TAX

Zambia Fiscal Guide 2012/13

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Introduction: Zambia Fiscal Guide 2012/13

Income tax
Basis of taxation Tax is levied on a source or deemed source basis. Residents are taxed on domestic-source income and certain types of foreign income. Non-residents are usually taxed on Zambian-source income and are subject to a range of withholding taxes some of which may be reduced under a double tax treaty negotiated with the country of residence of the recipient.

Rates of tax
Resident companies Corporation tax: General rate Mining companies 35% 35% Large-scale mining 30%,other mining companies are taxed at 30%, hedging income 35%, export levy at 10%, First K250 000 000 - 35% Above K250 000 000 - 40% 35% 15% 10% 15%* 15%* 15%* 15%*

Telecommunication companies Banks Charitable institutions Farming WHT on dividends WHT on interest WHT on royalties WHT on rent Resident individuals Individual tax Dividends Interest Royalties Rents Income (ZK) (9 months) Up to 18 000 000 18 000 001 25 200 000 25 200 001 51 300 000 Above 51 300 000

0, 25%, 30% and 35%** 15%* 15%* 15%* 15%* Tax rate (%) 0% 25% 30% 35%

The above measures took effect from 1 April 2012. The new income tax charge year will run from 1 January to 31 December. As a result, the 2012/2013 charge year will run for a period of 9 months commencing 1 April 2012 to 31 December 2012. Non-residents Dividends Interest Royalties Rent Payments to haulage and construction contractors Commissions
* ** Tax withheld at source Individuals income tax table |1

15%* 15%* 15%* 15%* 15%* 15%*

Capital gains tax

There is no capital gains tax in Zambia.

Transfer pricing and thin capitalisation rules

Zambia does have transfer pricing and thin capitalisation rules. Several provisions in the Income Tax Act are designed to prevent various forms of tax avoidance. Transfer pricing provisions were introduced into the Act in 1999. These permit the Commissioner-General to compute income from transactions between associates to reect arms length conditions and to assess the taxpayer involved to tax accordingly. The transfer pricing rules were tightened in 2001, with the introduction of special provisions governing the issue of a security by a company to an associated company not belonging to the same Zambian grouping, where the determination of the arms length considerations is to be made with reference to certain criteria, including: (i) the appropriate level or extent of the issuing companys overall indebtedness, (ii) whether the issuing company and a particular person would have become parties to a transaction involving the issue of the security or the making of a loan, or a loan of a particular amount, to the associate company, and (iii) the rate of interest and other terms that may apply to such a transaction.

Inheritances and donations

Estate duty was abolished. There is no gift tax in Zambia.

Transaction taxes
Taxable supplies are subject to VAT at one of two rates: Standard rate: i.e. 16% that applies on most supplies of goods and services Zero rate: i.e. applies on exports of standard-rated goods and some specied goods and services. Exempt supplies these are items specically excluded from liability to VAT such that even when a taxable supplier supplies them, no VAT is charged.

Transfer duty
Fees are levied on increase of share capital at 2.5%, effective January 1994. A property transfer tax is levied at a rate of 5% on the higher of the open market value and nominal value of the property transferred. Property is dened as any land in Zambia, including buildings and improvements thereon, and any share issued by a company incorporated in Zambia.

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Other taxes
Tax Mineral royalty Basis Copper & cobalt Precious metal or Industrial Mineral Gemstone sales Rate (%) 6%* 6% 6%

Windfall tax has been abolished with effect from 1 April 2009. Variable tax has been retained to capture any windfall gains. Capital allowances on mining machinery remains at 100% Capital allowances on farming, i.e. farm improvements allowances at 50% and farm works allowance at 100% Medical levy on gross interest earned by individuals & corporate bodies Advance income tax on commercial imports. 1%*

6%

This measure is intended to encourage unregistered traders to register for income tax. It is also currently used to compel non-compliant registered taxpayers to become compliant in return submission. For registered taxpayers, advance income tax can be credited against their income tax liabilities on return submission.
* Levy withheld at source by Bank and is not tax deductible.

