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  • Zambia Investment Incentives

    1. Overview

    The Zambia Development Agency (ZDA) Act of 2006 offers a wide range of incentives in the form of allowances, exemptions & concessions for companies. The Act provides for investment thresholds that investors have to meet to qualify for fiscal and non-fiscal incentives.

    The functions of the Zambia Development Agency (ZDA) shall be to promote, co-ordinate Government policies on, and facilitate, investment in Zambia, so as to provide a one-stop support facility to investors

    2. Investment Policy

    Investment Certificates may be issued once an investor obtains the necessary licences, authorisations, or permits from the relevant ministry or body.

    An Investment Certificate contains terms and conditions of the certificate and any general or special incentives given. They authorise the holder to make arrangements for starting the business enterprise and have unlimited period of validity (subject to it being utilised within twelve months from the date of issue).

    3. General Incentives

    INVESTMENT INCENTIVES

    There are five categories of investors who can be considered under the ZDA Act.

    The first is that of investors who invest not less than US$ 10 million in an identified sector or product. This category of investors is entitled to negotiation with the government for additional incentives other than what they might already qualify for under the ZDA act.

    The second category is that of investors who invest not less than US$500,000 in the Multi Facility Economic Zones (MFEZ) and /or in a sector or product provided for as a priority sector or product under the ZDA Act. This category, in addition to being entitled to the general incentives, is entitled to the following incentives:

    • Zero percent tax rate on dividends for 5 years from year of first declaration of dividends.
    • Zero percent tax on profits for 5 years from the first year profits are made. for year 6 to 8, only 50 percent of profits are taxable and years 9 & 10, only 75 percent of profits are taxable.
    • Zero percent import duty rate on raw materials, capital goods, machinery including trucks and specialized motor vehicles for five years.
    • Deferment of VAT on machinery and equipment including trucks and specialized motor vehicles.

    The third category of investors relates to investors who are designated as micro or small enterprises under the ZDA Act. Like the second category, this category is also, in addition to the applicable general incentives, entitled to the following incentives:

    • For an enterprise in an urban area the income shall be exempt from tax for the first three (3) years.
    • For an enterprise in a rural area the income shall be exempt from tax for the first five (5) years.

    The fourth category is that of investors who invest less than US$500,000 in a sector or product provided for as a priority sector or product under the ZDA Act. This category is only entitled to general incentives.

    The fifth and last category is that of investors who invest any amount in a sector or product not provided for as a priority sector or product under the Act. This category of investors is also only entitled to general incentives provided under the various pieces of legislation.

    TAX INCENTIVES

    AGRICULTURE

    1. Guaranteed input tax claim for four years prior to commencement of production for VATable agricultural businesses.

    2. Zero rating of taxable agricultural products and supplies when exported

    3. VAT deferment on importation of some agricultural equipment and machinery.

    4. Income taxed at a reduced rate of 15%.

    5. Farm improvement allowance at 100% on fencing, brick or stone wall and an allowance of K10 million for farm dwelling occupied by farm workers.

    6. Farm works allowance at 100% for the full cost of stumping and clearing, works for prevention of soil erosion, boreholes, wells, aerial and geophysical surveys and water conservation.

    7. Dividends paid out of farming profit are exempt from tax for the first five years the distributing company commences farming.

    8. Development allowance is given for any person who incurs expenditure on the growing of tea, coffee, or banana plant or citrus trees or other similar plants or trees. An allowance of 10% of such expenditure shall be deducted in ascertaining the gains or profits of that business.

    9. No import duty on irrigation equipment and reduced duty rates on imports of other farming equipment.

    10. Reduced customs duty at 5% on premixes, being vitamin additives for animal feed.

    MANUFACTURING

    1. Refund of Zambian VAT on export of Zambian products by non-resident businesses under the Commercial Exporters Scheme.

    2. Guaranteed input tax claim for two years prior to commencement of production.

    3. Income from chemical manufacturing of fertilizers is taxed at a reduced rate of 15%.

    4. Capital allowances on industrial buildings used for the purposes of manufacturing shall be entitled to a deduction of 10% in case of low cost housing and 5% for other industrial buildings of the cost of the building

    5. Import duty on various textile machinery has been reduced 0% and all woven fabrics of polyester imported for further processing, all imported sewing threads and gray fabric has duty reduced to 0%

    6. Import duty on PVC lining and eyelets used in the manufacture of shoes has been reduced to 5%

    7. Import duty on semi refined wax and cerechlor used in the manufacture of paint, and on tapioca starch with dextrose powder which is used in the manufacture of biscuits has been reduced 15%

    8. Persons who incur capital expenditure on an industrial building are entitled to claim a deduction called initial allowance at 10% of the cost incurred in the charge year in which the industrial building is first brought into use.

