What is Payroll Tax?
A payroll tax is a tax withheld from an employee’s salary by an employer who pays it to the government on their behalf. The tax is based on wages, salaries, and tips paid to employees. Payroll taxes are deducted directly from the employee’s earnings and paid directly to the Internal Revenue Service (IRS) by the employer.
Tax on Personal Income.
The Zimbabwean tax system is currently based on source and not on residency. Income derived or deemed to be derived from sources within Zimbabwe is subject to tax. It has been indicated that Zimbabwe is considering moving to a residence-based system during the current tax reform exercise.
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. The source of services is the place in which the services are rendered.
Certain types of income arising outside Zimbabwe may, in the hands of a Zimbabwean tax resident, be deemed to arise in Zimbabwe and be taxed as such. Examples are interest, dividends, and certain copyright royalties arising outside Zimbabwe.
A 3% (of tax liability) AIDS levy must be added to the total tax liability calculated. Inclusive of the AIDS levy, the top effective rate for employment income is 46.35% and the top effective rate for other income is 24.72%.
Other Taxes on Individuals.
Social Security Contributions.
Zimbabwe has a limited social security system. The National Social Security Scheme (NSSS) is compulsory for all resident employees.
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.
Capital gains tax
Capital gains tax applies to the sale of immoveable property or shares in private or listed companies. The general rate is 20% of the net gain, but there are special provisions in place because of the demonetisation of the Zimbabwe dollar for assets acquired before February 2009. The rate applicable to shares that are quoted on The Zimbabwe Stock Exchange is 1% of the selling price (withheld by the stock-brokers).
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% or 0% while other transactions are exempt from VAT.
Inheritance, estate, and gift taxes
A rate of 5% is charged on the value of estates exceeding USD 50,000. Exemptions from this duty include the value of a family home and certain life insurance policies.
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 evaluators operating in Zimbabwe at present.
Employment income includes gross income, no matter where paid, in respect of services rendered, in cash or in kind, for the following in particular (but not limited to):
- Salaries and fees.
- Fringe benefits (i.e. free use of company assets or benefits provided by the employer).
- Allowances and subsidies, subject to deductions for business expenses.
- Deemed value of accommodation provided by employer.
- Deemed value of the use of a company motor vehicle.
The principal exemptions on salaried income are as follows:
- Under certain conditions, the remuneration of employees of foreign governments and United Nations (UN) employees stationed in Zimbabwe is exempt from taxation.
- Relocation expenses paid by the employer are generally not taxed as fringe benefits in the employee’s hands except in cases where the payment is considered to be excessive.
- Reimbursement of actual business expenses paid on behalf of the employer is not taxable.
- Employer contributions to approved retirement funds and medical aid schemes (private health insurance) are not taxable in the hands of employees.
Benefits from pension provident and retirement annuity funds
|Pension fund||Benefit fund||Retirement annuity fund|
|Withdrawal||So much of the lump sum as does not exceed ZWL 18,000 plus any amount that is paid into a retirement annuity fund or pension fund.||So much of the lump sum as does not exceed ZWL 18,000 plus any amount that is paid into a retirement annuity fund or pension fund.||So much of the lump sum as does not exceed ZWL 18,000 plus any amount that is paid into a retirement annuity fund or pension fund.|
|Retirement||Up to 1/3 of the total value of a pension that is commuted is not taxable. The monthly pension (annuity) payable to persons 55 years and over is exempt from tax.||Fully taxable.||Up to 1/3 of the total value of a pension that is commuted is not taxable. The monthly pension (annuity) payable to persons 55 years and over is exempt from tax.|
|Death||The total lump-sum is tax free.||The total lump-sum is tax free.||The total lump-sum is tax free.|
Business and farming income earned by individuals may be subject to certain provisions of corporate taxation (see the Income determination section in the Corporate summary). It is recommended that tax advice is obtained in this regard.
For information on the taxation of capital gains, see Capital gains tax in the Other taxes section.
Investment income normally comprises of interest and dividends. Zimbabwe treats the WHT deducted from investment income as a final tax; consequently, there is no need to declare this type of income on tax returns or to pay any additional tax.
‘Dividends’ means “any amount distributed by a company … to its shareholders…”. The WHT on dividends is at a rate of 15%, except in the case of distributions made from companies that are listed on the Zimbabwe Stock Exchange, where a lower rate of 10% is applicable.
