CONTENTS 1 2 3 4 5 INTRODUCTION ................................................................ 2 RATES OF TAX: EMPLOYMENT INCOME....................... 3 HIGHLIGHTS OF THE 2009 BUDGET ............................... 4 TAXATION IN ZIMBABWE ...

...21 TAXATION OF INDIVIDUALS............................................21 Benefits.........................................................................22 Exempt income ............................................................23 Deductions ...................................................................24 Prohibited Deductions .. .24 Credits...........................................................................24 Tax computation example: Individual........................25 6 7 8 9 10 11 12 13 14 15 TAXATION OF COMPANIES .............................................26 CAPITAL ALLOWANCES...................................................28 WITHHOLDING TAXES.....................................................31 CAPITAL GAINS TAX .........................................................34 VALUE ADDED TAX ..........................................................36 PAYROLL TAXES...............................................................38 ESTATE DUTY....................................................................39 STAMP DUTY .....................................................................39 CUSTOMS DUTY . .39 CONVERSION OF SPECIFIED AMOUNTS INTO FOREIGN CURRENCY 40 TAX RATES.........................................................................43 DOUBLE TAXATION AGREEMENTS ...............................45 TAX RATES IN SELECTED COUNTRIES . 46

16 17 18

1.

INTRODUCTION The most important change brought in by the 2009 budget is the requirement to pay all taxes in foreign currency. This will invariably place a significant demand on the companys cash resources particularly in the current climate of an economy downturn. We at BDO Kudenga & Co. are geared towards offering tax planning strategies and policies that minimize your tax burden during these difficult times and ensure the success of your business. We can also help to protect you from the risk of non-compliance against the backdrop of intense levels of scrutiny from the tax authorities. This booklet is intended to give brief guidelines on how to compute tax on your business or personal income. We advice that you seek professional advice from the firm before making any decision regarding the contents of this booklet.

2.

2009 BUDGET: - TAXATION PROPOSALS The Finance Act 2009 was promulgated on the 23 April 2009 after the th presentation of the original 2009 budget proposals on the 29 January 2009 by the Acting Minister of Finance Honorable Chinamasa and a th revised budget which was tabled on 18 March 2009 by Finance Minister, the Honorable, Tendai Biti. The Zimbabwe currency was revaluated on 1 August 2008 by the nd removal of ten zeros. A further revaluation was carried out on 2 February 2009 by the removal of twelve zeros. All the Zimbabwean dollar figures in this bulletin reflect the above currency revaluations. Salient features of the taxation proposals in the budget are summarized below:2.1 RATES OF TAX: EMPLOYMENT INCOME With effect from 1 February 2009, separate foreign currency PAYE tables for employees remunerated in foreign currency are introduced.
st st rd

Tax and your business

ANNUAL P.A.Y.E TABLE (USD$)

ST ST 1 FEBRUARY 2009 31 DECEMBER 2009 (USD)

Band of Taxable Income US$ 1 1 651 5 501 11 001 16 501 1 650 5 500 11 000 16 500 33 000

Amount US$ 1 650 3 850 5 500 5 500 16 500

Tax Rate % Nil 20 25 30 35 37,5

Tax US$ Nil 770 1 375 1 650 5 775

Cumulative Tax US$ Nil 770 2 145 3 795 9 570

33 001 and above Aids levy of 3% of tax is payable MONTHLY P.A.Y.E TABLE (USD$)

ST ST 1 FEBRUARY 2009 31 DECEMBER 2009 (USD)

Band of Taxable Income US$ 1 151 501 1 001 1 501 150 500 1 000 1 500 3 000 Multiply by Multiply by Multiply by Multiply by Multiply by Multiply by

Tax Rate % Nil 20 25 30 35 37,5 Nil Less Less Less Less Less

Cumulative Tax US$

Nil 30 55 105 180 255

3 001 and above

Aids levy of 3% of tax is payable

Tax and your business

3.

HIGHLIGHTS OF THE 2009 BUDGET 3.1 INCOME TAX INDIVIDUALS PERSONAL TAX RATES Separate foreign currency tables are introduced with effect st from 1 February 2009.The minimum tax threshold is US$150 per month. The marginal tax rate of 38.625% (including 3% aids levy) is applicable to taxable income above US$3,000 per month. RETRENCHMENT PACKAGES With effect from 1 February 2009, the tax-free portion of a retrenchment package is pegged at the greater of US$1,000 or one third of the retrenchment package provided it does not exceed US$9,000. PENSION CONTRIBUTIONS With effect from 1 February 2009, the monthly maximum amount allowable for employer and employee pension fund contributions is USD$300 per month. RENTAL/INTEREST INCOME TO ELDERLY With effect from 1 February 2009, the tax-exempt amount of income accruing to persons aged over 55 years by way of rental income or interest from discounted instruments is reviewed to US$250 per month.
st st st

