A business may be conducted by individuals, partnerships, trusts, Zambian companies or branches of foreign companies.
A Zambian company may be public (name ends in Public Limited) or Private Ltd. Both private and public companies are governed by the Companies Act. There is minimum equity capital requirements for companies of K500 000.
The private company is the most common vehicle for operating a business in Zambia. It may have a minimum of two members and two directors.
A subsidiary of a foreign company is regarded as a Zambian company. The legal liability of the parent company is limited to the amount of capital committed (together with any guarantees provided).
A branch of a foreign company is regarded as a foreign company if it establishes a place of business or owns immovable property in Zambia and must register as such.
The legal requirements of a branch are not limited to the extent of its Zambian assets.
Both a Zambian company and a branch operation are subject to the provisions of the Companies Act.
A branch is obliged to lodge a certified copy of its Articles of Association (or other instrument defining its constitution) with the Registrar of Companies, as well as a sworn translation into English where appropriate.
Two primary requirements for a branch are :
- an annual audit, and
- financial statements must be lodged with the Registrar of Companies (financial statements must be lodged for a company as a whole. Exemptions, renewable every two years may be obtained in certain circumstances).
Locally registered private companies are also required to be audited but are not required to lodge their annual financial statements with the Registrar of Companies.
- In order to be liable to tax in Zambia a person has to be in receipt of income from a source within or deemed to be within the Republic.
- A company incorporated in the Republic is liable to tax on the trading profits, Zambian dividends and interest.
- A partnership is not liable to tax in Zambia but the income is divided among the partners who are taxed on the partnership income.
- An individual ordinarily resident in Zambia is liable to tax on interest and dividends received from a source outside the Republic.
- A non-resident is liable to pay tax if he is in receipt of income from a source within Zambia.
Zambia has double tax agreements with a few countries to prevent the taxation of the same income in either country.
A foreign resident business undertaking will only be liable to tax if business is conducted in Zambia through a Permanent Establishment.
Where a double taxation agreement exists between Zambia and another country, foreign tax payable by an investor to the other country in respect of any foreign income shall be allowed as a credit for that investor against Zambia in respect of that foreign income.
Profits from companies incorporated in Zambia are taxed at 35% on the taxable profit. Four provisional tax payment dates, as shown below, are made per each tax year.
|First Quarter||14th July|
|Second Quarter||14th October|
|Third Quarter||14th January|
|Fourth Quarter||14th April|
The rate applicable is 15%. The dividend tax is paid in the same manner as PAYE to the Zambia Revenue Authorities.
- There is no further tax on Zambian dividends.
- Income received by way of dividend from farming shall be exempt from tax for the first five years of operations.
- Employers are required to deduct tax (PAYE) from the remuneration of employees.
- Customs and Excise Taxes – duties on imports at various rates.
- VAT – Value Added Tax – has replaced Sales Tax. The rate is 17.5% on all vatable supplies.
- Personal Levy
- Charged by Councils on gross salaries of employees at 1% after an allowance of K300 000 allowance.
- Are payable to the Council on all rateable properties at a rate of 1,015%
- Withholding Tax
- A withholding tax rate of 15% is levied on income from dividends, rent, entertainment, contractor and supplies and interest (above K60 000)
The tax rates applicable to individuals are as shown below. Husband and wife are each entitled to separate rates.
|First K600,000||Free – available as a tax credit of K60,000|
- Income from farming shall be taxed at a rate of 15%.
- Portion of income which is determined by the Commissioner of Taxes as originating from the export of non-traditional products is taxed at a rate of 15%.
- Income received from a rural enterprise for each of the first five years of operation will be exempt from tax.
An investor will be entitled to a capital allowance which shall be deducted in ascertaining the gains or profits at the following special rates :
- Building used for manufacturing, mining and hotels qualify for a wear and tear allowance of 5% per year plus an initial allowance of 10% of the cost in the year in which the building was first used.
- Implements, machinery and plant used exclusively for farming, manufacturing and tourism qualify for a wear and tear allowance of 50% per year of the cost in the first two years (straight line).
- Capital expenditure on farm improvements qualify for a farm improvement allowance of 100% in the year the expenditure is incurred.
- The wear and tear allowance on non-commercial vehicles is 20% (straight line).
- Expenditure on other assets used in creating income qualify for a wear and tear allowance of 25% (straight line).
An investor who incurs capital expenditure on the growing of tea, coffee, banana, citrus fruit or other familiar plants or trees shall be entitled to a development allowance of 10% of such expenditure which shall be deducted in ascertaining the gains or profits of that business enterprise for the charge year up to the first year of production.
Farm Work Allowance
An investor is entitled to a farm work allowance of 100% in respect of expenditure on a farming land in his ownership which may entail farming, stamping or clearing works for the prevention of soil erosion, boreholes, wells, aerial and geophysical survey and water conservation.
Income Tax Deductions
An investor shall be entitled to the following deductions in ascertaining the gains or profits.
- Any loss incurred other than in investment in mining in any charge year shall be deducted only from the income of the investor from the same source as that in which loss was incurred. Such loss shall be deducted from his income in the following year from year to year.
- Any payments made for the purpose of technical education by a business enterprise, or for the purpose of obtaining further experience, training or qualification, relating to that business enterprise.
- Any expenditure, not being expenditure of a capital nature incurred by a business enterprise during the current year on experiments or research relating to that business enterprise.
An investor may apply to be appointed and licensed by the Commissioner General to establish and operate a bonded factory under Section 65 of the Customs and Excise Act.
An investor who qualifies in one of the five categories below shall be entitled, in addition to the general incentives, to an exemption from customs duties and sales duties on all machinery and equipment (other than motor vehicles) required for the establishment, rehabilitation or expansion of that enterprise.
- an exporter of non-traditional products (other than copper) which result in net foreign exchange earnings, or
- produces products for the use locally in agriculture and the production of agricultural commodities or other agro-related products for export, or
- is engaged in tourism resulting in foreign exchange earning in excess of 25% of the gross annual earnings of the business unit, or
- is engaged in an import substitution industry using a significant proportion of local raw materials resulting in net foreign exchange savings, or
- is located in a rural area.
The Budget date is the last Friday in the month of January.
With effect from February 1994 the Exchange Control Act, which was restrictive in mobility of hard currency, was scrapped and an investor can now repatriate all amounts of capital introduced into Zambia, and can externalise dividends, management fees, interest earned, profits earned, technical fees, royalties etc. freely. All earnings by expatriates can also be externalised without difficulties.
In summary, there is no exchange control in Zambia for any one doing business in Zambia either as a resident or non-resident.
With the abolishment of exchange control, any investor can borrow for investing in Zambia but certain financial institutions will not provide loans to investors deemed as non-residents unless a wholly owned Zambian company participates in the business.
All visitors from Commonwealth countries except a few restricted ones can obtain visas at the port of entry. Visitors from EEC, USA and South Africa can also obtain visas at the port of entry. Visitors from other countries need to obtain visas prior to arrival in Zambia. Maximum visa duration is 90 days.
Self Employment Permit or Resident Permit
Notwithstanding the provisions of the Immigration and Deportation Act, an investor who invests a minimum of US $250 000 Dollars or equivalent in convertible currency and who employs a minimum of ten persons shall be entitled to a self employment permit or resident permit.