A. Income Tax: Scheme of the Act
The Income Tax Act provides details of what constitutes 'chargeable income'. Income is charged to tax, at the rates set out in the Charging Schedule, for each charge year on the income received in that charge year-
(a) by every person from a source within or deemed to be within the Republic; and
(b) by every person ordinarily resident within the Republic by way of interest and dividends from a source outside the Republic.
The steps to be followed to determine taxable income are thus:
Gross Income
less Deductions
= Chargeable Income
B. Income Tax on Resident Corporations (National Government)
1. Name of Tax and Levied in Terms of Which (Name, Number and Year)
Income Tax, Income Tax Act, Chapter 323 of the laws of the Republic of Zambia (hereinafter referred to as "the Act").
2. Department Responsible for Administration
Zambia Revenue Authority (hereinafter referred to as "ZRA") headed by the Commissioner General.
3. Definition and Classification
The term "company" is defined as any company incorporated or registered under any law in force in Zambia or elsewhere.
4. Basis of Taxation
4.1 Source-based or residence based
Zambia employs a source-based income tax system.
(Foreign income and taxes are translated into Zambian kwacha.)
4.2 If source, define:
4.2.1 Actual source
The term "source" is defined only in terms of what is deemed to be a source in Zambia (see 4.2.2 below).
4.2.2 Deemed source
Income is deemed to be from a source within the Republic if that income-
(a) arises under any agreement made in the Republic for the sale of goods, irrespective of whether those goods have been or are to be delivered in the Republic;
(b) is remuneration from employment exercised or office held in the Republic or if it is received by virtue of any service rendered or work or labour done by a person or partnership in the carrying on in the Republic of any business, irrespective of whether payment is made outside the Republic, or by a person resident outside the Republic;
(c) is remuneration for services rendered outside the Republic to the Government or any statutory corporation if the person rendering the services is resident outside the Republic solely for that purpose;(d) is a pension granted by a person wherever resident, irrespective of where the funds from which it is paid are situated, or where payment is made, except where the employment or office for which the pension is granted was wholly outside the Republic, and the emoluments were never charged to tax in the Republic;
(e) arises from interest incurred in the production of income or in the carrying on of a business in the Republic or paid directly or indirectly out of funds derived from within the Republic;
(f) arises from a royalty incurred in the production of income or in the carrying on of a business in the Republic or paid directly or indirectly out of funds derived from within the Republic;
(g) arises from the carriage, by a person who is not resident in the Republic, of passengers, mails, livestock or goods embarked, shipped or loaded in the Republic other than passengers embarking in transit through the Republic or mails, livestock or goods shipped or loaded on transhipment through the Republic; or
(h) arises from a management or consultant fee incurred in the production of income or in the carrying on of a business in the Republic and is received by a person or persons in partnership for a service other than such part thereof as is rendered by the person or persons in partnership in the carrying on of a business in the Republic. (Section 18)
4.3 If residence, define:
4.3.1 Define resident
Individuals:
The Act does not define residence or ordinary residence of an individual. What it does do in Section 4 is to set out rules under which it will be decided that an individual is not resident for a charge year. Where an individual is in Zambia:
i. for a temporary purpose;
ii. not with the intention of establishing a residence here; and
iii. has not actually resided in the Republic at one time or several times for a period equal in the whole to 183 days in the charge year; he will not be resident. If any one of these conditions is not fulfilled he will be resident
Other Persons:
A legal person is resident for tax purposes if:
i. that person is incorporated or formed in Zambia
ii. the Central Management and Control of the person's business or affairs are exercised in Zambia for that charge year.
4.3.2 Exclusions from the definition of resident:
As stated above
4.3.3 Ceasing of residency provided for in the Act
None
5. Time Tax is Levied
On the earlier of the time of receipt or accrual.
6. Included in Tax Base
Income deemed to be sourced in Zambia. (see 4.2.2)
7. Year of Assessment
The charge year is defined as “the period of twelve months ending on the 31st March, and each succeeding year. (part 1, par 2)
8. Computation of Taxable Income
Gross Income
Minus
Deductions (Section 29)
Minus
Capital Allowances and Losses
Equals
Chargeable Income
8.1 Exemptions
8.1.1 Partial exemptions (amounts exempt irrespective of the identity of the recipient):
None
8.1.2 Absolute exemptions (taxpayers enjoying completed exemption from tax on income):
The following foreign organisations are exempt provided they have been approved by the Minister by order in the Gazette:
a. any international organisation;
b. any agency of a foreign government; and
c. any foreign foundation or organisation.
