rates are 20% on earnings between ZMW 4,800 and ZMW 6,800, 30% on earnings between ZMW 6,801 and ZMW 8,900, and 37.5% on earnings above ZMW 8,900 per month.
- Employers must pay SDL at a rate of 0.5% per month.
- The standard VAT rate is 16%. However, certain goods and services fall under the category of zero-rated supplies, attracting a 0% VAT rate, while others are exempt from VAT.
- The turnover tax rate is 4%.
- The standard corporate tax rate is 30%. However, for partnerships, business names, or sole proprietorships, the tax rate applied is the same as that for individuals. The top tax rate of 37.5% is applicable to any annual income exceeding ZMW 82,800.
- The WHT rates for income such as commission, royalties, dividends, interest, management and consultancy fees are 15% for residents, 20% for non-residents.
5. How can I ensure that my business is complying with all the necessary tax requirements in Zambia?
To ensure compliance with tax requirements in Zambia, businesses must understand taxes and rates, register for a taxpayer identification number with the ZRA, maintain accurate records, file returns and pay taxes punctually, seek advice from tax professionals, and stay informed about tax law updates.
6. Are there any recent updates or changes in Zambian tax laws that individuals or businesses should be aware of?
There are numerous updates in Zambian tax laws, some of the notable ones are:
- Income received by public private partnerships during their first five years of profit-making is now taxed at a reduced rate of 15%, down from 35%.
- The two-tier telecom tax has been abolished, and now all telecom income is taxed at a flat rate of 35%.
- Previously, all mining companies were subject to corporate income tax regardless of their scale, however, artisanal mining income is now subject to turnover tax.
- Interest earned on green bonds listed on the securities exchange with a maturity of at least three years is exempt from WHT.
7. Can you provide guidance on tax planning strategies that can help minimise tax liabilities for businesses operating in Zambia?
Effective tax planning strategies for businesses operating in Zambia to reduce their tax liabilities include selecting the appropriate business structure, utilising tax incentives and allowances, maximising deductible expenses and capital allowances, exploring investment incentives, considering tax-efficient financing and conducting regular tax reviews.
8. What are the potential consequences of non-compliance with Zambian tax laws, and how can I avoid any penalties or legal issues?
Non-compliance with tax laws can lead to penalties, fines, interest, and legal actions. To avoid these consequences, ensure timely and accurate tax filing, proper record-keeping, seeking professional advice, and compliance with tax regulations.
9. How can I resolve tax disputes or challenges with the Zambian tax authorities, such as filing an appeal or engaging in negotiations?
To resolve tax disputes, taxpayers should first engage in dialogue and negotiation with the ZRA. If unresolved, they can formally object internally, escalating to the Commissioner General’s office. If dissatisfied with the final assessment, they can appeal to the Tax Appeals Tribunal, and if still dissatisfied, to the Supreme Court for final resolution.
10. Are there any specific considerations or best practices for international businesses or individuals conducting business or earning income in Zambia?
It is crucial to adhere to legal and regulatory compliance, choose the appropriate business structure, consider local partnerships, understand taxation, obtain necessary work permits and visas and conduct thorough market research. Consulting with local experts is essential for a successful venture in Zambia.