VAT, GST and Sales Tax in Zambia

Summary

Name of the tax Value-added tax (VAT)
Date introduced Jul-95
Trading bloc membership Common Market for Eastern and Southern Africa Member, Southern African Development Community Member
Member of the Southern
African Customs Union No
Administered by Zambia Revenue Authority (www.zra.org.zm)
VAT rates
Standard 16%
Other Zero-rated and exempt
VAT number format Tax payer identification number (TPIN)
VAT return periods Monthly
Thresholds
Registration ZMW800,000 in any 12 consecutive months ZMW200,000 in any three consecutive months
Recovery of VAT by non-established businesses Yes (limited to exports)

Scope of the tax

VAT applies to the following transactions:

  • Supply of goods and services in Zambia by a taxable person
  • Reverse charge on services provided by a nonresident to a tax­able person in Zambia
  • Importation of goods from outside Zambia, regardless of the status of the importer

Who is liable

Any person who makes supplies of taxable goods and services in Zambia in the course of a business is liable to register for VAT if the person’s turnover exceeds either of the following thresholds:

  • Turnover of ZMW800,000 in any 12 consecutive months
  • Turnover of ZMW200,000 in any three consecutive months

Turnover tax (tax charged on gross sales) rather than VAT applies to certain businesses, including those with a turnover of less than ZMW800,000.

Group registration. Effective 1 January 2017, group VAT registra­tion will no longer be available. This is to enhance the credibility of risk-based tax audits.

Non-established businesses. A “non-established business” is a business that does not have a fixed establishment in Zambia. A foreign company may not register for Zambian VAT unless it has a place of business in the country. It must also make taxable sup­plies of goods or services.

A foreign business that makes supplies in Zambia must appoint a representative who is responsible for registration for and pay­ment of VAT. If an agent is not appointed, the non-established business may not deduct input tax (see Section F).

Reverse-charge services. A reverse charge may apply for services received by a taxable person in Zambia from a non-established service provider. The Zambian VAT law requires that a taxable person must act on behalf of a non-established supplier of ser­vices with respect to matters relating to tax, in the following circumstances:

  • The supplier is a company that does not have a business estab­lishment in Zambia.
  • The supplier is an individual or partner in a partnership that does not have a usual place of residence in Zambia from which to appoint a person resident in Zambia as a tax agent.

If a tax agent is appointed, the agent invoices the recipient of the services for the VAT payable, collects the tax and accounts for it to the tax authorities. The recipient of the services may claim input tax relief on the basis of the invoice issued by the tax agent (see Section F).

If no tax agent is appointed, the recipient of the service must self-assess for the VAT due and declare the output tax as if it were the supplier. However, in this case, no input tax relief may be claimed.

Tax representatives. The client is responsible to provide invoices for a particular tax period for the return. The representative cal­culates the tax due for the tax period and submits to the client for approval before filing electronically.

Registration procedures. Businesses are required to apply for VAT registration if they deal in taxable goods and services, and their turnover exceeds registration threshold of ZMW800,000 per annum.

Businesses apply by filing a prescribed ZRA application form. The following documents must be attached:

  • Sketch of map of location
  • Bank statements covering a period of three months
  • Business plan
  • Certificate of registration or incorporation
  • Evidence records like cash book, purchase daybook, sales day­book, invoice books, a set of accounts and confirmed orders/ signed contracts for existing business.

Businesses whose turnover does not meet the statutory threshold may register for VAT voluntarily.

Late-registration penalties. Late registration by traders who are subject to the turnover threshold is liable to a penalty.

Digital economy. No specific rules apply.

Deregistration. Suppliers whose turnover falls below the registra­tion threshold for VAT are allowed to deregister after the end of the relevant accounting year. The client is required to notify the Commissioner-General in writing through Form VAT 99. To complete any deregistration, the client is required to ensure that there are no tax obligations on that particular account.

VAT rates

The term “taxable supplies” refers to supplies of goods and ser­vices that are liable to a rate of VAT, including the zero rate.

In Zambia, the VAT rates are the standard rate at 16% and the zero rate (0%). The standard rate of VAT applies to all supplies of goods or services, unless a specific measure provides for the zero rate or an exemption.

Examples of goods and services taxable at 0%

  • Exports of goods
  • Books and newspapers
  • Foreign aid donations
  • Medical supplies and drugs
  • Bread and wheat

The term “exempt supplies” refers to supplies of goods and ser­vices that are not liable to tax. Persons that make exempt supplies are not entitled to input tax deduction (see Section F).

Examples of exempt supplies of goods and services

  • Health and educational services
  • Supply of water and sewerage services
  • Most public transport services
  • Real estate transactions
  • Financial services (effective from 1 January 2011, fee-based banking services are subject to VAT at the standard rate)
  • Insurance services (effective from 1 January 2011, property insurance and casualty insurance are subject to VAT at the stan­dard rate)
  • Basic foods
  • Agricultural supplies

Option to tax for exempt supplies. Not applicable.

Time of supply

The time when VAT becomes due is called the “time of supply” or “tax point.” In Zambia, the tax point is when the earliest of the following events occurs:

  • Goods are removed from the supplier’s premises.
  • Goods are made available to the purchaser.
  • Payment for the supply is received.
  • A tax invoice is issued.