The following local organisations are exempt:
a. local authorities;
b. registered trade unions;
c. agricultural society, mining or commercial society, whether corporate or unincorporate, or any other society having similar objects, not operating for the private pecuniary gain or profits of its member;
d. club, society or association organised and operated only for social welfare, civil improvement, pleasure, recreation or like purposes, if its income, whether current or accumulated, may not in any way be received by an member or shareholder;
e. approved fund or medical aid society or approved share option scheme;
f. employees' savings scheme or fund, if approved by the Commissioner-General; and
g. political party registered as a statutory society under the Societies Act. (pt 12 sched 2.5)
The following specific organisations has been granted exemption status:
a. the Commonwealth Development Corporation;
b. the Economic Co-operation Administration and Mutual Security Agency, or successor agencies of the Government of the United States of America;
c. Any society registered under the Co-operative Societies Act, if the gross income, before deduction of any expenditure, of such co-operative society when divided by the number of its members is less than the tax free income threshold under the Pay-as-You-Earn (PAYE) tax system;
d. The income of a non-resident person derived from the carrying on of the business of shipowner, charterer or air transport operator are exempt from tax provided there is a reciprocal agreement with the non-resident's country of residence;
e. Income of any organisation, partnership or corporate body whose the objects and activities within the republic are to assist in the development of the Republic can be wholly or partially exempt as is approved by the Minister by Statutory order.
f. any charitable institution or of any body of persons or trust established for the promotion of religion or education, or for the relief of poverty or other distress (provided that the income may not be expended for any other purpose). If the income of such an institution is the profit of a business carried on by the charitable institution, body of persons or trust receiving it, that income is not exempt from tax unless it is applied only to the purposes set out above, and either-
(a) the business is carried on in the course and furtherance of those purposes; or
(b) the work involved in the business is mainly carried out by the beneficiaries under those purposes. (part 12 sched 2.5)
8.2 Deductions and recoupments
8.2.1 Allowable deductions
General deductions are calculated as follows:
(a) In ascertaining business gains or profits in any charge year, losses and expenditure, other than of a capital nature, incurred in that year wholly and exclusively for the purposes of the business are deducted (with the exception of foreign exchange losses of a capital nature incurred on borrowings used for the building and construction an industrial or commercial building which are deductible); and
(b) in ascertaining income from a source other than business, only such expenditure, other than expenditure of a capital nature, is allowed as a deduction for any charge year as was incurred wholly and exclusively in the production of the income from that source. (Section 29)
Specific Deductions:
(i) current contributions by an employer to an approved fund established for the benefit of his employees, including an approved pension fund up to a maximum of 20% of an employee’s emoluments liable to tax;
(ii) any amount incurred by an employer in establishing or administering an approved share option scheme for the charge year;
(iii) contributions of an employee to any approved pension fund including National Pension Scheme Authourity up to a maximum of 15% of his income from emoluments liable to tax for the charge year or K720,000, whichever is less;
(iv) payments made for purposes of technical education relating to the business or for the purposes of obtaining further experience, training or qualifications, excluding payments made on behalf of related individuals, or payments made to person who is able to control, directly or indirectly, the persons making the payment;
(v) trade or business subscriptions;
(vi) contributions in cash to approved ecclesiastical, charitable, research or educational institutions or funds of a public character, or to a national amateur sporting association (where payments are made for no consideration and the income may not exceed 15% of the assessable income; and
(vii) expenditure on experiments or research relating to the business;
(viii) contributions to an approved scientific or society or institution or like body of public character where a condition of the contribution is that it is utilised solely for the purposes of industrial research or scientific experimental work connected with the business;
(ix) expenditure on gifts which bear an advertisement from the donor where the cost of gift to any one person does not exceed K100,000;
(x) any expenditure or capital employed as a provision for or payment for purposes of advertising to the public without payment;
(xi) bad and doubtful debts, to the extent that the debts have been included in the income from that source and to the extent that they are proved to the satisfaction of the Commissioner-General to be bad or likely to become bad and, where there is no income from that source for the charge year for which such deduction is due that deduction shall be deemed to be a loss under Section 30 (part 4 - Section 43A). In the case of a bank or financial institution, the deduction for debts failing within the classification under the Banking and Financial Services Act is limited to the minimum level of provisioning for such debts required by the Bank of Zambia in accordance with the Banking and Financial Services Act;
(xii) expenditure incurred in the first 18 months before the commencement of a business which would have been allowed as a deduction after commencement of the business;
(xiii) a deduction of K1,000,000 with respect to each person with disability employed full-time for the whole or substantial part of the charge year for which the deduction is claimed; and
(xiv) any mineral loyalty paid
8.2.2 Valuation of inventory/trading stock
Trading stock held at the end of the year is included in gross income. This is deductible in the following year as the value of opening stock.
Trading stock is valued using the accounting practice. The first in, first out (FIFO) basis is acceptable, whereas the last in, first out (LIFO) is not. The value is based on the cost or the market value, whichever is less.
