Expatriates are subject to the normal Pay-As-You-Earn (PAYE) regulations. Further, if the expatriates are deemed to be residents in Zambia, then any foreign investment income arising is subject to tax in Zambia.
Based on the legislation and irrespective of whether or not an individual is tax resident in Zambia, any income earned (including cash and non-cash benefits) from duties performed in Zambia, by virtue of the expatriates’ employment, will be liable to tax in Zambia.
All income that is deemed to be sourced in Zambia by expatriates will be taxed in Zambia under PAYE. Further foreign interest and dividend income earned by expatriates will be taxed in Zambia if the expatriates are considered to be tax resident in Zambia.
The residence concept according to the law states that:
“An individual is, for the purposes of this Act, not treated as a resident in the Republic who is in the Republic for some temporary purpose only and not with any view or intent of establishing his residence therein, and who has not actually resided in the Republic at one or several times for a period equal in the whole to 183 days in any charge year, but if any such individual resides in the Republic for the aforesaid period they shall be treated as resident for that year.”
In view of the above provision, if expatriates will be in Zambia for more than 183 days in a charge year, then they will be considered to be tax resident in Zambia. Therefore, their foreign interest and dividend income will also be subject to tax in Zambia.
There is no tax trigger point for Zambia. All business travelers that stay for a period of more than 183 days and earn employment income for rendering services in Zambia will become tax residents in Zambia. The general procedure for expatriate employees is to then submit a tax return. This is particularly the case if they require a tax clearance certificate on return to their home country.
The following income is taxable according to the law:
- gains or profits from any business for whatever period of time carried on
- interest, charges and discounts
- royalties, premiums or any like consideration for the use or occupation of any property
- income from the letting of property
- income as further classified in the First
Schedule. Emoluments are defined in the law as:
“...any salary, wage, overtime, leave pay, commission, fee, bonus, gratuity, benefit, advantage (whether or not that advantage is capable of being turned into money or money’s worth), allowance, including inducement allowance, pension or annuity, paid, given, or granted in respect of any employment in office, wherever engaged in or held.”
PAYE is calculated on the employee’s gross emoluments less any statutory deductions such as the National Pension Scheme Authority (NAPSA).
The tax rates for the charge year 2014 are as follows, with amounts listed in Zambia kwacha (ZMW):
||ZMW 36 000
|ZMW 36 000.01
||ZMK 45 600
|ZMW 45 600.01
Statutory deductions include payments to NAPSA.
Under the provisions of the NAPSA Act, every person who is employed by a company which is registered with NAPSA is required to be registered as a member of the scheme.
This registration is mandatory for all expatriates. Previously, NAPSA did not enforce collection of NAPSA contributions from expatriates. However, now only an employee of an international organization who is not a citizen of Zambia is exempt.
NAPSA defines an ‘international organization’ as an organization that is neither registered with the Patents and Companies Registration Agency (PACRA) nor the Registrar of Societies in Zambia.
The duty to report and withhold PAYE and NAPSA rests with the employer. Where the overseas employer does not have a presence in Zambia, then, based on current legislation, it is the person or partnership making the payment that is responsible for deducting the tax from the employee’s pay and accounting for it to the Zambia Revenue Authority (ZRA).
In addition to Zambia’s domestic legislation that provides relief from international double taxation, Zambia has entered into double taxation treaties with various countries to prevent double taxation, and allow cooperation between Zambia and overseas tax authorities in enforcing their respective tax laws.
There is a risk that an expatriate may create a permanent establishment (PE) if they are acting on behalf of an enterprise and have the right to conclude contracts in Zambia in the name of the enterprise. No PE will be created if the person carries out these activities through a fixed place that is specifically listed in the legislation as not giving rise to a PE.
Taxable supplies under value-added tax (VAT) are subject to VAT at one of two rates:
- standard-rate: 16 percent applies on most supplies of goods and services
- zero-rate: 0 percent applies on exports of standard rated goods and some specified goods and services.