    9. Any person who incurs capital expenditure on an industrial building is entitled to an investment allowance at 10% of such expenditure in the first year used for manufacturing purposes

    10. Reduced import duty on the following inputs used in manufacturing:

    (a) Crude coconut (copra) oil of subheading 15131100 to 5 percent;

    (b) Plates sheets, film, foil and strip, of unsaturated polyesters of heading 3920.63.10 to 5 percent.

    11. Customs Duty removed on some building and packaging materials Customs Duty on selected packaging material and machinery parts/or components was suspended to free implying that no customs duty should be charged as long as those goods are imported by any person whilst the suspension is still in force. The goods which can be imported duty free, are listed in statutory Instrument No.08 of 2006

    12. Suspension of import duty on machinery, equipment and capital goods for assembling of motor vehicles, trailers, motorcycles and bicycles

    MINING

    1. Guaranteed input tax claim for five years on pre-production expenditure for exploration companies in the mining sector.

    2. Any mining company holding a large-scale mining license carrying on the mining of base metals is taxed at 30%

    3. Other mining companies are taxed at 35%

    4. Dividend paid by a mining company holding a large-scale mining license and carrying on the mining of base metals is taxed at 0%

    5. 100% mining deduction on capital expenditure on buildings, railway lines, equipment, shaft sinking or any similar works.

    6. The debt equity ratio has been reduced from 2:1 to 3:1 to encourage further investment in the Mining Sector

    TOURISM

    1. Zero rate of VAT on accommodation in Livingstone District up to 2010.

    2. Zero rate of VAT on Tour Packages throughout Zambia.

    3. Zero rate of VAT on other tourist services provided to foreign tourists other than those included in tour packages.

    4. Refund of VAT for non-resident tourists and visitors on selected goods.

    5. No import VAT on all goods temporarily imported into the Country by foreign tourists

    6. Capital allowances at 50% of the cost of plant and machinery.

    7. Investment allowance at 10% of the cost of an extension to an hotel (being an industrial building)

    8. 5% wear and tear allowance to an extension to an hotel (being an industrial building)

    9. 10% initial allowance on an extension to an hotel (being an industrial building) in the year the building is first brought into use.

    GENERAL INCENTIVES

    1. Import VAT relief for VAT registered businesses on imports of eligible capital goods. (VAT Deferment)

    2. Zero rate of VAT on export of taxable products

    3. Guarantee of VAT refund within thirty days of lodgment of adequately supported claims within 30 days of submission of the claim.

    4. Relief of VAT on transfer of business as a going concern.

    5. Equal treatment of services for VAT irrespective of domicile of supplier (Reverse VAT)

    6. Cash accounting for VAT for members of the Association of Building and Civil Engineering Contractors.

    7. Guaranteed VAT input tax claim for three months prior to VAT registration for businesses that have already commenced trading.

    8. Reintroduction of voluntary registration for compliant businesses whose turnover is below K200 per annum subject to conditions stated above.

    9. Registered businesses allowed to re-claim 20 percent of in put VAT paid on petrol.

    10. Exemption of interest component of finance Leases

    11. Reduction of VAT rate for investors in manufacturing, agriculture, commercial banking and insurance operating in tax free zones

    12. VAT relief on input tax paid for purchases made by registered suppliers

    13. Income from non-traditional exports is taxed at a reduced rate of 15%

    14. Duty on computer parts/ components removed.

    Computer components on which duty was abolished is confined to the following:

    15.

    • Motherboard without a CPU & RAM
    • Case with or without power codes
    • CPU heat sink
    • 32 bits CPU made of 2 or more ICS this may include Pentium 3, Pentium 4 or Celeron processors.

    NON –FISCAL INCENTIVES

    Other than the generous tax incentives, the ZDA Act also provide for non –fiscal incentives. Investors, who invest at least US$250,000 and employ not less than 200 local persons, are entitled to a self employment permit and employment permits for up to five (5) expatriates.

    5. Export Incentives

    Duty drawback, rebates, input VAT refund.

    6. Financial Assistance

    No standard scheme, though individual investors may try to negotiate

    7. Regional Incentives

    None (though this may change in the near future)

    8. Industrial Financing

    See General Incentives

    9. Development Programmes And Incentives For Specific Industries

    Refer to general incentives

    10. Tax

    10.1. Rates

    Investments that are granted an Investment Certificate become VAT exempt. Otherwise normal tax rates apply to investors

    10.2. Deferral Period

    No standard deferral period

    10.3. Tax Holiday

    Though there is no policy on tax holidays, special agreements have been entered into with the tourism industry  in the Livingstone district

    10.4. Depreciation

    Normal wear and tear allowances apply (see Chapter 1 Direct Tax B.8.3.1)

    10.5. Other