8.2.3 Reserves and provisions
Amounts transferred to a specific reserve fund for bad debts are deductible.
Other reserve funds are not deductible.
8.2.4 Non-deductible expenses
Expenditure which is not incurred wholly and exclusively for the purposes of the business is, in general, disallowed.
No deduction can be claimed for:
(a) losses or expense which is recoverable under a insurance contract or indemnity;
(b) capital expenditure or loss of capital, other than loss of stock in trade, unless specifically permitted in the Act;
(c) other than payments made to approved schemes, any payment to a pension or superannuation fund or scheme or premium payable under an annuity contract;
(d) any tax or penalty chargeable under the Act;
(e) any amount which would be deductible in ascertaining the income from a source or from income which the Commissioner-General is prohibited from including in an assessment;
(f) any expenditure incurred or capital asset employed, whether directly or indirectly, in the provision of entertainment, hospitality or gifts of any kind, withe exception of :
(i) any expenditure incurred or capital asset employed in the provision of anything which it is the purpose of a person's business to provide and which is provided in the ordinary course of that business for payment or for the purpose of advertising to the public generally without payment and (ii) gifts incorporating a conspicuous advertisement for the donor, the cost of which, together with such articles given to the same person, does not exceed K100,000 per charge year.
(g) the cost of any benefit advantage not capable of being turned into money or money's worth that is provided to employees. (part 4, par 44)
(h) incidental costs of obtaining finance, including commitment and guarantee fees, commission and other similar costs (i) the medical levy
Note: other non-money fringe benefits (that can be turned into money’s worth e.g. education allowance) are treated as employees income so is taxable under PAYE.
8.2.5 Recoupments
Amounts previously deducted, are generally recouped in the year in which the recoupment takes place.
8.3 Depreciable regime
8.3.1 Tangibles (movable and immovable assets, for example plant and machinery)
A. An annual wear and tear and other allowances are applicable at the following rates:
INDUSTRIAL BUILDING:
Investment Allowance 10% on cost
(new industrial building - not deducted from cost - first year only)
Initial allowance 10% on cost
(must be deducted from cost - first year only)
Subsequent wear and tear allowance 5% on cost
COMMERCIAL BUILDING: 2% on cost
PLANT, MACHINERY AND IMPLEMENTS (INC. COMMERCIAL VEHICLES):
25% on cost
NON-COMMERCIAL VEHICLES 20% on cost
COMMERCIAL VEHICLES 25% on cost.
IMPLEMENTS, MACHINERY AND PLANT USED DIRECTLY AND EXCLUSIVELY IN FARMING, MANUFACTURING, LEASED OUT UNDER AN OPERATING LEASE AND TOURISM BUSINESSES 50% on cost.
B. A balancing allowance is deductible equal to the amount by which any recovery of capital expenditure on that building together with any initial or wear and tear allowance deducted falls short of the original cost of that building to the owner.
(part 12, sched 5.5)
8.3.2 Intangibles/incorporeals (for example, copyright, patents, goodwill and other intellectual rights)
An allowance is granted for premiums, royalties or like consideration paid for the right to use a patent, design, trade mark, process. The recipient of the amount has to account for tax at a rate of 15%, which is subject to withholding tax. (part 12, sched 5.14)
8.4 Treatment of losses
Losses incurred can only deducted form income derived from the same source. Where such a loss exceeds the income of a person for the charge year in which the loss was incurred, the excess shall, as far as possible, be deducted from the income of the person from the same source as that in which the loss was incurred for the following charge year, as long as this loss is not carried forward beyond five subsequent years after the charge year in which the loss is incurred. (part 4.530)
9. Foreign Exchange Losses and Gains
Any foreign currency exchange gains or losses, other than those of a capital nature, are assessable or deductible, as the case may be, in the charge year in which such gains or losses are realised, that is to say, in the charge year in which the person or partnership concerned is required to pay the additional kwacha or is allowed a rebate or a reduction, as the case may be, in settlement of a foreign debt or liability.
In the case of banks the tax treatment of foreign exchange gains or losses are on a translation basis in line with accountancy principles. However, foreign exchange gains or losses of a capital nature are not assessable or deductible as the case may be in the charge year in which they are translated.
10. Branch Profits Tax
1. Domestic branches are not taxed separately.
2. Income derived from a foreign branch of a company resident in Zambia. In many cases double-taxation agreements are in place (see list of countries below). Otherwise a form of unilateral double-taxation relief is applied. This means that the Zambian tax due is reduced by the amount of foreign tax, but that reduction shall not exceed the amount of the foreign income included in the income liable to tax under this Act, multiplied by the Zambian tax before the reduction, divided by the sum of the income assessable under this Act. (part 7, par 76)
3. Branches of foreign companies resident in Zambia are taxed at the usual company tax rates (see below), unless this is overridden by a double-taxation agreement.
