The tax rate has been reduced from 25% of taxable income to 24% effective from 1 January 2020. An AIDS levy of 3% is imposed on top of the basic tax, giving an effective rate of 24.72% (previously 25.75%).
Taxes on Cooperate Income.
As of 1 January 2020, the corporate income tax (CIT) rate for companies (other than mining companies with special mining leases, but including branches) is reduced to 24.72% (previously 25.75%). This rate includes a base rate of 24% plus a 3% AIDS levy.
Zimbabwe presently operates on a source-based tax system. This means that income from a source within, or deemed to be within, Zimbabwe will be subject to tax in Zimbabwe unless a specific exemption is available. The specific circumstances of a transaction should always be considered to determine whether the transaction gives rise to taxation in Zimbabwe.
Income earned by foreign companies from a source within, or deemed to be within, Zimbabwe will be subject to tax in Zimbabwe. In such a case, one should determine whether the foreign entity is obligated to register a local entity. A company is required to register a branch if it has established a place of business or is otherwise considered to be trading in Zimbabwe. A local subsidiary company may be registered as an alternative to a branch operation.
Currently, the Zimbabwean tax system is based on source and not on residency. Zimbabwe is moving towards a residence-based taxation system, but the details are still to be announced. Income derived, or deemed to be derived, from sources within Zimbabwe is subject to tax.
Source is the place where income originates or is earned, not the place of payment. If goods are sold pursuant to a contract entered into within Zimbabwe, the source of income is deemed to arise in Zimbabwe, regardless of the place of delivery or transfer of title.
Certain types of income arising outside Zimbabwe may, in the hands of a domestic company, be deemed to arise in Zimbabwe and be taxed as such. Examples include interest and certain copyright royalties arising outside Zimbabwe. Where the income is deemed to be from Zimbabwe, relief of the foreign tax suffered, up to a maximum of the Zimbabwe tax, may be allowed as a tax credit.
Permanent establishment (PE)
In the event that Zimbabwe has entered into a double taxation agreement (DTA) with the country where the foreign company resides, the entity will only be taxable in Zimbabwe if it operates through a PE, which, in most cases, includes a fixed place of business. The establishment of a local entity or branch will usually create a PE, although the provisions of the related tax treaty should be considered. If a PE exists, only the portion of the income attributable to the PE will be subject to tax in Zimbabwe.
The concept of a ‘permanent establishment’ was introduced into the Zimbabwe Income Tax Act effective from 1 January 2017. The wording is based on the base erosion and profit shifting (BEPS) guidelines that have been adopted by many countries.
Value-added tax (VAT)
VAT is a transaction tax, and the implications will vary for different transactions. Some transactions are taxed at a rate of 14.5% (effective 1 January 2020; previously 15%) or 0%, while other transactions are exempt from VAT. Input tax deductions may be claimed, subject to certain provisions. Advice on VAT implications of specific transactions related to corporate operations should be obtained prior to execution of transactions. The registration threshold has been increased to an annual turnover of 1 million Real Time Gross Settlement (RTGS) dollars (from 60,000, which was unadjusted from United States dollar [USD] based currency).
VAT is levied on every taxable supply by a registered person. A taxable supply means any supply of goods or services in the course or furtherance of a taxable activity. A taxable activity means any activity that is carried on continuously or regularly in Zimbabwe that involves the supply of goods or services for consideration.
VAT is payable on all imports for local consumption into Zimbabwe, subject to certain exemptions (e.g. in terms of a technical assistance agreement, donations to the state, goods of which the local supply is zero-rated). Import VAT is payable on the import value plus the applicable customs duty. This is generally payable in the currency that was paid for the goods imported.
A registered VAT vendor is entitled to deduct input tax credits paid in the course of taxable supplies made to such person, provided that a tax invoice is available to support the input tax deduction. It is also important to take note of deemed input tax deductions and prohibited input deductions. Import VAT paid may only be deducted as input tax if the import was in furtherance of a taxable activity and the required documentation (e.g. stamped customs entries) is held by the importer.
VAT returns are due by the 25th day following the month to which the VAT relates.
It is mandatory for all registered taxpayers (i.e. everyone that has a tax Business Partner Number) to use electronic fiscal registers (EFRs) that can be linked to the Zimbabwe Revenue Authority (ZIMRA). Penalties of up to USD 25 per day per point of sale may be imposed.
The concept of appointing VAT agents was adopted in April 2017. Several large mining companies were designated as agents, and the legislation demands that they deduct 10% of a gross invoice as a VAT WHT. The agents must then issue the payees with a certificate showing that the VAT WHT has been deducted in order to enable the payee to claim this against the following month’s VAT liability.
With effect from 1 January 2019, where sales of goods or services are effected in foreign currency, the VAT operator must account for the related VAT in the same currency.
