Previously, profit distributions by Zambian branches of foreign companies were not subject to withholding tax. The 2014 budget proposes to introduce a 15% withholding tax on profit distributions by Zambian branches to their foreign head offices. It is expected that the imposition of withholding tax may take effect as early as 1 January 2014, we await further clarification on the timing.
The introduction of the withholding tax on branch profit repatriation aims to equalise the tax treatment between branches and subsidiaries. The statutory rate of dividend withholding tax is 15%. In the case of a company, the dividend withholding tax may be reduced under the relevant double tax agreement. However, for branches, no equivalent relief is available. Companies may now wish to revisit their existing corporate structure in Zambia.
The 2014 budget introduced a monetary transfer service charge of 0.2% of the value transferred to a recipient within or outside Zambia. The change will come into effect from 1 January 2014.
Download the highlights of the 2014 Zambian Budget Speech.