11. Group Taxation/Consolidated Returns
There is no group taxation in Zambia.
12. Presumptive Tax Measures (for example, a minimum tax in the form of a gross asset tax)
Presumptive tax is available to individuals and partnerships carrying on the business of public passenger transport. It is a final tax.
13. Rates
Company tax rates:
Standard company tax rate 35%
On income from farming 15%
On income from the manufacture of chemical fertilizer 15%
On income from non-traditional exports 15%
On income from mining operations not exceeding 8% of gross sales, 30%
where the income from mining operations exceeds 8% of the gross sales, at the rate determined in accordance with the following formula:
y= 30%+[a-(ab/c)], where;
y= the tax rate to be applied per annum,
a= 15%,
b= 8%,and
c= the percentage ratio of assessable income to gross sales
On income from companies listed on the Lusaka Stock Exchange (LUSE) where one third of shares are offered and sold to indigenous Zambians, 7% below the normal rate, for other new listings, (discounts apply only in the first year of listing on LUSE)
On income of trusts, deceased estates or bankrupt estates 35%
On income from banks registered under the Banking and
Financial Services Act:
(i) income up to K250,000,000 35%
(ii) income in excess of K250,000,000 40% (part 12, sched 8.11)
14. Rebates
None
15. Withholding Taxes
See Section E: Income Tax: Treatment of Interest, Dividends, Royalties and Fees
16. Beneficiaries of Revenue
National Government
C. Income Tax on Individuals (National Government)
1. Name of Tax and Levied in Terms of Which Act (Name, Number and Year
Income Tax, Income Tax Act, Chapter 323 of the laws of Zambia (hereinafter referred to as "the Act")
2. Department Responsible for Administration
Zambia Revenue Authority.
3. Definition and Classification
The term "individual" is simply defined as "a natural person".
4. Time Tax is Levied
Same as for bodies corporate.
5. Basis of Taxation
5.1 Source-based or residence based
Source-based
5.2 If source, define:
5.2.1 Actual source
Same as for bodies corporate.
5.2.2 Deemed source
Same as for bodies corporate.
5.3 If residence,
5.3.1 Define resident
5.3.2 Exclusions from the definition of resident:
5.3.3 Ceasing of residency provided for in the Act
6. Included in Tax Base
Income source or deemed to be sourced in Zambia.
7. Year of Assessment
Same as for bodies corporate.
8. Computation of Taxable Income
8.1 Exemptions (do not only indicate the heading, but provide a brief explanation)
8.1.1 Partial exemptions (amounts exempt irrespective of the identity of the recipient):
1. The emoluments of the President are exempt from tax;
2. Amounts derived by way of lump sum payments withdrawn from an approved fund at retirement age or death or on the beneficiary becoming permanently incapable of engaging in an occupation or such sums withdrawn from an approved fund which the Commissioner-General determines cannot be enjoyed by the member until he attains retirement age;
3. A war disability pension, or as a war widow's pension, or as an old age pension paid out of public funds, or as a benefit paid under any written law in respect of injury or disease suffered in employment;
4. Amounts in conjunction with the award of military, police, and fire brigade decorations for distinguished or good conduct or long service;
5. Amount derived by an individual or his dependants or heirs for injury or sickness, from any approved fund or registered trade union or medical aid society or under any policy of insurance;
6. A local overseas allowance received by any member of the Defence Force of the Republic while on service officially declared to be active service;
7. An allowance paid for service outside the Republic by the Government or a statutory corporation in respect of an excess of living expenses due to such service;
8. A scholarship or bursary, for the purposes of education and maintenance during such education;
9. Alimony, maintenance or allowance under any judicial order or decree in connection with matrimonial proceedings, or under any separation agreement, to the extent of the amount of the alimony, maintenance or allowance that has not been allowed as a deduction to another individual under this Act;
10. Amounts received by any individual is granted whole or partial exemption under the Ministerial and Parliamentary Offices (Emoluments) Act;
11. Compensation for loss of office or disturbance by an officer admitted to the permanent and pensionable establishment of the Government;
12. Education allowance or passage value payable to a public officer or payable in respect of his wife and children or in respect of his wife or children, subject to certain provisions;
13. Gratuities (as outlined in the Act);
14. Dividend from a source outside the Republic provided that the person receiving the dividend has not during the charge year in which the dividend is received, remitted any moneys outside the republic and the provisions of the Exchange Control Act relating to contracts of employ-ment, farming profits, education costs and immigration;
15. Incentives granted to a person designated as an enterprise under the Investment Act, or its successor to such extent and for such period as the Minister may prescribe;
16. Pension received by an individual from an approved fund; a
17. Dividend declared from farming income for the first five years the distributing company commences farming;
18. Sitting allowance derived by an individual for attending a council meeting; and ex-gratia payment made to a spouse, or dependant on the death of an employee;
19. Amounts derived by persons temporarily employed in the Republic in connection with any technical assistance scheme provided by any foreign country, any international organisation, or agency, any foreign foundation or any foreign organisation who is not a Zambian citizen, if authorised by the Government of the Republic;and20. Dividend income earned on shares listed on the Lusaka Stock Exchange (LUSE)
(part 12, sched 2.1-7)
See also Allowances, below.
