Corporate tax in Zambia

Summary

Corporate Income Tax Rate (%) 0 to 40 (a)
Capital Gains Tax Rate (%) 0
Branch Tax Rate (%) 0 to 40 (a)
Withholding Tax (%) (b)
Dividends 15 (c)
Interest 15 (d)
Royalties 20 (e)
Management Fees 20 (f)
Branch Remittance Tax 15
Net Operating Losses (Years)
Carryback 0
Carryforward 5 or 10 (g)

a) For details, see Section B.

b) These withholding taxes apply to payments to resident and nonresident com­panies and individuals.

c) For resident and nonresident companies and individuals, this is a final tax. Zambian-incorporated companies may offset the withholding tax imposed on dividends received from other Zambian-incorporated companies against with holding tax payable on their own distributions of dividends.

d) This rate applies to interest paid to companies. This is a final tax for nonresi­dent companies. Resident companies may credit the withholding tax against their income tax.

e) For individuals and nonresident companies, this is a final tax. Resident com­panies may credit the withholding tax against their income tax.

f) This is a final tax for nonresident companies and individuals. Effective from 1 January 2016, resident companies and individuals are subject to this with­holding tax. The tax withheld from payments to resident companies and indi­viduals is granted as a credit in the final tax return.

g) See Section C.

Taxes on corporate income and gains

Corporate income tax. Resident and nonresident companies are subject to tax on their income derived from Zambian sources. Resi­dent companies are also subject to tax on profits derived from a business carried on partly inside, and partly outside, Zambia. A company is considered resident in Zambia if it is incorporated in Zambia or if the central management and control of the company’s business or affairs are exercised in Zambia.

Tax rates. The following are the standard corporate tax rates.

Source Rate (%)
Farming 10
Export of non-traditional products 15
Manufacturing 35
Banking income 35
Mobile telephone operators
Profits up to ZMW250,000
35
Profits exceeding ZMW250,000 40
Royalties 35 (a)
Income from mining operations 30 (b)
Income from mineral processing 35
Trading and other sources 35

a) A 20% final withholding tax is imposed on royalties paid to nonresidents.

b) A mining operation is any operation carried out under a mining right referred to in Section 6 of the Mines and Minerals Development Act, but does not include any operations carried out under a prospecting permit or prospecting license or any operations involving only mineral processing. Mining opera­tions are subject to a mineral royalty (see Section D). If the income from a mining operation exceeds 8% of gross sales, the rate is determined in accor­dance with the following formula:

Y = 30% + [a – (ab ÷ c)]

The following are the values of the items in the formula:

  • Y = the tax rate to be applied per year
  • a = 15%
  • b = 8%
  • c = the percentage ratio of assessable income to gross sales

A tax incentive is available to companies that are newly listed on the Lusaka Stock Exchange. A two percentage point reduction of each corporate tax rate is granted to such companies. In addition, a reduction of five percentage points (for a total reduction of seven percentage points) of each corporate tax rate is available to compa­nies with more than 33% of their shares owned by Zambians. The incentive applies for one year only, and a com pany may claim the incentive only once.

Capital gains. Capital gains are not subject to tax in Zambia, but depreciation recaptured for tax purposes (see Tax depreciation) is taxable at the regular corporate tax rates. In addition, a property transfer tax is imposed (see Section D).

Administration. The Zambia Revenue Authority administers the Income Tax Act. The tax year runs from 1 January to 31 December. Annual tax returns must be filed by 30 June of the following tax year.

Companies must make four advance payments of tax, which are due on 14 April, 14 July, 14 October and 14 January. The install­ments are based on an estimate of the tax due for the year. The balance of tax due must be paid by the due date for filing the annual tax return.

A company may apply to the Commissioner-General to use an accounting year other than the standard tax year. However, the due dates described above for filing returns and advance payments of tax also apply to companies with an accounting year-end other than 31 December.

Dividends. A 15% withholding tax is imposed on dividends paid. For resident and nonresident companies and individuals, this is a final tax. Dividends received from subsidiaries are also subject to a 15% withholding tax.

Zambian-incorporated companies may offset the withholding tax imposed on dividends received from other Zambian-incorporated companies against withholding tax payable on their own distrib­utions of dividends.