Zimbabwe is a member of the Southern African Development Community (SADC) as well as the Common Market for Eastern and Southern Africa (COMESA). Customs duties are payable according to the general customs tariffs that are legislated for in Zimbabwe. Preferential duty rates apply on imports from SADC or COMESA countries, while goods may be imported free of customs duties from Namibia in terms of the Zimbabwe-Namibia Free Trade Agreement.
25% surtaxes have been imposed on a number of imported goods (including footwear, clothing, and certain foodstuffs) in order to protect the local manufacturing sector.
A security deposit is required by Customs on all temporary importations of equipment to cover import VAT and customs duties (if applicable).
A list of imported goods has been published by the government that require the import duties to be paid in foreign currency. The list includes motor vehicles, excluding commercial vehicles.
It is possible to import goods that are subject to customs duties into registered Customs’ bonded warehouses, where goods are kept for later use. In this case, the payment of duties may be deferred until the goods are taken out of the bonded warehouse for home consumption or acquitted if the goods are subsequently exported.
Excise duties are levied on local production of excisable products and are included on most excisable products imported from other countries.
Examples of the excise products and applicable rates include the following:
- Cigarettes: 40% + USD 7 per 1,000 sticks.
- Spirits: USD 2 per litre.
- Wine: USD 0.50 per litre.
Excise and fuel levies are also levied on petrol, diesel, and illuminating kerosene.
Property taxes are levied by cities, towns, and rural councils. Each of these bodies conducts periodic valuations of the properties in their area and annually set out a ‘rates schedule’ based on a percentage of the valuations. These may alter each year depending upon the entities’ budgetary requirements for funds. Valuations of the properties are usually based on estimates, as there are very few qualified property valuators operating in Zimbabwe at present.
Transfer duty is payable on the acquisition value of property purchased at the following rates:
|Value of the property (USD)||Rate of transfer duty|
|0 to 5,000||USD 400|
|5,001 to 20,000||2% of the value above USD 5,000|
|20,001 to 50,000||3% of the value above USD 20,000|
|50,001 and above||4% of the value above USD 50,000|
Transfer duty is normally payable by the buyer, but the agreement for the sale of the property will determine the person liable to pay these costs. In addition, conveyance costs of up to 4% (plus 14.5% VAT) must be added on.
Certain transactions may attract stamp duty. The amount of stamp duty payable will differ and will be based on the nature of every individual transaction.
The basic transactions can be summarised as follows:
|Bonds||0.4% (USD 0.40 for every USD 100 or part thereof)|
|Brokers notes – purchase of securities||0.25% (USD 0.25 per every USD 100 or part thereof)|
|Brokers notes – purchase/sale of any movable property other than a security||0.10% (USD 0.10 per every USD 100 or part thereof)|
|Brokers notes – purchase/sale of any immovable property||1% (USD 1.00 per every USD 100 or part thereof)|
|Off market share transfer instruments||2% or USD 2|
|Cheques||0.05% (USD 0.05)|
Tax advice should be obtained for major transactions in respect of the transactions mentioned above in order to ensure that the correct stamp duty implications are considered.
Capital gains tax
It should be noted that capital gains tax is payable in Zimbabwe on the disposal of immovable property or shares that are held in listed (on the Zimbabwean Stock Exchange) or unlisted companies at the following rates:
Acquired pre-22 February 2019
- Listed securities: 1% of proceeds.
- Property: 5% of proceeds.
- Unlisted securities: 5% of proceeds.
Acquired post-22 February 2019
- Listed securities: 1% of proceeds.
- Property: 20% of capital gain.
- Unlisted securities: 20% of capital gain.
Zimbabwe operates a pay-as-you-earn (PAYE) system that is called the ‘Final Deduction System’ (FDS). This is based on the presumption that all employers must register for PAYE (both local and foreign-based employers), and that they are responsible for calculating, collecting, and paying the correct amount of PAYE every month to ZIMRA. Tax audits are carried out periodically (every year or two) to test the payroll systems.
The full burden of collecting the correct tax is placed on the employer, and, because of this, there is no requirement for employees to file annual tax returns in respect of employment income.
Social security contributions
Zimbabwe has a limited social security system. The National Social Security Scheme (NSSS) contributions are payable at the same rate of 4.5% of basic salary by the employer and employee, with a salary cap set at ZWL 5,000 per month.
Manpower training levy
Subject to some exceptions, employers are required to pay a 1% monthly training levy (on the gross wage bill) to the Zimbabwe Manpower Development Authority.
Under the Workmen’s Compensation Act, employers are required to contribute to a fund that provides cash benefits for industrial injury, disability, and death. Contribution rates are supposed to vary according to inherent occupational risk, from less than 2% in most low-risk commercial/administrative occupations to 11% for high-risk sectors.
Standards Development Fund
With a few exceptions, employers are required to pay 0.5% of their quarterly gross wage bill to the Standards Development Fund. The amount is payable on all payments made by the employer on behalf of the employee, including medical aid and pension contributions.