8.1.2 Absolute exemptions (taxpayers enjoying completed exemption from tax on income)
1. The income of the Litunga of the Western Province and the income of any Chief received as a Chief from the Government, are exempt from tax; and
2. Amounts derived by foreign diplomats who are in Zambia solely for the purpose of carrying out the duties of said office. In addition the emoluments of any domestic or private servant of a foreign diplomat payable in respect of domestic or private services rendered or to be rendered by such servant to such individual, if such servant is not a Zambian citizen and is resident in the Republic solely for the purpose of rendering the said services. (part 12 sched 2.1-7)
8.2 Deductions and recoupments
8.2.1 Allowable deductions
Same as for bodies corporate.
8.2.2 Valuation of inventory/trading stock
As for bodies corporate.
8.2.3 Reserves and provisions
Same as for bodies corporate.
8.2.4 Non-deductible expenses
Same as for bodies corporate. In addition the cost incurred by an individual in the maintenance of himself, his family or establishment, or which is a domestic or personal expense cannot be deducted.
8.2.5 Recoupments
Same as for bodies corporate.
8.3 Depreciable regime
8.3.1 Tangibles (movable and immovable assets, for example plant and machinery)
Same as for bodies corporate.
8.3.2 Intangibles/incorporeals (for example, copyright, patents, goodwill and other intellectual rights)
Same as for bodies corporate.
8.4 Treatment of losses
Same as for bodies corporate.
9. Foreign Exchange Losses and Gains
As for bodies corporate.
10. Rates
INDIVIDUAL TAX RATES
Taxable income (per year) Rates of tax
Taxable income (per year) Rates of tax
Up to K 9,600,000 @ 0%
Above K9,600,000 to K 16,020,000 @ 25%
Above K14,820,000 to K49,200,000 @ 30%
Above K49,200,000 @ 35%
(part 12 charging schedule)
11. Rebates/Tax Threshold
Disability Tax Credit worth K 1,920,000 per year i.e. the tax liability of those registered as disabled is reduced by K1,920,000 per year. (pt 12 sched 8.10)
12. Fringe Benefit Taxes (Benefits Flowing from an Employer-Employee or an Office Relationship)
Fringe benefits that can be turned into money or money;s worth (e.g. education allowance, housing allowance, transport allowance, domestic utility allowance) are treated as employees; income and are subject to PAYE.
Non-monetary fringe benefits are not subject to income tax. (part 6.71) Fringe benefits that cannot be turned into money or money;s worth are treated under two categories:
1. Free residential accommodation:
Where free residential accommodation is provided by an employer in a house owned or leased by the employer, the cost to be disallowed in the employer;s tax contribution is 30% of the taxable income paid to the employee.
2. Provision of motor vehicles:
Where motor vehicles are provided to employees on a personal-to-holder basis, the benefit to be disallowed in the employer;s tax computation is as follows:
(i) luxury cars (2800cc and above) - K20 million per annum
(ii) Above 18000cc and below 2800cc - K15 million per annum
(iii) other cars (below 1800cc) K9 million per annum
13. Allowances
The following allowances are exempt from income tax:
- local overseas allowance by any member of the Defence Force of the Republic while on service officially declared to be active service.
- allowance paid for service outside the Republic by the Government or a statutory corporation in respect of an excess of living expenses due to such service.
- alimony, maintenance or allowance under any judicial order or decree in connection with matrimonial proceedings, or under any separation agreement, to the extent of the amount of the alimony, maintenance or allowance that has not been allowed as a deduction to another individual under this Act.
- any education allowance or passage value payable to a public officer or payable in respect of his wife and children or in respect of his wife or children, subject to certain provisions.
- sitting allowance for attending a council meeting. (part 12 sched 2.7)
14. Treatment of Pension, Provident or Retirement Annuity Fund Income
PENSIONS
Pensions paid by way of lump sum payments withdrawn from an approved fund at retirement age or death or on the beneficiary becoming permanently incapable of engaging in an occupation or such sums withdrawn from an approved fund which the Commissioner-General determines cannot be enjoyed by the member until he attains retirement age are exempt from tax.
