Zambia
Katrina Mabika
Director
BDO Zambia
THE ZAMBIAN ECONOMY
• GDP growth in 2010
• Main import partners –
• Main export partners –
South Africa
DRC
Switzerland
China
• Inflation rate 2009
2010
• Kwacha lending rates
• Volatile exchange rates
• US Dollar
2010
2006
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7%
40,2%
12,9%
47,1%
11,2%
13,4%
8.5%
< 22,06%
K4,823.6
K3,601.5
THE ECONOMY – KEY SECTORS
Mining – record copper prices in 2010
Tourism – New brand name ‘Let’s Explore Zambia’
Agriculture – bumper maize crops in 2010
Retail and distribution - Lake Kariba Waterfront
Development
• Others – manufacturing, property development –
shopping malls
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BUSINESS ENTITIES
• Sole proprietorships
• Partnerships
• Companies limited by
shares
• Companies limited by
guarantee
• Branches of foreign
companies
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LIMITED LIABILITY COMPANY
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Public or private companies
Incorporation procedure
Minimum of two shareholders and directors
Minimum issued share capital
Capital structuring
Legal status and statutory administration
Empowerment legislation
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PRIVATE COMPANY
• The private company is the most common vehicle
• Maximum number of members is 50 and minimum number is 2
• A minimum of ZMK 2,000,000 (ZAR 3,051)1 in paid up share capital
• A minimum of two members and two directors
• More than half of the directors, including the managing director and at
least one executive director must be resident in Zambia
11 ZMK = 0.00152550 ZAR
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BRANCH OF A FOREIGN COMPANY
• 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
• A branch must nominate at least one locally resident director or branch
manager to take statutory responsibility for branch affairs
• Both a Zambian company and a branch are subject to the provisions of
the Companies Act
• Both are treated as separate taxable entities and required to submit
annual audited financial statements and tax returns and pay corporate
income tax
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BRANCH OF A FOREIGN COMPANY
• Simple formation procedure
• No local shareholders but encourages greenfield
investments
• One director or branch manager
• Employment obligations
• Tax obligations
• Annual filing requirements
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BRANCH OR COMPANY?
• Key advantage of a limited liability company is that risks are limited to
the paid up share capital of the local Zambian entity; in a branch,
liabilities would also be the responsibility of the foreign parent company
• Formation procedures and financial statement and corporate tax
obligations are similar
• Branch option may be advantageous in certain operating environments.
• Repatriation of profits – no foreign exchange
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BRANCH OR COMPANY?
• Under branch arrangement operating profits recognized in books of
parent company whereas a limited company would be required to
declare a dividend. There would be a 15% withholding tax implication
which may be recovered in terms of the DTA (participation exemption)
• Winding up procedures simplified for a branch.
• Long term presence in Zambia, limited company may be most
beneficial.
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OUR TAX REGIME
• Zambia Revenue Authority (ZRA)
• 35% income tax on adjusted
company profits,
telecommunications @ 40%
• Value Added Tax at 16%
• Pay as You Earn on salaries at 0%35%
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OUR TAX REGIME
• No capital gains tax
• Property transfer tax of 5%
on transfers of shares or
property
• 3% presumptive tax on
turnover for small
businesses
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INCOME TAX
• Fiscal year end of 31 March
• Provisional returns at 30 June and
quarterly payments
• Standard rate of 35% on adjusted
profits
• Capital allowances
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VALUE ADDED TAX
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16% on standard rated supplies
Zero rated and exempt supplies
Returns filed by 21st of following month
Refunds following control inspections
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DISTRIBUTION OF PROFITS
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Dividends
Management fees
Withholding taxes at 15%
VAT reverse charge at 16%
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WITHHOLDING TAXES
• Deductible at a rate of 15% from
• Foreign management / consultants fees
• Royalties
• Interest
• Rents
• Commissions
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SAICA INTERNATIONAL TAX CONFERENCE 2006
DOUBLE TAXATION RELIEF
• Reduced rate of WHT in some countries
• Kenya, Tanzania, Uganda – exempt
• South Africa – refer to domestic rate. DTA does
not deal with reduced rates
• Latest DTA’s signed with China & Seychelles
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SAICA INTERNATIONAL TAX CONFERENCE 2006
INVESTMENT INCENTIVES
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Agriculture
Mining
Investment Act 1993
Zambia development agency
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ZAMBIAN INCENTIVES
• An investor who invests at least USD 250,000 and employs at least 10
people will be entitles to a residence permit and work permits for up to
5 expatriate employees.
• In the Mining Sector:
• Guaranteed input tax claim for five years on pre-production
expenditure for exploration companies in the mining sector
• Mining companies holding a large scale mining license carrying on
mining of base metals taxed at 30% and dividends paid by such
company taxed at 0%
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ZAMBIAN INCENTIVES
• In the Mining Sector:
• 100% mining deduction on capital expenditure on
buildings, railway lines, equipment, shaft sinking or any
similar works.
• The debt/equity ratio has been reduced from 2:1 to 3:1
to encourage further investment in the Mining Sector.
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