Foreign tax relief. A foreign tax credit is available to resident com­panies for foreign taxes paid on foreign income subject to Zambian tax. The amount of the tax credit is the lower of the Zambian tax payable on the foreign income and the foreign tax paid on the same income.

Determination of trading income

General. Taxable income is the net profit reported in the compa­nies’ financial statements, adjusted by certain tax law provisions.

Expenses are deductible to the extent they are incurred wholly and exclusively for the purposes of the business.

Companies engaged in fishing or farming for two consecutive tax years may elect to calculate taxable income or loss for the two tax years by averaging the taxable income earned or loss incurred in each of the two tax years. This election must be filed with the Commissioner-General before the end of the tax year following the second consecutive tax year. The election is not allowed in certain circumstances.

Inventories. Inventories are valued at the lower of cost or net real­izable value.

Provisions. Specific identifiable provisions are allowed for tax purposes, but general provisions are not allowed.

Tax depreciation. Industrial buildings qualify for an initial allow­ance of 10%. The initial allowance is not deductible from the cost of the assets. Annual wear-and-tear allowances, which are cal­culated using the straight-line method, are available for the fol­lowing assets.

Asset Rate (%)
Industrial buildings
Low-cost housing (buildings used to provide housing for the purposes of a business with a cost per unit of up
to ZMW20,000 [USD2,000])
10
Others 5
Commercial buildings 2
Implements and plant and machinery
used in farming, tourism, electricity
generation and manufacturing
50
Other implements and plant and machinery,
and commercial vehicles
25
Other vehicles 20

The amount of depreciation claimed on an asset may be recap­tured when the asset is sold. In general, the amount recaptured is the excess of the sales price over the tax value, but it is limited to the amount of depreciation claimed.

Relief for losses. Tax losses may be carried forward five years to offset income from the same source. Mining operations and com­panies operating in the hydro- and thermo-generation sector may carry forward losses for a period of 10 years. Effective from 1 July 2015, a loss from a mining operation is deducted from 50% of the income of a person from the mining operation. In general, losses may not be carried back.

Groups of companies. No provisions for filing consolidated re­turns exist in Zambia.

Other significant taxes

The following table summarizes other significant taxes.

Nature of tax Rate (%)
Value-added tax, on any supply of goods and services, other than an exempt supply, made in Zambia and on taxable imports; exports
are zero-rated
16
National Pensions Scheme Authority (NAPSA;
social security system) contributions on monthly
wages; maximum contribution of ZMW792.05
per month for both employers and employees
Employer 5
Employee 5
Property transfer tax, on transfers of shares of companies incorporated in Zambia, and land,
buildings and structures located in Zambia
5
Property transfer tax on transfer of mining rights 10
Royalty on the extraction, production and
selling of ore
Open-cast mining 9
Deep mining 6

Miscellaneous matters

Foreign-exchange controls. The Zambian currency is the kwacha (ZMW). The exchange rate of the kwacha against foreign curren­cies is not controlled.

Zambia does not impose foreign-exchange controls.

Transfer pricing. Transfer-pricing rules apply to transactions be­tween related parties. Related-party transactions must be con­ducted at arm’s length. Transfer-pricing rules apply to transac­tions with nonresident related parties as well as to transactions between local entities. The transfer-pricing regulations are based on Organisation for Economic Co-operation and Development (OECD) rules, and any price determined in accordance with OECD rules is acceptable.

Permanent establishment. The provision of services, including consultancy services, through employees or other personnel en­gaged by an entity in Zambia for a period or periods exceeding an aggregate of 90 days in any rolling 12-month period results in a permanent establishment.

Treaty withholding tax rates

Dividends (%) Interest (%) Royalties (%) Management fees (%)
Canada 15 15 15 0
Denmark 15 10 15 0
Finland 5/15 15 5/15 0
France 15 10 15 0
Germany 5/15 10 10 0
India 5 10 10 0
Ireland 0 0 0 0
Italy 5/15 10 10 0
Japan 0 10 10 0
Kenya 15 15 15 20
Mauritius 5/15 10 10 0
Netherlands 5 10 10 0
Norway 15 10 10 20
South Africa 15 15 15 20
Sweden 5/15 10 10 20
Switzerland 15 15 15 20
Tanzania 15 15 15 20
Uganda 15 15 15 20
United Kingdom 5/15 10 10 0
Non-treaty
countries
15 15 20 20