Pensions paid as a war disability pension, or as a war widow's pension, or as an old age pension paid out of public funds, or as a benefit paid under any written law in respect of injury or disease suffered in employment are also exempt from tax. (part 12, sched 2.7)
"Approved fund" is defined as:
(a) an approved pension fund;
(b) an approved annuity contract;
(c) any superannuation, pension, provident, widows' or orphans' fund established by law in the Republic; (part 1, par 2)
ANNUITY CONTRACTS
An annuity is exempt from tax where such annuity is bought by an annuitant out of a lump sum payment withdrawn from an approved fund at retirement age, or death, or on the beneficiary being permanently incapable of engaging in an occupation. If the annuity is not from an approved fund, it is exempt from tax to the extent that it represents a return of the purchase price. (part 12, sched 2.10)
"Approved annuity contract" is defined as a contract providing for the payment to an individual of a life annuity which has been approved by the Commissioner-General. (part 1, par 2)
15. Treatment of Professional Income
Treated as ordinary income.
16. Treatment of Investment Income
Treated as ordinary income.
17. Withholding Taxes
See Section E: Income Tax: Treatment of Interest, Dividends, Royalties and Fees
18. Beneficiary of Revenue
National Government
D. Income Tax on Non-Residents (National Government)
1. Name of Tax and Levied in Terms of Which Act (Name, Number and Year
Income Tax, Income Tax Act, Chapter 323 of the Laws of Zambia (hereinafter referred to as "the Act")
2. Department Responsible for Administration
Zambian Revenue Authority
3. Included in Tax Base
Zambia-sourced income
4. If Sourced-Based, Define (If Not Already Done)
4.1 Actual source
As for Zambian taxpayers.
4.2 Deemed source:
As for Zambian taxpayers.
5. Rates
As for Zambian taxpayers
6. Beneficiary of Revenue
National Government
E. Income Tax: Treatment of Dividends, Interest, Royalties and Fees
1. Dividends
Dividends whether distributed to residents or non-residents are subject to a 15% final withholding tax which is withheld at source. A double tax agreement may override the rate of the withholding tax.
A dividend declared from farming income for the first 5 years the distributing company commences farming.
Dividends paid to the government are not subject to withholding tax.
Foreign dividends received by a Zambian resident are included in income, unless specifically exempt.
(part 5, par 60)
2. Interest
For Individuals:
Interest is subject to a 15% final withholding tax, that is withheld at source and is the final tax.
For persons other than individuals:
Interest is charged at 15%, though this is not the final tax. Tax is withheld at source.
Interest on Government of Zambia bonds:
Government bonds are always taxed at 15% and this is the final tax. Tax is withheld at source.
The following interest is exempt from tax:
(a) interest on any public loan raised by Government or a statutory corporation, where the terms of the loan provide that the interest thereon shall be exempt from tax;
(b) interest on any bond issued under or in respect of a loan;
the first three hundred thousand kwacha of interest earned by an individual during the charge year on all sums deposited or invested in a building society registered under any law relating to the registration of building societies for the time being in force in the Republic, or deposited in a savings or deposit account with a financial institution registered under the Banking and Financial Services Act;
(c) the first three hundred thousand kwacha of discount income earned by an individual in a charge year on all sums invested in Treasury Bills or any other similar financial instruments sold at a discount from face value. (part 5, par 60)
3. Royalties
Income from royalties received by non residents is charged at 15% and this is the final tax. Tax is withheld at source. In the case of residents, it is not a final tax. Residents are assessed and credit given for tax deducted.
A royalty is defined as "payment in any form received as a consideration for the use of, or the right to use copyright of literary, artistic or scientific work (including cinematography films and fils and tapes for radio or television broadcasting), any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience." (part 5, par 60)
4. Fees
Income from fees received by none - residents is charged at 15% and this is the final tax. Tax is withheld at source.
The term "management or consultant fee" is defined as "payment in any form, other than an emolument, for or in respect of any managerial, administrative, technical or consultative service or any service of like nature". (part 1, par 2)
5. Rents
Income from rents is charged at 15% and this is the final tax. Tax is withheld at source.
The gross rent is included in the recipient’s assessable income with a credit given for the tax deducted.
F. Income Tax: Specific Industries
1. Mining Tax
See Mineral Royalty
2. Insurance Business
The profits of insurance companies are calculated in the following ways.