Tax and your business

TAX CREDITS These are revised from 1 February 2009 as follows: US$ Mentally/Physically disabled person .................. Blind Person ................... Elderly persons credit .................... $900 $900 $900
st

When the tax chargeable is payable in local currency, the amount of the credit shall be converted to Zimbabwean dollars using the rate as may be prescribed by the Minister of Finance. MOTOR VEHICLE BENEFITS With effect from 1 February 2009, the deemed motoring benefit is revised as follows: Engine Capacity 1 500cc or less 1 501cc to 2 000cc 2 000cc to 3 000cc Above 3 000cc 2009 US$ 50 per month US$ 60 per month US$ 80 per month US$100 per month
st

Where the fringe benefit accrues to a taxpayer earning a salary in local currency, the deemed income will be converted to local currency using a rate prescribed by the Minister of Finance. PAYE REMITTANCE PERIOD With effect from 1 February 2009, PAYE should be remitted on or before the third day of the month following that of deduction. PAYMENT IN KIND Where an employee earns any part of their remuneration in the form of a coupon, or an instrument or token that is exchangeable whether directly or indirectly for foreign currency, any P.A.Y.E payable shall be paid in foreign currency calculated on a fair valuation of that coupon, instrument or token.
Tax and your business 5
st

PART PAYMENT IN FOREIGN CURRENCY Where only part of the taxable incomes from employment is paid in a foreign currency, the amounts of any tax due on such income shall be calculated separately and paid in the appropriate currency relative to each part. LOAN BENEFIT A loan benefit accrues when the interest payable is less than the Libor rate plus five percent. EMPLOYEE SHARE OPTIONS A flat rate of 5% on gross sale proceeds will apply to calculate tax on the exercise of share options granted before 1 February 2009

Tax and your business

3.2

INCOME TAX: - COMPANIES, TRUSTS, INDIVIDUAL TRADE OR INVESTMENT CORPORATE TAX With effect from 1 of January 2009, corporate tax will be remitted in the currency in which the business is conducted. The corporate tax rate remains at 30,9%. INCOME FROM TRADE OR INVESTMENTS With effect from 1 January 2009, taxable income from trade or investment earned in foreign currency is payable in foreign currency. The tax rate for income from trade or investment remains at at 30,9%. CAPITAL ALLOWANCES PASSENGER MOTOR ALLOWANCES With effect from 1 January 2009, the maximum amount allowable on the purchase of a passenger motor vehicle is US$10,000. STAFF HOUSING With effect from 1 January 2009, the ranking cost of a residential unit will be US$25,000. DONATIONS CLINICS
st st st st st

TO

SCHOOLS,

HOSPITALS

AND

With effect from 1 January 2009, the maximum amount allowed for approved donations to schools, hospitals and clinics is to be reviewed to US$100,000 per annum. RESEARCH AND DEVELOPMENT With effect from 1 January 2009, the maximum amount allowed as a deduction to a research institute approved by the Minister of Higher or Tertiary Education is US$100 000 per annum.
Tax and your business 7
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TRADE CONVENTIONS With effect from 1 January 2009, the maximum amount allowable for attending a trade convention is US$2,500 per annum. CONVERSION OF FINAL BALANCES With effect from 1 January 2009, for all accounting and taxation purposes, any final balances denominated in Zimbabwean currency shall be converted to United States dollars at such rate of exchange as the Commissioner may approve. WITHHOLDING TAX ON TENDERS With effect from 1 February 2009, the threshold for the value of the withholding tax on tenders is reviewed to US$250 per transaction where the contract is denominated in foreign currency. EXPEDITED PROCEDURES FOR RECOVERY OF OUTSTANDING TAX ZIMRA may recover any outstanding tax or stamp duty including any interest and penalty thereon by making an assessment and thereupon serve a provisional attachment order authorizing the attachment of any movable property (including foreign currency) of the tax payer. The provisional attachment order may be issued in the following circumstances:(i) Where the tax payer fails to pay any tax.
st st

(ii) Where the tax payer fails to furnish any return or Information (iii) Where ZIMRA is not satisfied with the return or Information (iv) Where the tax payer is about to leave Zimbabwe.
8 Tax and your business

PRESUMPTIVE TAXES With effect from 1 January 2009, the following revised presumptive taxes will apply: Operators of goods vehicles having a carrying capacity Of more than ten tonnes but less than twenty tonnes, US$1,000 per quarter year; Of ten tonnes or less but which is driving one or more trailers resulting in a combined carrying capacity of more than fifteen tonnes but less than twenty tonnes, US$2,500 per quarter year; Of twenty tonnes or more, US$2,500 per quarter year.
st

Operators of driving schools providing driving tuition For class 4 vehicles only; US$500 per quarter year; For class 1 and 2 vehicles (whether or not in addition to providing driving tuition for other classes of vehicles), US$600 per quarter year.

