VAT, GST and Sales Tax in Zimbabwe

Summary

Name of the tax Value-added tax (VAT)
Date introduced 1-Jan-04
Trading bloc membership Market for Eastern and Southern Africa, Southern African Development Community
Administered by Commissioner General, Zimbabwe Revenue Authority (Zimra) (http://www.zimra.co.zw)
VAT rates
Standard 15%
Other Zero-rated and exempt
VAT withholding tax 10%
VAT number format 10001111
VAT return periods Monthly: Annual taxable supplies of USD240,000 or more, Bimonthly: Annual taxable supplies of less than USD240,000
Thresholds Compulsory registration: USD60,000, Voluntary registration: At Zimra’s discretion
Recovery of VAT by non-established businesses Yes, if VAT registered

Scope of the tax

VAT applies to the following transactions:

  • The supply of goods and services in Zimbabwe by a “registered operator” (see Section C)
  • The importation of goods into Zimbabwe by a person
  • The supply of imported services by a person
  • The supply of goods and services through an auctioneer by a person who is not a registered operator

Who is liable

A “registered operator” is required to account for output tax on all goods and services supplied unless the supply is specifically exempt or zero-rated.

A “registered operator” is a person who is or is required to be registered under the VAT Act. It includes a person who makes supplies of taxable goods and/or services in Zimbabwe in the course of a business in excess of the registration threshold. A person includes a public authority, local authority, company or body of persons, whether corporate or unincorporated, the estate of a deceased or insolvent person and a trust fund.

The VAT registration threshold since 2012 is taxable supplies in excess of USD60,000. A taxable person must notify Zimra of its obligation to register for VAT within 30 days of becoming obli­gated to register.

An importer of goods is required to pay VAT.

The recipient of “imported services” is required to pay VAT on these services. “Imported services” refer to a supply of services that is made by a supplier who is resident or carries on business outside Zimbabwe to a recipient who is a resident of Zimbabwe to the extent that such services are used or consumed in Zimbabwe for a purpose other than making taxable supplies.

The auctioneer through whom a non-registrant supplies goods and services is responsible for the VAT on the supply of such goods and services.

Non-established businesses. A “non-established business” is a business that does not have a fixed establishment in Zimbabwe. A non-established business that makes supplies of goods or ser­vices in Zimbabwe must appoint a representative to register for VAT. The representative must be resident in Zimbabwe.

Group registration. Each entity in a group has to be registered separately if it transacts in taxable supplies and meets the thresh­old for Value Added Tax registration of USD60,000 per annum.

Tax representatives. Foreign companies or persons who do busi­ness in Zimbabwe but do not reside in Zimbabwe can appoint resident Zimbabweans to act as their representatives. The repre­sentatives can be held responsible for tax purposes on behalf of their principals in their representative capacities only.

Reverse charge. Not applicable. Zimbabwe taxes “imported ser­vices” as defined.

Late-registration penalties. A person becomes liable to pay tax from the time that person first becomes liable to be registered. A penalty of up to 100% of the amount of VAT and 10% interest thereon is assessed for the interval when the person first became liable to be registered and the late-registration date.

Digital economy. No special rules apply.

Deregistration. A registered operator may apply to be deregis­tered if the taxable turnover of goods or services in a period of 12 months does not exceed USD60,000 or is not expected to exceed USD60,000 in the period of 12 months commencing at the beginning of any tax period.

VAT rates

“Taxable supplies” refers to supplies of goods and services that are liable to tax at the standard rate (15%), or zero rate (0%). The supplier must account for VAT on all supplies of goods and ser­vices at the standard rate, unless the supply is specifically exempt or zero-rated under the VAT act.

In addition, exported platinum will be subject to a 15% tax effec­tive 1 January 2018 and exported unbeneficiated hides are sub­ject to tax at the higher of USD0.75 per kg or 15% of gross value.

Value-Added Withholding Tax on taxable supplies is at the rate of 10%.