Registration is required as soon as a supplier’s value of taxable supplies exceeds the minimum threshold (currently ZMW800 000 per annum).
Every supplier that is registered for VAT, and that makes taxable supplies or that procures foreign services, is to account for VAT through the submission of a monthly VAT return to ZRA for each tax period. The VAT return must be submitted no later than the 21st day after the end of each tax period.
There is no specific provision in the legislation that mentions transfer pricing with regards to employees working in different jurisdictions and cross-border benefits.
Expatriate staff who intend to work in the country for a period of less than 6 months may apply for a business permit. The business permit will entitle the expatriate staff to stay in the country for 30 days. Visitors from ‘qualifying’ countries will be issued with business permits at the port of entry. In all other cases the visitor will need to obtain the business permit from the Zambian Embassy/Mission abroad before traveling to Zambia.
If the expatriate staff needs to stay in the country after the business permit expires, then an application for a temporal employment permit should be made. The temporal employment permit is valid for a period of 90 days with the option to renew after expiry.
Expatriate staff who intend to live and work in the country for a period of more than 6 months are required to apply for an employment permit. An employment permit confers temporary status and enables the holder of the employment permit to work in Zambia for a specified period.
The period of validity of an employment permit, in any case, shall be for a period from the date of its issue to a date, as the Director-General of Immigration (having regard to all the circumstances of the case) thinks fit, and shall be capable of extension for a further period or periods to a maximum of 5 years from the date of its issue.
Currently there are no specific provisions in the legislation that mentions data protection, but it is general practice for confidential data to be protected.
Recently a statutory instrument was released prohibiting quoting, making payments of domestic goods and services in foreign currency.
A statutory instrument was also released stating Balance of payments regulations are monitored by Bank of Zambia and they apply to the following:
A financial service provider licensed under the Banking and Financial services Act;
- An importer of goods or services exceeding US$20 000 or the equivalent in foreign currency;
- An exporter of goods or services exceeding US$20 000 or the equivalent in foreign currency;
- A financial service provider designated under the National Payment Systems Act;
- A foreign investor; and
- A local investor who invests outside Zambia.
Bank of Zambia monitors the outflows and inflows of funds in Zambia.
In relation to outflows, the Bank shall monitor:
- The value of any imported goods;
- The value of any imported services, including management services;
- Any amounts remitted out of Zambia whether unrequited (gratuitous) or otherwise;
- Loans granted to non residents;
- Trade credits from non residents;
- Investments made in the form of equity and debt securities outside Zambia by persons resident in Zambia.
- Profits or dividends paid to non residents in respect of investments made in Zambia
- Payments of interest or principal on an investment on private external debt.
In relation to inflows, the Bank shall monitor:
- The value of goods or services exported out of Zambia
- Profits or dividends received in respect of investments abroad
- Borrowings from non residents;
- Investments in the form of equity from abroad
- Investments in the form of debt securities from abroad; and
- Receipts of both principle and interest on loans to non-residents
In relation to international transactions, the Bank shall monitor:
- The value of imported or exported manufacturing services or goods to or from non residents;
- The net cost effect of telecommunication services;
- The value of international transport, courier and postal services;
- The value of international accommodation and other hospitality services to or from non residents; and
- International money transfers into and out of Zambia.
As an exporter or foreign investor:
- Open and maintain and foreign currency denominated account with commercial bank locally;
- Deposit the cash component of the pledged investment with ZDA within the stated period in the investment certificate;
- Acquit the pledged capital equipment and other non-cash components with ZDA to the Bank by producing documentation indicating the monetary equivalent;
- For any proposed export, complete the exports proceeds monitoring Form I;
- Notify the commercial bank where the foreign currency denominated account is maintained, of receipt of export proceeds within one hundred and twenty days from the date of receipt of the export proceeds.
