Tax Registration and Types of Tax in Zambia

The Ministry of Financeis responsible for the formulation of tax policy in Zambia and the implementing agency is the Zambia Revenue Authority (ZRA).

The legislative frame work relating to the regulation and administration of  the taxation is provided for in  the IncomeTaxAct1966,as amended. The source of income and residence are the basis for liability to tax underthe Zambian tax regime.

Zambia Revenue Authority (ZRA)

The Zambia Revenue Authority (ZRA) is an implementing agency of Government mandated to assess and collect tax and advise the state on aspects of tax policy. Once the registration of a company is successfully done at the Patents and Companies Registration Agency (PACRA), one needs to register with ZRA for a tax payer identification number (TPIN No.) The TPIN number is then used to register for the various taxes applicable to the specific type and nature of the registered business. It only takes 24 hours to obtain a TPIN number at ZRA. 

Taxes are directly handled by the two operating Divisions at ZRA i.e. Domestic Taxes Division and Customs Services Division. Domestic Tax Division handles direct taxes that include Corporate Tax, Turnover Tax, Pay-As-You-Earn, Withholding Tax, Property Transfer and Mineral Royalty. It also handles Value Added Tax which falls under indirect taxes. The Customs Services Division handles both Customs and Excise duties. The other Divisions offer support services to the two divisions.

Corporate Tax

This is levied on the profit made by a business entity.

There are two tax rate for companies/ investor wishing to set base in Zambia:

Listed on the stock exchange 33%

Not listed companies 35%

There exist a uniform 2 % difference between the the two categories irrespective of nature of business for example under farming the current tax rate is 10% for non listed and 8% for listed. The same is the case with mining companies. The rates are on taxable profits.

The main incentives are on tax holidays for income tax mainly 5 years but some times do extend up to 7 years. These companies do pay PAYE until their tax holiday is over.

The other unique feature is the ability to claim accelerated tax relief on all capital items for instance in farming most of the plant, machinery etc enjoy 100% relief whilst some 50 and 25%. In manufacturing and mining there are also hefty reliefs.

Additional features are also derived from the double taxation treaty signed especiary with companies or investors associated with South Africa and Mauritious as the contents of the treaty prohibits taxation of incomes (in general) from a docile (resident) source but allows source country to tax it. Zambia can only tax the difference. For instance is tax in south is 40% and in Zambia its 35%, the later will only ta 5% whilst the countries associated with Mauritious will not be taxed at all.

The investors also enjoy personalized incentives if they commit to set up in rural areas or also pledge to employ a given number of locals. This is on a case to case basis.

Turnover Tax

This is income payable on gross sales or turnover for those businesses/individuals whose income is K800,000 or below. It is calculated at a rate of 3%.

Personal Income Tax

This is a tax levied on the income earned by an individual. In that regard, employers in Zambia are required to register and operate a Pay-As-You-Earn (PAYE) scheme under which they deduct laible taxes from their employees and remit to ZRA. This deduction also applies to expatriate employees working in Zambia even in cases where such emoluments are paid or payable outside Zambia. The personal tax rate ranges from 25 to 35% with the exception of farmers whose maximum applicablicable tax does not exceed 15%. Employers are further required to submit annual PAYE tax returns, at the end of every charge year, on a prescribed ZRA form. The applicable rates and thresholds are given below:

Withholding Tax

This is a tax on income that is deduted at the source and remmited to the Government. The applicable withholding tax rates are as follows:

Mineral Royalty

This is a regular payment made to the Government by mining firms as a consideration for the privilege of extracting particular mineral resources. It is not classified as a tax and is governed by the Mines and Minerals Act.

The rates are as indicated below:

Deductions..

Value Added Tax

Value Added Tax (effective until April 2019)

VAT is levied at 16%. Some specified goods and services are zero-rated or exempt. Registration for VAT purposes is mandatory for every dealer in or supplier of standard rated and zero-rated goods and services, as defined in the VAT Act No. 4 of 1995 (which replaced sales tax), whose taxable turnover exceeds ZMW800 per annum. Voluntary registration is acceptable for dealers whose turnover falls below the stipulated minimum turnover.

The Value Added Tax (VAT) of 16 percent applies to both goods and services, of domestic production and those that are imported.  VAT is levied on the c.i.f. value plus customs tariff. Exemptions from VAT include social services such as health, education, and funeral services. Registered suppliers or dealers are required to submit VAT returns monthly within 21 days of the prescribed accounting period unless they have been allowed the option for extended tax period. Late or failure to submit returns, including nil returns, attracts penalties. Input VAT can be claimed within a period of three years from the date of the tax invoice or other documentary evidence. The period in which input VAT incurred prior to the date of VAT registration can be claimed is 3 months.

Deductions..

Customs and Excise Duty

Customs and Excise Duty – is a tax imposed on imports and exports of goods. There are three categories for import duties in Zambia: 25% mainly for finished products, 15% for intermediate goods and 0 to 5% for raw materials and capital goods.