Examples of goods and services taxable at 0%

  • Exports of goods (other than unbeneficiated hides and unbenefi­ciated platinum) and services that would otherwise be standard rated. This includes exports of financial services other than short-term insurance.
  • Certain supplies of goods that are used exclusively in an export country
  • International transport of goods and services
  • Sales of businesses as going concerns to registered persons
  • Gold sales to the central bank, Fidelity Printers and Refiners, and commercial banks
  • Services supplied outside Zimbabwe to foreign head offices by Zimbabwean branches or to nonresident persons that are out­side Zimbabwe when they are rendered
  • Tourism-related services (other than accommodation) rendered by designated tourist facilities, such as hotels, tour operators and car-hire companies
  • Intellectual property rights for use outside Zimbabwe
  • Certain foodstuffs other than rice, margarine, cereals, mahewu, pork, beef, fish, chicken and potatoes, which have just been standard rated
  • Supply of domestic electricity
  • Certain goods used for agricultural purposes, such as animal feed, fertilizers, seed, animal remedies, pesticides, plants, trac­tors and, when exported, specified agricultural implements
  • Prescription medicines
  • Building bricks
  • Goods used by disabled persons
  • Fixed charges on commercial and domestic electricity
  • Supply of pipeline transportation services
  • Livestock

“Exempt supplies” refers to supplies of goods and services that are not liable to tax. Suppliers of exempt supplies are not entitled to input tax deduction with respect to VAT paid on expenses incurred to make the supplies.

Examples of exempt supplies of goods and services

  • Local supplies of financial services (as defined) including ser­vices supplied by banks, building societies and insurance com­panies, but excluding the supply of short-term insurance by insurance agents or brokers
  • Medical services
  • Educational services by institutions registered under the minis­try of education or higher education
  • Transport of fare-paying passengers by railway or road
  • Supplies of donated goods or services by nonprofit (charitable) bodies
  • Supplies of immovable property located outside Zimbabwe
  • Rental of residential accommodation
  • Staff accommodation
  • Water supplied through a pipe for domestic use
  • Owners’ rates charged by a local authority (a levy charged by a local authority based on the value of property)
  • Commission charges on tobacco sales on auction floors
  • Tobacco supplied on auction floors
  • Sale and import of leaf tobacco
  • Most fuel and fuel products
  • Revenue arising from the operation of a temporary casino license in accordance with the terms of the lotteries and gaming act
  • Protective farming clothing, including gumboots, raincoats and gloves used for agricultural purposes
  • Eggs, vegetables, fruits, rice, margarine, lactose and mahewu

Option to tax for exempt supplies. Not applicable.

Time of supply

The time when VAT becomes due is called the “time of supply.” In Zimbabwe, the basic time of supply is the earlier of the follow­ing:

  • The issuance of an invoice by the supplier or the recipient with respect to the supply
  • The receipt of a payment of the consideration by the supplier with respect to the supply

Other time-of-supply rules apply to various situations, such as change of use, repossessions, betting transactions and lay-by sale agreements (the purchaser makes partial payments over time, and when a predetermined amount has been reached, the goods are released to the purchaser).

Supplies between related persons. The following are the times of supply for supplies of goods and services between related persons:

  • Supply of goods: when they are removed or made available to the purchaser or recipient of the goods
  • Supply of services: when the services are performed

Rental agreements. The time of supply for rental agreements is the earlier of the date on which the payment is due or the date on which payment is received.

Periodic supplies. The time of supply for periodic supplies is the earlier of the date on which the payment is due, the date on which payment is received or the date on which an invoice relating only to that payment is received.

Installment credit agreements. For installment credit agreements, the supply is deemed to take place at the earlier of when the goods are delivered or when a payment of the consideration is received.

Immovable property. The time of supply for the supply of immov­able property is the earlier of the date on which the change of ownership is registered in the deeds office or the date of receipt of a payment of the consideration. Otherwise, it is deemed to be the date of signing of the sale agreement. If the sale is made by deed of sale, VAT is payable on the installments as and when they are paid.

Imports. The following are the time-of-supply rules for imports:

  • Imported goods that require direct clearance for home con­sumption under the customs and excise act: when the goods are cleared
  • Goods that are imported and entered into a licensed customs and excise bonded warehouse: when the goods are cleared from the warehouse for home consumption
  • Imported services: the earlier of the date on which an invoice is issued and the date on which a payment is made by the recipient with respect to the supply

VAT deferment. Deferment of VAT payment for a period of up to 90, 120 or 180 days from the date of importation is available with respect to plant, equipment and machinery (other than road motor vehicles in most cases) that is imported and used exclusively for mining, manufacturing, industrial, agricultural, aviation or health purposes.

