The Zambian tax framework comprises both indirect tax and direct tax. As a former British protected territory, Zambia inherited essentially the English colonial legacy of tax legislation. The direct taxes are principally income tax, which operates on a source-based principle. Thus, every person or entity who receives income from a source deemed to be within Zambia will be liable to income tax in Zambia. Apart from the source principle, the issue of residence of a taxpayer becomes critical with regards to taxation of interest and dividends received from a source outside of Zambia.

Other direct taxes include withholding tax, which is charged on dividends, interest, royalties, payments to non-resident contractors, commissions (not from employment), public entertainment fees, rent and management or consultancy fees. Withholding tax is also charged on winnings from gaming, lotteries and betting, branch profits and commodity royalties. The last type of direct tax is the property transfer tax, which is chargeable on transfers of shares, land and more recently mineral rights. In addition to this, there is also a Pay As You Earn tax (PAYE). This is income tax charged on the earnings of an employee’s emoluments.

Zambia charges value-added tax (VAT) on any transaction relating to the sale of taxable goods and services conducted in the country. It is important to note that services procured outside of Zambia, but used in the country, are subject to a reverse charge VAT in the absence of the provider of the service appointing a tax agent in Zambia.

An excise duty is payable on goods manufactured in Zambia and also on the sale of airtime. In 2022, excise duty at 5% was introduced on coal. Customs duty is charged on the importation of goods.

A presumptive tax is payable for individuals operating public service vehicles with the highest payable amount being ZMW12,960 for a public service vehicle with 64 seats and above. A presumptive tax is also payable on artisanal mining and small scale mining at the rate of 4% of gross turnover less mineral royalty paid.

Zambia has also signed various double-taxation treaties with various countries, which are part of the national legislation as schedules to the Income Tax Act. The 2016 Constitution also now requires that future treaties be ratified by the Parliament.

Zambia is a member of the Inclusive Framework on Base Erosion and Profit Sharing (BEPS) established by the Organisation for Economic Co-operation and Development (OECD) and the G20.

In this chapter 

• Legal system
• Taxation authorities
• Business vehicles
• Financing a corporate subsidiary
• Corporate income tax
• Cross-border payments
• Payroll taxes
• Indirect taxes

Legal system

Zambia is a unitary state operating under a common law legal system that hails from its legacy as a British protected territory. Tax laws are comprised of 1) principal legislation, 2) decided court cases and 3) delegated legislation in the form of statutory instruments issued by the Ministry of Finance or rules issued by the commissioner general of the Zambia Revenue Authority (ZRA). Local authorities do not collect or administer any taxes.

Taxation authorities

The ZRA administers the tax system through 10 offices nationwide. The Zambia Revenue Authority Act is the principal legislation dealing with the administration of the ZRA. It provides for the establishment of the ZRA and the appointment of the commissioner general and staff.

Business vehicles

Zambia provides for various entities to conduct business. The principal forms of business vehicles include sole traders, partnerships,companies and corporations.

Partnerships

Partnerships are generally treated as unincorporated entities for tax purposes. This means that they have no legal personality and each partner is individually and severally liable to pay income tax as if they were a sole trader. The partners of the partnerships are required under the provisions of the Income Tax Act (ITA) to file quarterly, provisional and annual individual income tax returns. The concept applied to tax a partnership is “flow-through taxation.” The entity does not pay taxes on its income; instead, the partners of the entity pay their portion of their drawings/profits. The test for a partnership is whether two or more people are carrying on a business with a view of making profits.

Other than income tax, partners are jointly and severally liable for taxes that are an expense of the business, such as VAT and PAYE.

Companies

Zambia has three types of companies. The first type of company is a private limited company, which is limited by the number of shares. This means that the private limited company is limited to a maximum of 50 shareholders as per the Companies Act. Companies limited by shares are expected to have a minimum share capital of ZMW15,000. The Companies Act makes provision for share reserve account known as a premium account. The second type is a publicly listed company, which is listed on the Lusaka Stock Exchange and can have more than 50 members. Thirdly, we have companies limited by guarantee of its members. These companies can only engage in non-profit activities.