As an importer:
- For any proposed import of goods or services complete and submit to a commercial bank the import monitoring form in Form II;
- Provide the commercial bank with customs clearance of imported goods or evidence of provision of the relevant service before remission of funds, within one hundred and twenty days from the date of the transfer of the funds; and
- Apply for an extension to the period within which you may make an acquittal under sub regulation 2.
Based on Section 29 of the ITA following are the main non taxable costs:
Foreign exchange gains and losses
Section 29(A) of the ITA states that:
“Notwithstanding the provisions of section twenty-nine or any other provisions of this Act, any foreign currency exchange gains or losses, other than those of a capital nature, shall be assessable or deductible, as the case may be, in the charge year in which such gains or losses realised, that is to say, in the charge year in which the person or partnership concerned is pay the additional kwacha or is allowed a rebate or a reduction in settlement of a liability…”
Based on the above exchange losses and gains are only allowable / taxable when they are realised and are revenue in nature. Exchange losses or gains of a capital nature are not deductible or taxable regardless of whether they are realised or not.
Sub-paragraph (1) of paragraph 10 of section 33 of the ITA states:
"Where a person has used any implements, machinery or plant belonging to him for the purposes of his business a deduction (called a wear and tear allowance) shall be allowed in ascertaining the profits of the business for each charge year".
|Investment/initial allowance on new industrial buildings
|Industrial building allowance
|Plant & machinery used in manufacturing & tourism
|Commercial motor vehicles & Other plant and machinery
|Non commercial motor vehicle
|Farm works/improvements & Improvement allowance under Multi Facility Economic Zones only
Section39.of the ITA states that “A deduction is allowed in ascertaining the gains or profits of a business or the emoluments of any employment or office for any subscription paid by a person in respect of his membership of a trade, technical or professional association which is related to his business, employment or office”.
Section30 of the ITA states that “Subject to the other provisions of this section, any loss incurred in a charge year on a source by a person, shall be deducted only from the income of the person from the same source as that in which the loss was incurred.”
Preliminary business expenses
Sectoin35 of the ITA states that “A deduction is allowed in ascertaining the gains or profits of a business for the charge year in which that business commences, in respect of any expenditure that -
- was incurred within eighteen months before the commencement of the business; and
- would have been allowed as a deduction in ascertaining the gains or profits of the business after its commencement.”
Approved fund deductions
Section37 (1) of the ITA states that “…A deduction shall, be allowed in ascertaining the income from emoluments of an employee for a charge year of any amount paid by the employee during that charge year by way of contribution to any approved fund including the National Pension Scheme Authority, if the fund to which the contribution is made continues to be an approved fund for that charge year…”
NAPSA deduction from PAYE calculations for the charge year 2014 is ZMW 255.
Deduction for share option scheme
Section 37A of the ITA states that “A deduction shall be allowed in ascertaining the gains or profits of an employer for a charge year of any amount incurred by the employer in the establishment or in the administration of an approved share option scheme for that charge year”
Section 38 of the ITA states that “A deduction shall be allowed in ascertaining the gains or profits of a business for any payment made for the purposes of technical education relating to that business or for the purposes of obtaining further experience, training or qualifications relating to that business…”
Public Benefit Organisations
Section 41(1) of the ITA
“Subject to the other provisions of this section, an amount paid by a person during the charge year to a public benefit organisation shall be deducted from the income of that person if-
- The payment is in money or money’s worth;
- The payment is made for no consideration;
- Subject to subsections (2) and (3) the minister approves the public benefit organisation to which the payment is made
Provided that an approval by Minister may be given retrospectively; or
- The payment is made to a public benefit organisation that is owned by the Government.”
Section 43.(1) of the ITA states that “A deduction is allowed in ascertaining the gains or profits of a business of any expenditure, not being expenditure of a capital nature, incurred by the business during a charge year on experiments or research relating to the business…”
Deduction for bad and doubtful debts
According to section 43 of the ITA provisions are generally allowed for tax purposes if they are specific and revenue in nature.