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Double tax treaties and reduced rates

Country Dividends (%) Qualifying companies Interest (%) Royalties, etc (%) Management qualifying consultancy/ companies technical fees Nil 15% 15% Nil Nil Nil Nil Nil Nil Nil Nil 15% Nil 15% 15% 20% 15% Nil

Canada China Denmark Finland France Germany India Ireland Italy Japan Kenya Netherlands Norway Romania South Africa Sweden Switzerland Tanzania Uganda United Kingdom

15% 5% 15% 5% 5% 5% Nil 5% Nil Nil 5% 15% 10% 15% 5% 20% 20% 20% 5%

15% 10% 10% 15% 10% 10% Nil 10% 10% Nil 10% 10% 10% 15% 10% 20% 20% 10%

15% 5% 15% 5/15% 10% 10% Nil 10% 10% Nil 10% 15% 15% 15% 10% 20% 20% 10%

New DTA yet to be signed. Old one in force.

Since the domestic withholding tax rate is 15%, the maximum rate suffered by any person is restricted to 15%.

Investment information
Zambias central geographical location in a largely untapped market makes it an ideal distribution point to surrounding countries. A good communication system, as evidenced by having three mobile communication companies, and a fairly developed road and rail network makes for ease of distribution to the markets in the Southern African Development Community (SADC) and the Common Market for East and Southern Africa (COMESA). Zambia is an attractive investment destination offering various lucrative investment opportunities in agriculture, manufacturing, energy, tourism and mining, among others. The Zambia Development Agency (ZDA) is geared towards building Zambias economy by supporting businesses and enterprises at all levels.

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A liberalised economic regime includes an investment code that allows 100% retention of foreign exchange earnings for the rst 3 years. Other incentives are: The creation of a one-stop investment centre in 1992 Reduction of tax rates on priority sectors which sectors mostly relate to value addition to raw materials Tight scal policy which has brought down ination Industrial Parks and Multi Facility Economic Zones to be created (with Chambishi Multi Facility Economic Zone located on the Copperbelt already created) under which there will be no WHT deducted from interest, management and consultancy fees and payments to foreign contractors Relaxed foreign exchange regime. Free import of currency, subject to declaration on arrival. The reforms have been aimed at encouraging inward foreign direct investment in the various economic sectors. ZDA Act Tax incentives The ZDA Act provides tax incentives for companies trading in priority sectors such as information and communication technology (ICT), Health and other medical services. The minimum amount of capital contribution required for an investor to qualify for tax incentives is ve hundred thousand United States dollars (US$500 000). The investment can be in the form of cash or in the form of capital machinery. The following incentives have been provided for under the Income Tax Act for investors operating in the priority sectors and/or MFEZ under the Zambia Development Agency Act: Zero percent tax rate on dividends for a period of 5 years from the year of rst declaration of dividends Zero percent tax rate on prots for the rst 5 years. For years six to eight, only 50% of the prots will be taxed and for years nine to ten, only 75% of the prots will be taxed Zero percent import duty rate on raw materials, capital goods, machinery including trucks and specialised motor vehicles for 5 years for enterprises operating in the MFEZ Deferment of value added tax (VAT) on machinery and equipment, including trucks and specialised motor vehicles imported for investment in MFEZ and/or priority sectors. Other incentives and guarantees given to investors that are not administered under the ZDA Act but are provided for in the tax legislation include the following: Income from farming will now be taxed at 10%, while manufacture of chemical fertiliser and income from export of non-trading products is taxed at 15% Buildings for manufacturing, mining or hotels qualify for wear and tear allowance of 5% per year plus an initial allowance of 10%. Buildings for manufacturing will also qualify for 10% investment allowance for the rst year of use only Implements, machinery and plant used for farming, manufacturing or tourism qualify for wear and tear allowance of 50% per year Capital expenditure on farm improvements qualies for a farm improvement allowance of 100% per year Farm works allowance of 100% in respect of expenditure on farming land in ones ownership or occupation A foreign investor who has registered foreign capital with the Bank of Zambia can transfer out of Zambia in foreign currency:

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 Dividends or after tax income Principal and interest of any foreign loan Management fees and royalties Proceeds of sales or liquidation of the business enterprise.