The Act tax base for CIT is taxable income rather than profits. The source and nature of the income determines whether the amount is taxable or not. In addition to amounts received or accrued from actual Zimbabwean sources, there are deeming provisions that bring income from foreign sources into Zimbabwean taxable income.
In general, all receipts from a Zimbabwe source are taxed, excluding amounts that are proven by the taxpayer as being capital receipts. Most expenditure items and some specified exemptions are deductible against income. Capital expenditure is generally not deductible, with amounts on specific items being deductible by way of annual allowances spread over a period.
The legislation permits three methods of inventory valuation: historic cost, cost of replacement, or net realisable value. Standard cost based on first in first out (FIFO) is normally used for accounts valuations and is an accepted basis for tax purposes. Last in first out (LIFO) is not permitted for tax or for accounting purposes. The tax valuation may differ from the accounting valuation; this is a rare occurrence in Zimbabwe but is acceptable.
See Capital gains tax in the Other taxes section.
Dividends received from Zimbabwe incorporated companies are tax exempt. When received from non-Zimbabwe companies, they are taxed at a flat rate of 20%; however, relief is granted by allowing any foreign tax suffered as a tax credit (up to a maximum of the 20% local rate of tax).
Interest accruing to Zimbabwe resident companies from ‘financial institutions’ is subject to a 15% WHT and thereafter is exempt from CIT (the WHT becomes a final tax). Interest from other local or foreign sources is included in gross income and is taxed at the normal CIT rate. Relief will be granted for any foreign tax paid, up to the maximum Zimbabwe tax rate.
The partnership itself is not taxed directly; however, the taxable income of the partnership is calculated in the same way as corporate income and is then allocated amongst the partners in accordance to their agreed profit sharing ratios. This income is taxed in their hands at the basic CIT rate.
Rents and royalties are generally treated as normal taxable income and are taxed at the basic CIT rate. Rent arising in respect of land and buildings situated outside of Zimbabwe, however, is exempt from local tax.
Where income (including business profits) is deemed to be from a Zimbabwe source, it will form a part of the local company’s taxable income and will be subject to tax at the basic CIT rate. Relief in respect of foreign taxes suffered will be granted unless it is clear that the true source of the income is, in fact, Zimbabwe.
The Act makes provisions for specific deductions. Some of the deductions (e.g. the deduction of foreign exchange losses, development and exploration costs, hire purchase allowances, and manufacturing allowances) can be more complex.
The cost (including finance charges) of machinery, implements, and other articles used by the taxpayer in the production of income is deductible in four equal annual allowances. No apportionment is required where the asset was held for less than 12 months.
Industrial buildings (including hotels) constructed and used by the taxpayer in the production of income qualify for an initial allowance of 25% of construction cost in the year they enter service. Thereafter, an annual allowance of 25% is deductible for each year following the year of construction. Additions to existing buildings (not alterations or repairs) qualify for the same deductions. It is important to note that the allowance is calculated on the cost of construction and not the cost of acquisition. In the latter case, the allowances are set at 5% of the cost.
A mining exploration expenditure incurred before commencement of production is deductible in full in the first year of production against income derived from the mine. Subsequent development expenditure is presently written off in the year expended.
Capital allowances may also be deducted with respect to leasehold improvements.
A recovery or recoupment of allowances previously claimed should be included in the gross income of a taxpayer in the event that the allowance is recovered or recouped by way of disposal. The recoupment is calculated on the capital allowances previously granted.
Goodwill is currently not deductible for tax purposes in Zimbabwe.
Start-up expenses may be deducted if incurred within 18 months of commencement of business and not considered to be capital in nature.
Zimbabwe has thin capitalisation rules based on a 3:1 debt-to-equity ratio. A portion of the overall interest may be disallowed if this ratio is exceeded. In addition, any disallowed interest will be treated as a deemed dividend and subjected to a 15% WHT.
Bad debts written off may be claimed, but not a provision for bad debts.
Donations (with varying maximum limits) made to specified charities and educational bodies may be claimed.
Entertainment expenses are not deductible for tax purposes.
Fines and penalties
Fines and penalties are not deductible for tax purposes.
Taxes are generally not allowed as a deduction against income unless they form a part of a cost of an allowable expense (e.g. VAT incurred on an expense line that may not be claimed as input tax).
Net operating losses
Assessed tax losses may be carried forward (but not backwards) for up to six years, provided the company continues to trade. This restriction does not apply to mining companies. Tax laws do not allow for losses to be transferred to other group companies, and anti-avoidance provisions may be triggered by transactions designed to transfer or exploit assessed losses.
Assessed losses are reduced in the event of a compromise agreement with creditors.
Payments to foreign affiliates
The law prohibits the deduction of amounts incurred in excess of specified limits in respect of management and general administration expenses, as well as interest. This applies to branches or subsidiaries of both local and foreign companies.
The limit on management and general administration expenses is based on such expenses exceeding 1% and 0.75%, respectively, for a company already in production and prior to production, of total tax-deductible expenses.