To qualify for this deferment, the value of such imported plant, equipment and machinery must be USD100,000-USD1 million (90 days), USD1,000,001-USD10 million (120 days), or USD10,000,001 or more (180 days).

Recovery of VAT by Zimbabwe-registered operators

A registered operator may claim input tax (that is, VAT charged on goods and services supplied to it for business purposes) by deducting it from output tax, which is VAT charged on supplies made. Input tax may be deducted if all of the following condi­tions are satisfied:

  • The expenses are incurred in the making of taxable supplies
  • The claimant has a valid tax invoice or bill of entry (imports)
  • The claiming of input tax deduction is not specifically prohib­ited by the VAT act

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

In addition, a registered operator claims a deduction of the 10% VAT withheld by designated Value-Added Withholding Tax agents upon payment by the agents to the registered operator for supplies of goods and services.

Nondeductible input tax. Input tax may not be deducted with respect to purchases of goods and services that are not used for taxable purposes (for example, goods or services acquired for private use by an entrepreneur or for the purposes of making exempt supplies). In addition, input tax recovery may be prohib­ited for certain specified business expenses.

Examples of items for which input tax is nondeductible

  • Initial purchase of passenger motor vehicles as defined in the income tax act
  • Fees or subscriptions paid by registered operators with respect to memberships in clubs, associations or societies of a sporting, social or recreational nature
  • Amounts with respect to goods or services acquired for the purposes of business or staff entertainment (subject to certain exceptions)
  • VAT payable on exports of unbeneficiated hides and unbenefi­ciated platinum

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

  • Maintenance costs of passenger motor vehicles
  • Purchase, hire and maintenance costs of non-passenger motor vehicles, such as vans and trucks
  • Expenses incurred by registered operators in the making or importation of taxable supplies, such as trading stock, raw materials, administration expenses and marketing costs

Partial exemption (mixed supplies). VAT directly related to pur­chases with respect to the making of exempt supplies is not recoverable as input tax. A registered operator that makes both exempt and taxable supplies (mixed supplies) cannot recover input tax in full.

In Zimbabwe, if VAT relates to the making of both exempt and taxable supplies, deductible input tax is determined using a two-stage calculation, which is described below.

Direct attribution. For direct expenses, the first stage is to iden­tify expenses incurred in making taxable supplies and those incurred in making exempt supplies. VAT paid on expenses incurred in making taxable supplies is deductible as input tax while VAT paid on expenses incurred in making exempt supplies is not deductible.

Apportionment. For overheads, the turnover method or another apportionment method acceptable to the Zimra must be used to allocate the VAT between taxable supplies and exempt supplies. Input tax related to taxable supplies is deducted, while input tax related to exempt supplies is not deducted. If taxable supplies exceed 90% of the total supplies made by a registered operator, all of the VAT incurred by the registered operator is deductible as input tax.

Refunds. If the amount of input tax recoverable in a tax period exceeds the amount of output tax payable in that period, a refund of the excess may be claimed. Zimra must pay interest at the prescribed rate if it does not process and pay the refunds within 30 days after the date on which the relevant return is submitted.

Before a refund is paid, the refund amount is applied against any tax, levy, interest, or penalty payable by the registered person under the VAT act, the customs and excise act, the income tax act and the capital gains tax act.

Preregistration costs. VAT incurred on goods and services prior to VAT registration is claimed as input tax deduction in the month of VAT registration if such goods and services are still on hand and used for making taxable supplies. In the case of stocks and consumables, input tax deductions can be made only if they were purchased not more than six months prior to date of registration of the operator. Furthermore, costs incurred six months prior to incorporation of a company or in connection with the incorpora­tion of a company qualify for input deduction provided the goods and services were acquired solely for the purpose of a trade to be carried on by the company, and the purchaser is reimbursed by the company for the whole amount of the consideration for the goods and services.

Recovery of VAT by non-established businesses

Non-established businesses can recover VAT through their agents in Zimbabwe.