INSURANCE OTHER THAN LIFE INSURANCE - Resident company
The profits of carrying on insurance business, other than life insurance business, by a resident company are ascertained by-
(a) taking the gross premiums, interest, and other income, less premiums refunded or paid on reinsurance; and
(b) adding any reserves for un-earned premiums and outstanding claims made at the beginning of the financial year;
(c) deducting any such reserves made at the end of the financial year; and
(d) deducting the actual losses (less the amounts received under reinsurance), and other expenses, including deductions. (part 12, sched 3.1)
INSURANCE OTHER THAN LIFE INSURANCE - Non-resident Company
The profits of carrying on insurance business, other than life insurance business, by a company that is not resident are ascertained by-
(a) taking the gross premiums, interest, and other income, received in the Republic, less premiums refunded or paid on reinsurance; and
(b) adding any reserves for un-earned premiums and outstanding claims made at the beginning of the financial year; and
(c) deducting any such reserves made at the end of the financial year; and
(d) deducting the actual losses (less the amounts received under reinsurance) agency expenses and deductions, allowed under part II of the 5th schedule incurred in the Republic and such proportion of the company's head office as the Commissioner-General determines
LIFE INSURANCE – Resident Company
The profits from the life insurance business of a resident insurance company are the excess of the total investment income over 3,5% of the total mean actuarial liabilities, reduced in the proportion which the total mean actuarial liabilities less the mean actuarial liabilities in respect of policies constituting approved funds (as defined in this Act) and annuity policies issued in the Republic under which annuities are being paid bear to the total mean actuarial liabilities (part 12, sched 3.2)
LIFE INSURANCE - Non-resident Company
The profits from the life insurance business of a non-resident insurance company are the proportion of the company's total investment income that the actuarial liabilities in respect of local taxed life policies bear to the company's total actuarial liabilities less 3.5% of the mean actuarial liabilities in respect of local taxed life policies. (part 12, sched 3.2)
(If insurance is only part of the firms business, the profits of the life insurance aspect are calculated separately.)
The same rules apply to a mutual insurance company as to a proprietary insurance company.
Once the level of profit is determined, income tax is due in the normal way.
3. Farming
4. Ships and Aircraft Owners
Though ships and aircraft are not specifically mentioned in the main legislation, the issue is covered by double taxation agreements. Though variously worded, the double taxation agreements state that profits from the operation of ships or aircraft in international transport shall be taxable only in the Contracting State in which the place of effective management of the enterprise is situated.
5. Other
G. Income Tax: Administrative Procedures (National Government)
1. Payment Periods
Provisional tax payments are due and payable in quarterly instalments as follows:
1st installment on 30th June;
2nd installment on 30th September;
3rd installment on 30th December;
4th installment on 30th March;
of the charge year to which such return of provisional income relates.
All persons liable to tax and required to submit a return shall remit, along with such return, payment equal to the balance of tax liability due, if any, as computed by the taxpayer. This payment shall be remitted by every person liable to tax no later than 30th September, following the end of the charge year.
The tax liable to be paid under any assessments undertaken by the Commissioner General (including estimated assessments) is due and payable by the person assessed within thirty days of the service of notice of assessment. The person assessed is entitled to appeal against the assessment.
The payment time can be extended by the Commissioner-General if he deems this to be appropriate. (part 8, par 77)
2. Rulings
2.1 Possibility of advance rulings
None
2.2 Publication of rulings
None
3. Codification of Revenue Practices
ZRA publishes various summary Practice Notes and leaflets handbooks on direct taxes, including a summary of budget tax changes available on the day of the budget.
4. Refunds
Where for any charge year any person or partnership claims that tax has been paid or is deemed to have been paid by deduction or otherwise in excess of the amount due, the necessary assessments or adjustments are made to determine the amount of the excess. Written notice to the person or partnership of the amount so determined has to be given to the taxpayer.
If a refund is due, it will firstly be put towards any tax which is due by that taxpayer. Written notice to the person or partnership of the amount so applied is given.
If the taxpayer claims a refund of the amount of the excess assessed by the Authority, a claim can be made in writing to the Commissioner-General not later than six years after the date of service of the written notice of the amount of the excess given. (part 8, par 87)
5. Interest, Charges and Penalties
On any tax deemed overdue by one month, 5% of the tax due becomes chargeable by way of penalty, with effect from the date of the assessment for the charge year, which ends on 31st March. Any tax (including the penalty) remaining unpaid a further 5% on the remaining unpaid portion of the tax becomes chargeable by way of penalty for each subsequent month thereafter.
Such penalties are due and payable on the date of issue by the Commissioner-General of a notice to that effect.
The Commissioner-General may, in his discretion, remit the whole or part of any penalties due. (part 8, par 78)
H. Income Tax: Anti-Avoidance Provisions (National Government)
1. Transfer Pricing Legislation
The provisions which deal with transfer pricing are in Sections 97A, 97B, 97C, 97E and 97D
2. Thin Capitalisation Legislation
The provisions which deal with thin capitalisation are in Section 97AA
3. Controlled Foreign Entities (CFES)
As in 1 and 2 above
4. Provide a Brief Discussion of General Anti-Avoidance Provisions (Both under common and statutory law)
Where the Commissioner-General has reasonable grounds to believe that the main purpose of a transaction was to avoid tax, he may choose to adjust for the tax avoidance.