Exchange control
Exchange controls were abolished in 1994, except for the specic items outlined in the Statutory Instrument No 44 of 1994 this resulted in the liberalisation of restrictions on foreign currency. The agency through which exchange control is implemented and regulated is the Bank of Zambia, the main commercial banks and bureau de change. The Bank of Zambia may issue binding instructions or directions to nancial institutions. The Minister of Finance and National Planning has wide powers to make regulations relating directly or indirectly to: a) Gold, currency and securities transactions b) Exchange transactions c) The control of imports and exports. Dealings in foreign currency without the Bank of Zambias permission are restricted. Only authorised dealers are allowed to buy or sell to any person or to do any act connected with foreign currency in relation to any person outside Zambia. The foreign exchange regime in Zambia is much liberalised. Foreign currency for an amount up to US$5 000 can be obtained from a bureau de change and amounts exceeding US$5 000 can be obtained from commercial banks after giving reasons for requiring the amounts. The furnishing of information is intended to facilitate monitoring foreign currency movement and not necessarily as a restriction.

Prohibition on quoting in foreign currency

The Minister of Finance and National Planning signed Statutory Instrument No.33 of 2012 on 7 May 2012 which became effective on 18 May 2012. The Instrument prohibits the quoting, paying or demanding to be paid or receiving of foreign currency as legal tender for goods, services or other domestic transactions.

Minimum wage
The Zambian government, on 6 July 2012, issued a new statutory instrument on minimum wages and conditions of employment for protected employees that are engaged in shops, general establishments and domestic service.

Residence and work permits

Foreign citizens are required to obtain work permits, which are generally granted if it can be demonstrated that a citizen is unable to perform the job. A holder of an investment licence who invests at least US$250 000 and 200 jobs for the purpose of a Self Employment Permit (SEP), or US$500 000 for the purpose of special tax incentives in a priority sector or product, or $10 million for the purpose of special investment incentives in a non-priority sector as approved by the minister responsible for nance in consultation with the minister responsible for commerce Trade and Industry, is entitled to a self-employment permit and work permits for ve expatriates. The investment licence is valid for 10 years from the date of issue and the investor may apply for renewal of the investment licence before the date of its expiry.

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Annual budget announcement

The Minister of Finance and National Planning generally used to announce the annual Budget and Taxation Proposals on the last Friday of January for the tax year commencing on 1 April thereafter. However, since 2009, the budget is announced on the rst Friday of October, as the Zambian government has amended its budget period to adopt a 1 January to 31 December budget period. This is the trend that will follow in the years to come.

Bilateral trade and agreements

Membership WTO, ACP-EU Partnership Agreement, SADC, COMESA, Organisation of Copper Producing and Exporting Countries (CIPEC). Trade Agreements entered into with Botswana, Kenya, Malawi, Tanzania and Zimbabwe. Investment treaties entered into with USA, Germany and France. Zambia is a signatory to the 1965 World Bank Convention on Settlement of Disputes between States and nationals of other States (ICSID).

Economic statistics
Prime interest rate (31 December 2011) US$ exchange rate (31 December 2011) Ination (31 December 2011) GDP 2010 16.6% ZMK5 107 7.2 % ZMK107 247 billion

Travel information
Visa requirements Flights Inoculations Visa requirements are generally on a reciprocal basis. International ights to Lusaka, Ndola and Livingstone Airports Standard requirements

Currency
The Zambian Kwacha (ZMK), this is divided into 100 ngwee.

Languages
English is the ofcial and commercial language in Zambia.

Ofcial holidays
The following is a list of ofcial public holidays in Zambia: 1 January (New Years Day) 8 March (International Womens Day) 12 March (Youth Day) 2 April (Good Friday) 3 April (Easter Saturday) 4 April (Easter Sunday) 5 April (Easter Monday) 1 May (Labour Day) 25 May (African Freedom Day, anniversary of foundation of OAU) 5 July (Heroes Day) 6 July (Unity Day) 2 August (Farmers Day) 24 October (Independence Day) and 25 December (Christmas Day).
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Key contacts Michael Phiri Director, Tax T: +260 211372900 E: mphiri@kpmg.com www.kpmg.com

Notice: Whilst reasonable steps have been taken to ensure the accuracy and integrity of information contained in this document, we accept no liability or responsibility whatsoever if any information is, for whatever reason, incorrect. We further accept no responsibility for any loss or damage that may arise from reliance on information contained in this document. This document is based on our interpretation of the current income tax law and international tax principles. These principles are subject to change occasioned by future legislative amendments and court decisions. You are therefore cautioned to keep abreast of such developments and are most welcome to consult us for this purpose. 2011 KPMG Africa Limited, a Cayman Islands company and a member rm of the KPMG network of independent member rms afliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. MC9197 The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International.