Taxi-cab Operators US$100 per quarter

Commuter Omnibus Operators of carrying capacity of: 8-14 passengers US$150 per vehicle per quarter. 15-24 passengers US$200 per vehicle per quarter. 25-36 passengers US$400 per vehicle per quarter. 37 or more passengers - US$650 per vehicle per quarter.

Hair Saloons US$1,500 or 10% of gross income per quarter whichever is greater.

Tax and your business

RENTALS PAYABLE IN RESPECT OF MODEL A2 FARMS With effect from 1 January 2009, rentals paid on model A2 farms are:Rentals payable by a lessee of an A2 farm Region 1 2 2a 2b 3 4 5 Rental Fee Per Ha/Annum US$3.00 US$3.00 US$3.00 US$3.00 US$2.00 US$2.00 US$1.00
st

Rentals payable by holders of model A2 farms offer letters Region 1 2 2a 2b 3 4 5

10

Rental Fee Per Ha/Annum US$2.00 US$2.00 US$2.00 US$2.00 US$1.50 US$1.00 US$1.00
Tax and your business

3.3

VALUE ADDED TAX VAT REGISTRATION THRESHOLD With effect from 30 January 2009, the VAT registration threshold is reviewed to US$60 000 per annum. This measure does not apply to operators who are already registered for VAT purposes. VAT PAYABLE BY MOBILE PHONE OPERATORS With effect from 1 February 2009, VAT on the supply of cellular telecommunications services is reduced from 22,5% to 15%. VAT REMITTANCE With effect from 30 January 2009, a mid term tax payment of VAT will be made on the fifteenth day during the tax period. Mid term tax refers to the amount of VAT which is collected or accrued to the registered operator from the first to the fourteenth day of the tax period. A VAT return will be furnished by the fifth day of the following month after the end of the tax period and after excluding mid term tax paid, the registered operator will pay the tax payable or calculate the refund due. With effect from 1 August 2009, the mid term tax is discontinued. The VAT remittance date remains the fifth day of the first month commencing after the end of a tax period. IMPORT VAT With effect from 30 January 2009, import VAT will be payable in foreign currency on the value of all imports. PAYMENT IN KIND With effect from 30 January 2009, where the registered operator receives consideration in the form of a coupon, or any instrument or token that is exchangeable whether directly or indirectly for foreign currency, that operator shall pay the VAT applicable in foreign currency based on the fair valuation of that coupon, instrument or token.
th st st th

Tax and your business

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3.4

CAPITAL GAINS TAX PAYMENTS OF CGT IN FOREIGN CURRENCY With effect from 30 January 2009, where capital gains are received or accrued in foreign currency, the capital gains tax thereon will be payable in foreign currency on so much of the gains as are received or accrued in foreign currency. Where the capital gains is received in the form of a coupon or any instrument or token, which is exchangeable whether directly or indirectly for foreign currency then capital gains tax is payable in foreign currency on a fair valuation of that coupon, instrument or token. When computing the capital gains tax payable in foreign currency, the cost of acquisition and additions to the specified asset are deductible. In addition an inflation allowance equal to, 2 % of the cost of acquisition and additions in respect of each year or part of a year of assessment is allowable as a deduction against the net sale proceeds. CGT WITHHOLDING TAX With effect from the year of assessment beginning on 1 January 2009, the capital gains withholding tax should be submitted to ZIMRA not later than the third working day from the date when the payment was made. The rate of CGT withholding tax on immovable property st purchased prior to 1 February 2009 is 5% of the selling price. The rate of withholding tax on listed shares is reduced from 10% st to 1% with effect from 1 August 2009. 15% withholding tax is payable on sale of immovable property acquired after 1 February 2009.
st th