The powers to adjust for tax avoidance include:
(a) the charging with tax the income of persons who, but for the adjustments, would not be chargeable with any tax or would not be chargeable to the same extent;
(b) the charging of a greater amount of tax than would be chargeable but for the adjustments; and
(c) the giving of a direction under this section by reason of the fact that in the case of a company no distribution of dividends has been made or only a smaller distribution has been made than might have been made:
Provided that-
(i) where a charge is made under this section on any company in respect of adjustments which
affect the liability to tax of the income of any shareholder, such company shall be entitled to
recover from such shareholder the amount of tax attributable to the adjustment made in
respect of such shareholder; and
(ii) where an adjustment made under this section relates to any distributable profits of a
company and such profits are subsequently distributed, appropriate adjustments shall be
made in respect of the tax paid or payable by the company and the shareholders in such
company. (part 9, par 95)
5. Transactions Between Connected Persons
I. Capital Gains Tax on Corporations (National Government)
1. Name of Tax and Levied in Terms of Which Act (Name, Number and Year
There is no capital gains tax in Zambia, but whenever property is transferred, property transfer tax is payable. The term property means: land or improvements thereon and shares.
2. Department Responsible for Administration
3. Basis of Taxation (Source-based or residence-based)
4. Time When Tax is Levied
5. Included in Tax Base
6. Exemptions/Exclusions
7. Allowable Deducations
8. Non-Deductible Expenses
9. Roll-Overs
10. Treatment of Losses
11. Rates
12. Rebates
13. Tax Period
14. Withholding Taxes
15. Beneficiary of Revenue
J. Capital Gains Tax on Individuals (National Government)
1. Name of Tax and Levied in Terms of Which Levied (Name, Number and Year)
Capital gains of companies are not taxed under a separate Act, but are treated as ordinary income.
2. Department Responsible for Administration
3. Basis of Taxation (Source-based or residence-based)
4. Time When Tax is Levied
5. Included in Tax Base
6. Exemptions
7. Allowable Deducations
8. Non-Deductible Expenses
9. Treatment of Losses
10. Rates
11. Rebates/Annual Deduction
12. Tax Period
13. Withholding Taxes
14. Beneficiary of Revenue
K. Special Taxes (Other Than Income Tax) on Certain Industries/Types of Income
1. Name of Tax and Levied in Terms of Which Act (Name, Number and Year
Mineral Royalty Tax, Mines and Minerals Act, 31 of 1995
2. Department Responsible for Administration
Zambia Revenue Authority
3. Taxpayer
All companies engaged in mining operations are taxed like any other company except those involved in the production of Copper and Cobalt. These are taxed at the rate of 25%
4. Included in Tax Base
The Commissioner General is responsible for the assessment and collection of Mineral Royalty. Mineral Royalty is payable by holders of large scale mining licences and is calculated on the gross value of minerals produced.
For the purposes of the calculation of MIneral Royalty "gross value" is defined to mean the realisable price for a sale free on board, at the point of export from Zambia or point of delivery within Zambia.
5. Tax Rate
The mineral royalty rates are as follows:
(b) 3% of the gross value of the industrial minerals produced or recoverable under the licence
(c) 3% of the gross value of the energy minerals produced or recoverable under the licence
(d) 5% of the norm value of the precious metals produced or recoverable under the licence
(e) 5% of the gross value of the gemstones produced or recoverable under the licence
6. Beneficiary of Revenue
National Government
L. Taxation of Capital
1. Name of Tax and Levied in Terms of Which Act (Name, Number and Year
Income Tax, Income Tax Act, Chapter 323 of the Laws of Zambia (hereinafter referred to as "the Act")
2. Department Responsible for Administration
Zambian Revenue Authority
3. Taxpayer
The executor or administrator of the deceased person's estate
4. Included in Tax Base
An amount of the income received by a beneficiary from a trust or deceased's estate on which tax has been paid or is payable by the trust or deceased's estate shall be the gross amount of that income before deduction of tax at the rate paid or payable on that income by the trust or deceased's estate. (part 5, par 60)
5. Tax Rate
As for Company Tax - see above
6. Beneficiary of Revenue
National Government
M. Donations Tax (National Government)
1. Name of Tax and Levied in Terms of Which Act (Name, Number and Year
None
2. Department Responsible for Administration
3. Taxpayer
4. Included in Tax Base
5. Tax Rate
6. Beneficiary of Revenue
N. Other (National Government) (National Government)
1. Name of Tax and Levied in Terms of Which Act (Name, Number and Year
NONE
2. Department Responsible for Administration
3. Taxpayer
4. Included in Tax Base
5. Tax Rate
6. Beneficiary of Revenue
O. Relief From Double Taxation
Canada
Denmark
Finland
France
Germany
India
Ireland
Italy
Japan
Kenya
Netherlands
Norway
Romania
South Africa
Sweden
Tanzania
Uganda
United Kingdom