Companies are required to have at least two shareholders. There is no residency requirement for shareholders, but by law at least half of the board of directors must be resident in Zambia. 

Foreign local branch or subsidiary

The Companies Act provides that a foreign company may register a branch in Zambia. The law requires that the company appoint a local director who is resident in Zambia. No capital duty is imposed on the formation of the branch, only a minimal branch registration fee. 

Financing a corporate subsidiary

Equity financing

Contribution for shares

When an equity investment is made into a Zambian company in exchange for shares, the investment amount is added to the company’s minimum share capital as paid-up capital. Equity financing takes the form of money paid by a new shareholder in exchange for ownership of shares in the business. Non-resident shareholders are subject to a 20% withholding tax on the payment of dividends in Zambia, unless otherwise determined by a relevant double taxation treaty.

Dividends are payable at the discretion of the board of directors, if the company is solvent. There is no compulsory dividend payment and no capital tax payable on the minimum share capital of the company. There is no investment tax on minimum share capital. The only statutory fee payable on minimum capital is when a company’s share capital is increased; this carries a registration fee of 2.5% of the increased share capital plus ZMW175 for replacement certificate of share capital.

Dividend payments are not tax-deductible.

Contributions without taking additional shares

A company can issue bonus shares to its shareholders without contribution to equity by using its share premium account (such account, as noted earlier, is required by the Companies Act). The share premium account represents the difference between the par value of the shares issued and the subscription or issue price. The share premium account is not distributable except for among others, paying up unissued shares, which are issued to shareholders of the company as fully paid-up bonus shares. Other authorized uses of the share premium account include writing off preliminary expenses of the company and expenses of commission paid or discount allowed on any issued capital. The issuance of bonus shares is not subject to any tax.

Debt financing

Withholding tax implications

Zambian companies may obtain financing through loans from a bank or other financial institution, or through domestic or international shareholders. Since dividend payments are not tax-deductible, debt financing provides an optimal tax structure since interest on shareholder loans is deductible. This is, however, subject to transfer pricing rules requiring arm’s length interest payments and thin capitalization rules. As stated earlier, withholding tax on interest paid by a local company to a non-resident is 20%. It is noteworthy that some tax reforms have occurred and are thereby applicable in 2023. Namely, Withholding Tax is not applicable anymore in relation to reinsurance payable to non-residents and Investment Income on Life Insurance Funds. Further, income earned on green bonds listed on securities exchanges in Zambia that have a maturity of at least 3 years are exempt from Withholding Tax. Lastly, a withholding tax rate of 20% is applied on winnings from gaming, lotteries and betting.

Thin capitalization

If a subsidiary is to be financed by debt, it is subject to the thin capitalization rules. The current thin capitalization limit applies to interest deductions exceeding 30% of EBITDA. Interest on which a deduction is not allowed will be carried forward for the period not exceeding 5 years other than entities in mining and electricity generation. Entities in mining and electricity generation can carry forward disallowed interest for 10 years.

The ITA requires that a loan transaction be at arm’s length by reference to the following:

1. The appropriate level or extent of the issuing company’s overall indebtedness
2. Whether the amount issued would have been provided as a loan on an arm’s length basis and
3. The rate of interest and other terms that would apply to such an arm’s length loan.

Stamp tax

Zambia does not impose a stamp tax in respect of debt or equity financing.

Corporate income tax

Income tax rate

Companies are generally taxed at a corporate rate of 30% on profits. However, companies operating in certain sectors have a different corporate tax rate. Income from farming and agro-processing is taxed at 10% and income from other non-traditional exports is taxed at 15%. Telecommunications companies are taxed at 35% . This is the highest corporate tax rate applied in Zambia. Companies listed on the Lusaka Stock Exchange also pay the incentive tax rate of 30% on profits.