Imports. The time of the supply for imported goods is either the date of importation or the date on which the goods leave a duty suspension regime.

Recovery of VAT by taxable persons

A taxable person may recover input tax, which is VAT charged on goods and services supplied to it for business purposes. Input tax is claimed by deducting it from output tax, which is VAT charged on supplies made.

Input tax includes VAT charged on goods and services purchased in Zambia and VAT paid on imports of goods and services.

Nondeductible input tax. VAT may not be recovered on purchases of goods and services that are not used for business purposes (for example, goods acquired for private use by an entrepreneur). In addition, input tax may not be recovered on certain business expenses.

The following lists provide some examples of items of expendi­ture for which input tax is not deductible and examples of items for which input tax is deductible if the expenditure is for pur­poses of making a taxable supply.

Examples of items for which input tax is nondeductible

  • Purchase and hire of passenger cars
  • Business gifts valued at more than ZMW100
  • Office, home and mobile telephone service
  • Domestic refrigeration equipment, air conditioners, mobile phones, motor vehicle parts, digital satellites, television sets, decoders, video players, curtains and construction of dwelling houses for staff
  • Business entertainment
  • Fuel for passenger vehicles
  • Petrol
  • Diesel (recovery restricted to 90%)

Examples of items for which input tax is deductible (if related to a taxable business use)

  • Purchase, hire and maintenance of commercial motor vehicles
  • Business gifts valued at less than ZMW100
  • Mobile telephone handsets
  • Hotel accommodations
  • Utilities
  • Educational material

Partial exemption. VAT directly related to making exempt sup­plies is not recoverable. A registered person who makes both exempt and taxable supplies may not recover VAT tax in full. This situation is referred to as “partial exemption.” In Zambia, if a taxable person supplies both taxable and exempt goods and ser­vices, the amount of input tax recoverable is calculated using a simple pro rata method based on the value of taxable and exempt supplies made.

Refunds. If the amount of input tax in a period exceeds the amount of output tax due, a taxable person may request a VAT refund. VAT refunds are generally paid within three months. However, no interest is payable if the refund is paid late.

Preregistration costs. Businesses registered within one month after becoming liable to register are eligible to claim input tax incurred three months prior to registration.

Recovery of VAT by non-established businesses

Zambia does not generally refund VAT incurred by a foreign business unless it is registered for VAT there. However, a refund scheme allows a VAT refund to be paid to a non-established busi­ness that purchases goods from a Zambian VAT-registered sup­plier for onward export.

The refund scheme applies to foreign passport holders that are on a business visit to Zambia. The scheme applies only to commercial export consignments that do not otherwise qualify for VAT zero rating. The refund is restricted to VAT paid on goods supplied by a participating supplier. VAT incurred on other expenditure in Zambia is not recoverable using this scheme.

Refund application. The foreign exporter pays the full VAT amount on the export consignment to a participating supplier at the time of purchase. The first time that the scheme is used, the participating supplier must issue a commercial export tax invoice (Form VAT 283) and a commercial export authorization (Form VAT 284). For subsequent exports, the supplier need only issue Form VAT 283. The exporter must declare the goods to Customs at the port of exit from Zambia, and, at the same time, submit Forms VAT 283 and VAT 284 for verification and certification.

Customs officials at the port of exit retain copies of Forms VAT 283 and VAT 284 for first exports and subsequently dispatch them to the Zambia Revenue Authority for processing. The exporter may retain a certified copy of the forms for its records.

After the refund has been processed, the amount is sent to the exporter’s destination address or an authorized representative may collect the refund in Lusaka. The exporter must indicate an authorized representative on Form VAT 284.

To qualify for this scheme, the export should be sent through the following designated exit points from Zambia:

  • Lusaka International Airport
  • Mpulungu Border Post
  • Kasumbalesa Border Post
  • Mwami Border Post
  • Nakonde Border Post
  • Chirundu Border Post
  • Kazungula Border Post
  • Victoria Falls Border Post

To participate in the scheme, a foreign business must apply in writing to the Commissioner of Value Added Tax. An application form (Form VAT 282) may be obtained by writing to the follow­ing address:

The Assistant Commissioner—VAT Credibility

Zambia Revenue Authority

1st Floor, Eastern Wing

Revenue House

Private Bag W136

Lusaka

Zambia

Invoicing

VAT invoices and credit notes. A supplier of taxable goods and services must issue a tax invoice to the purchaser. A valid tax invoice is required to accompany all claims for input tax deduc­tion. Effective 1 January 2013, the period for which tax invoices can be used to support input tax recovery has been reduced to six months (from 1 January 2017, the period has been reduced to three months). A credit note may be used to reduce the VAT charged on a supply of goods or services. Credit notes should show the same information as tax invoices.

Proof of exports. Goods exported from Zambia are zero-rated. However, to qualify for a zero rating, exports must be supported by customs evidence that proves the goods have left the country.

Foreign-currency invoices. Invoices issued using a foreign cur­rency must indicate the equivalent in Zambian kwacha using the exchange rate for the date of the transaction.

VAT returns and payment

VAT returns. The tax period for VAT is one month. Returns must be filed by the 16th day after the end of the tax period. Electronic filing of VAT returns is mandatory if there are 10 or more trans­actions. Payment is due in full by the same date.

Penalties

Late submission of a VAT return is subject to a penalty.