Interest arising in the name of Zimbabwe residents from ’financial institutions’ normally has a WHT of 15% deducted by the institution before it is paid to the investor. Non-resident persons are exempt from this WHT. Interest arising from sources other than ’financial institutions’ is subject to tax at the corporate tax rate.
However the following exemptions apply in the case of natural persons:
- Interest received from certain stock issued by the government.
- Interest received from the Peoples Own Savings Bank.
- Interest not exceeding ZWL 30,000 accruing to persons over the age of 55 years.
An employee may deduct contributions of up to ZWL 54,000 per annum to an approved pension, retirement annuity, and NSSS fund registered in Zimbabwe.
Travel, entertainment, and motor vehicle expenses are potentially deductible, but the onus is on the employee to prove they were incurred in the production of taxable income. Where allowances are provided by the employer, this onus is more readily discharged, but the deduction cannot normally exceed the allowance.
Personal and domestic expenses are not generally deductible.
There are minor deductions available for donations to registered welfare and educational institutions.
Mortgage interest expenses
Domestic mortgage interest is not deductible in Zimbabwe.
Foreign tax relief.
As a result of the source rules, few items subject to foreign tax are liable to Zimbabwean taxation. There is, however, a general unilateral provision for relief from double taxation.
Relief in the form of a tax credit from Zimbabwean tax is allowed for taxes paid on foreign income. The aggregate credit allowed may not exceed an amount that bears to the total tax payable in Zimbabwe the same ratio as the foreign income taxable in Zimbabwe bears to the total taxable income.
Other Tax Credits & Incentives.
Elderly persons, as well as mentally or physically disabled persons, may receive credits of ZWL 9,000 per annum.
50% of medical aid contributions and medical expense shortfalls are also allowed as a credit.
Tax returns and payment of tax
The due dates for filing of returns can be summarised as follows:
|Income tax return – Individuals – Salaries||Not necessary except in certain circumstances|
|Income tax return – Individuals – Carrying on wholly/partly a business profession or farming||Generally within four months after the tax year end (i.e. before 30 April each year)|
|Provisional payments (business individuals) – 1st payment of 10%||On/before 25 March of the respective tax year|
|Provisional payments (business individuals) – 2nd payment of 25%||On/before 25 June of the respective tax year|
|Provisional payments (business individuals) – 3rd payment of 30%||On/before 25 September of the respective tax year|
|Provisional payments (business individuals) – 4th payment of 35%||On/before 20 December of the respective tax year|
|Employees’ tax return (monthly PAYE return – P2 form)||By the tenth day following the month to which the PAYE relates|
|PAYE reconciliation returns (P8 and ITF16 returns)||Within 30 days from the end of the tax year and within 14 days where the employer ceases to trade|
Zimbabwe has a system of ’Final Deduction of PAYE’ by the employer, and the majority of individual taxpayers are not required to lodge tax returns, except in specified situations (such as where there are other sources of income or an employee changes employment during the course of the year of assessment).
Husbands and wives are taxed separately.
PAYE tax is withheld from an employee’s salary by the employer and must be remitted to the revenue authorities by the tenth day of the month following the payroll deductions.
Please note that Zimbabwe legislation does contain basic anti-avoidance sections that empower the Commissioner General to disregard the implications of a transaction or scheme if it can be proven that:
- such transaction or scheme had been entered into to avoid or postpone the payment of any duty or levy imposed by the Act
- it was entered into or carried out by means or in a manner that would not normally be employed in the entering into or carrying out of a transaction, operation, or scheme of the nature of the transaction, operation, or scheme in question or has created rights or obligations that would not normally be created between persons dealing at arm’s length under a transaction, operation, or scheme of nature of the transaction, operation, or scheme in question, and
- was entered into or carried out solely or mainly for the purposes of the avoidance or the postponement of liability for the payment of any tax duty or levy.
The Commissioner General may, at his sole discretion, impose this legislation on any transaction or scheme, which will place the onus of proof on the taxpayer to prove that any/all of the requirements noted above will not be applicable to the transaction or scheme.
Information shared here was sourced from the following websites:
PWC Zimbabwe: https://taxsummaries.pwc.com/zimbabwe