Capital gains

There is no capital gains tax in Zambia.

Branch tax

There are no differences in the way a local subsidiary and a local branch of a non-resident company may be taxed. However, profits repatriated to the foreign parent company are subject to a 20% withholding tax. If the foreign parent company is located in a country with which Zambia has a double taxation treaty, the relevant provisions of the treaty regulating profit attribution will apply.

Computation of taxable income

Taxable base

A taxpayer is subject to tax on its profits and from carrying on a business enterprise. Taxable profit is calculated by subtracting deductible expenses from revenue.

Deductions

The ITA, through the general deduction formula, allows a taxpayer to deduct all expenses from their gross income. According to the ITA, only expenses that are wholly and exclusively incurred in the course of production of income are deductible. Depreciation charges are not allowable as a deduction in computing taxable profit. Instead, capital allowances are granted on certain capital expenditures. These allowances are computed on a straight-line basis at prescribed percentages. Expenses of a capital nature are outside the scope of income tax. To ascertain whether an expense is capital in nature depends on the nature of each transaction and general accounting interpretation.

Income tax reporting

An entity that derives its source of income from Zambia, or from a source deemed to be income from Zambia is required to file income tax returns. These take two forms: provisional income tax returns and annual income tax returns.

The returns are due and payable on the following dates:

1. Provisional income tax first installment due March 31, payable by April 10; second installment due June 30, payable by July 10; third installment due September 30, payable by October 10; fourth and final installment due December 31, payable by January 10
2. Annual/final income tax: payable by June 21st of the subsequent tax charge year.

Cross-border payments

Transfer pricing

Under the Income Tax (Transfer Pricing) Amendment Regulations No. 24 of 2018, the ZRA may impose a transfer pricing adjustment in respect of a transaction that is not made on arm’s length terms or conditions. Zambian taxpayers are also required to retain contemporaneous documentation in respect of transactions subject to transfer pricing rules. Contemporaneous documentation must be retained for a period of at least 10 years.

Withholding tax on passive income

As stated earlier, a tax of 20% is imposed on dividends paid by a local resident company to a non-resident. The same rate of withholding tax applies on interest paid by a local company to a non-resident. Interest payments are subject to thin capitalization and transfer pricing regulations.

Withholding tax on services fees

Management and/or consultation fees, royalties and carriage of passengers, mail, livestock of goods and commissions are subject to withholding tax. The rate of withholding tax is 20% and 15% for non-resident and resident suppliers, respectively. The withholding tax on the supply of services is not the final tax as Value Added Tax is also chargeable on the provision of services. Notably, reverse VAT is chargeable on the supply of services rendered by non-resident suppliers who have not appointed a local Tax agent to account for the tax.

Multilateral Instrument

As of May 31, 2024 , Zambia is still not a signatory to the MLI which aims to implement tax treaty related measures to prevent base erosion and profit shifting (BEPS) by multinational enterprises.

International tax reform 

Zambia is a signatory to the OECD's 'Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy'.

As of May 31, 2024, Zambia has not yet implemented any Pillar Two rules via domestication into local laws. Further, it is uncertain when the draft legislation can be expected and the first year when the Pillar Two rules will be domesticated.

Payroll taxes

Pay As You Earn (PAYE)

Income from employment is liable to income tax if it has a source or deemed source in Zambia. The obligation to pay tax on income earned from employment rests with the employee whereas the responsibility to collect the same tax rests with the company or the employer. This is provided in the Income Tax (Pay As You Earn) Regulations of 1999. The local company is by law required to account for income tax on the employees’ income.

The company’s obligation to collect tax is achieved by implementing a PAYE system or payroll as a means of collecting tax on behalf of the ZRA.

The PAYE system follows graduated rates of tax, with 37.5% being the highest marginal rate.