Invoicing

Tax invoices and credit notes. A registered operator must provide a tax invoice to the recipient for all taxable supplies made within 30 days after the date of supply. In certain circumstances, subject to Zimra approval, the recipient of goods and services issues the tax invoice to the supplier.

A tax invoice must contain the following particulars:

  • The words “tax invoice” or “fiscal tax invoice” in a prominent place
  • The name, address and registration number of the supplier
  • The name and address of the recipient and, if the recipient is a registered operator, the registration number of the recipient
  • An individual serialized number and the date on which the tax invoice is issued
  • A description of the goods or services supplied
  • The quantity or volume of the goods or services supplied
  • The value of the supply, the amount of tax charged and the consideration for the supply, or if the amount of tax charged is calculated by applying the tax fraction (15/115) to the consid­eration, the consideration for the supply and either the amount of the tax charged or a statement that the consideration includes a charge with respect to the tax, and the rate at which the tax is charged

A credit note may be used if the output tax accounted for exceeds the output tax properly chargeable with respect to a particular supply. A debit note may be used if the output tax properly chargeable with respect to a supply exceeds the output tax accounted for.

A credit note and debit note must satisfy all of following require­ments:

  • It must be clearly marked “credit note” or “debit note”
  • It must refer to the original tax invoice
  • It must indicate the reason why it has been issued
  • It must contain sufficient information to identify the transaction to which it relates

Proof of exports. Exports can be classified as direct or indirect exports.

Direct exports arise if the registered operator is responsible for consigning or delivering the goods to an address in an export country. These exports can be zero-rated if the documentary requirements are met.

Indirect exports arise if the registered operator does not consign the goods to an address in an export country but instead delivers them to the purchaser that is responsible for taking them out of the country. The registered operator must satisfy Zimra that it will comply with all exchange-control regulations relating to the export of goods. If Zimra is satisfied that the goods were not taken out of Zimbabwe, the seller of such goods is liable to VAT at a rate of 15%.

If requested by Zimra, to prove that the supplies are entitled to the zero rate, the registered operator must furnish Zimra with certain documents including the following:

  • Tax invoice
  • Debit and credit notes
  • Sales agreement
  • Lease agreement
  • Contract document
  • Export documents bearing a Zimra stamp at the point of exit
  • Other receipts if applicable
  • Other documents acceptable to Zimra

Foreign-currency invoices. Zimbabwe’s functional currency is the United States dollar.

Electronic invoices. Not applicable.

VAT returns and payment

VAT returns. All registered operators with annual taxable sup­plies in excess of USD240,000 have a monthly tax period.

In addition, these taxpayers are required to start using, before a specified date, electronic registers or electronic signature devices with prescribed specifications to record taxable transactions. Fifty percent of the cost of acquiring these prescribed, “fiscal­ized” electronic registers is deductible from VAT payable.

VAT returns must be filed by the 25th day of the month following the tax period. Payment is due in full by the same date. If the due date falls on a Saturday, Sunday or public holiday, the due date is the last business day before the 25th. With effect from 1 November 2016, designated VAT agents are to submit Value Added Withholding Tax returns by the 15th day of every month.

Special schemes. Not applicable.

Electronic filing and archiving. Not applicable.

Annual returns. Not applicable.

Penalties

A penalty is imposed for late payment of VAT at a rate of up to 100% of the outstanding tax for each month. Additional tax equal to 100% of the relevant tax may be levied in cases of fraud.

Interest is charged on outstanding tax at a rate of 10% per year.

A civil penalty of up to USD25 per point of sale per day is charged for failure to use prescribed “fiscalized” electronic reg­isters. A similar penalty is imposed on approved suppliers of electronic signature devices and fiscalized or non-fiscalized electronic registers who fail to supply them within six weeks of an order with payment in full.

Fines, imprisonment or both may also apply to various other offenses, including making false statements and obstructing a revenue officer.

For late submission of VAT returns, a civil penalty of USD30 per day per tax return is imposed. Those daily penalties continue dur­ing the first 181 days that each return is in default. If the person continues to be in default after the 181 days, he or she shall be guilty of an offense and liable, on conviction, to a fine not exceeding level 14 (USD5,000) or imprisonment for a period not exceeding five years or to both the fine and imprisonment.