National Pension Scheme Authority (NAPSA)

The National Pensions Scheme Authority Act (NAPSA) requires that social security contributions be made to NAPSA by both the employee and the employer, at the rate of 5% of the gross emoluments, each. The employer is required to remit the total amount to NAPSA on a monthly basis, accompanied by a monthly return. The contributions are applicable to both foreign and local staff. It is noteworthy that in 2024 the exemption threshold for PAYE was increased from ZMW4,800 to ZMW5,100. Further, the monthly tax credit for people living with disabilities has been maintained at ZMW600.

Personal Levy

According to Section 3 of the Personal Levy Act, every employer operating in a local authority is required to impose a levy of 1% on the gross income of every employee, including expatriate staff, up to a maximum of ZMW15 per annum. The contributions are payable to the local authority semi-annually.

Skills Development Levy

Skills development Levy (SDL) is a tax imposed on gross emoluments that is payable by employers. SDL is charged at the rate of 0.5% on gross emoluments and is payable by the employer. SDL is due on the 10th of the following month. The ITA is used in the enforcement and the administration of the Skills Development Levy Act.

Employment health insurance

The National Health Insurance Act 2018 requires employers to pay to the National Health Insurance Management Authority 2% of an employee’s basic salary at the end of each month. This consists of the employer’s contribution and the employee’s contribution at 1% each. A self-employed citizen or established resident must pay a contribution to the scheme as prescribed, with exemptions for persons with disabilities who are unable to work, persons over the age of 65, persons classified as poor and vulnerable by the ministry responsible for social welfare and any other person as may be prescribed by the minister.

Workers Compensation

All employers in Zambia are required to contribute to the board which provides compensation to employees on death and/or injury resulting in temporary or permanent disability. The assessment rates vary from industry to industry and are fixed from time to time by the Workers Compensation Fund Control Board.

An employer is required to register with the Board within fourteen days of commencing business. Once registered, the employer must provide details of the workers employed and their earnings. Based on the declaration, the Board will raise an assessment for each tax year.

In the event of an accident or “reporting incident” having occurred, the employer must notify the Board within three days. 

Indirect taxes

Value-added tax (VAT)

Zambian registered entities are required to register for Value Added Tax (VAT) if the taxable turnover exceeds or is expected to exceed K800,000 per annum or K200,000 per quarter. VAT is payable on all taxable goods and services consumed in Zambia, at a current standard rate of 16%. The VAT Act provides for standard rated, zero rated and exempt supplies. A reverse charge VAT is also imposed on services rendered by a foreign supplier if that supplier does not appoint a local tax agent. Certain goods, including all exports, are zero-rated for VAT purposes. Certain services, such as financial services, are exempted.

Non-resident suppliers of cross border electronic services to recipients in Zambia are now required to register with the ZRA and account for VAT on the services.

Registration documents include TPIN, proof of business registration, bank account in Zambia and physical address. In case of late registration, the registration can be backdated to the date when the registration threshold was reached. Input tax claims for business purchases prior to registration are not permitted.

The VAT period is the calendar month. Returns and payments are due by the 18th day of the month after the end of relevant VAT period. All Input tax claims should be supported by approved documentation. Effective July 2, 2024, all invoices will be issued through the electronic invoicing system.

Property transfer tax (PTT)

PTT is payable on any transfer of shares (which includes transfer of interests in mining rights and mineral processing rights that are now characterized as shares for purposes of Property Transfer Tax following the enactment of the Property Transfer Tax (Amendment) Act, No. 27 of 2022), intellectual property rights including patents, trademark or industrial design, and land in Zambia. The current rate is 5% of the realized value (market value) of the property to be sold if the property is a mining right for an exploration license, land, the realized value in respect of shares and the realized value in respect of intellectual property. Further, a rate of 10% is charged with respect to the realized value of a mining right for a mining license and in respect of the realized value of a mineral processing license. An exemption from the payment of PPT is provided for the internal reorganization of a company resident in Zambia that has been part of the group of companies for three years or more preceding the transfer. Equity contributions are also exempt.