12

Tax and your business

CGT CALCULATION Immovable property purchased in Zimbabwe dollars prior to st 1 February 2009 will be subject to a deemed capital gain tax of 5% on the capital amount. With effect from 1 August2009 listed shares are exempt from CGT; the 1% withholding tax becomes a final tax. 3.5 ESTATE DUTY With effect from 1 February 2009, estate duty will be imposed when the dutiable amount exceeds US$50,000. 3.6 CUSTOMS DUTY CUSTOMS DUTY SUSPENSION ON BASIC COMMODITIES The suspension of duty on basic commodities is extended to st 31 December 2009. FLAT RATE OF DUTY With effect from 30 January 2009, customs duty on other goods is reduced from 65% to 40%. TRAVELLERS REBATE Individuals are allowed to import under rebate of duty, goods valued up to US$300 once in a calendar month. The rebate will be restricted to goods imported for personal consumption. CARBON TAX AND NOCZIM DEBT REDEMPTION LEVY ON FUEL Carbon tax and Noczim Debt redemption levy on fuel will be th levied in foreign currency with effect from 30 January 2009. The rates of customs duty on fuel, carbon tax and Noczim redemption th levy, will be reviewed with effect from 30 January 2009 a follows:
th st st

Tax and your business

13

CUSTOMS DUTY: Petrol: 55% of CIF value or US22,5 cents per litre whichever is greater. Diesel: 25% of CIF value or US12,5 cents per litre whichever is greater. With effect from 17 July 2009, customs duty on fuel is replaced with a specific excise duty of US20 cents for petrol and US16 cents for diesel. CARBON TAX: Petrol : US2,4 cents per liter or 6% of CIF value. Diesel: US1,0 cent per liter or 2% of CIF value. NOCZIM LEVY Petrol: US4,0 cents per liter or 10% Diesel: US1,0 cents per liter or 2%
th

14

Tax and your business

CUSTOMS DUTY IN FOREIGN CURRENCY With effect from 30 January 2009, customs duty will be paid in foreign currency on all imported goods. In order to reduce the cost of importation, customs duty rates on listed products will be reduced. The 15% surtax will be removed on all products. Product Raw material Intermediate goods Finished goods Clothing and textiles Current rates: customs duty 0% - 25% 10% - 25% Proposed rates th 30 June 2009 0% - 15% 10% - 15% 40% + US$5/kg 25% 40% + US$5/pair 40% 40% 40% + US$5/1000 25% - 60% 40% + US$5/kg
th

40% 60%+US$10/kg Clothing and textiles 60% + US$5 (school uniforms) per pair 60% Footwear 60% Electrical goods 60% Alcohol & alcoholic 60% beverages Cigarettes and tobacco 60% Motor vehicles 40% - 80% + Handbags and other 60% articles of leather, US$5/KG plastic or textile material Fruits and vegetables 40%

25%

Tax and your business

15

With effect from 1 August 2009 the following customs duty rates apply:Product Category Raw materials Intermediate goods Capital goods Commuter omnibus (15-20 passengers) Single cab trucks Product Category Newspapers Line telephone sets with cordless handsets Cellular telephone handsets Computers and printers Product Category Powdered milk Butter oil Leather in slabs, sheets or strip Palm stearine Waste leather Wadding textile fibres Binding and baler twine of sisal Twine of synthetic fibres: sisal, baler twine and manila hemp
16

st

Current rates: 0-15% 10-15% 0-5% 20-25% 25% Current rates: 40% 25% 25% 5% Current rates: 40% 40% 40% 40% 40% 40% 40% 40%

Proposed rates: 0-10% 10% 0% 15% 20% Proposed rates: 0% 5% 0% 0% Proposed rates: 0% 0% 10% 10% 10% 10% 10% 10%

Tax and your business

CUSTOMS DUTY CREDIT FACILITY In order to facilitate movements of goods, a customs credit facility valid up to seven days will be granted to approved th importers with effect from 18 March 2009. COMMERCIAL IMPORTS BY UNREGISTERED OPERATORS With effect from 30 January 2009, the presumptive tax of 10% on the value for duty purposes of the commercial goods imported by unregistered traders is payable in foreign currency. REBATE OF DUTY TOURIST OPERATORS
st th

ON

IMPORTATIONS

BY

With effect from 1 March 2009, a rebate of duty is granted on new capital equipment for; a) expansion, modernisation and renovations of hotels and restaurants and b) boat equipment and other goods used by registered tourist service providers that include tour operators, safari, boat operators and car hire operators. SUSPENSION OF DUTY ON MOTOR IMPORTED BY TOURIST OPERATORS VEHICLES

Duty on specified motor vehicles for the transport of passengers by tourist operators is suspended from 1 March 2009 to 28 February 2011. 3.7 STAMP DUTY PAYMENT OF STAMP DUTY With effect from 30 January 2009, stamp duty will be payable in foreign currency where an asset is disposed of in foreign currency. RATES OF STAMP DUTY (i)
Tax and your business
th

For registration in the deeds registry of the acquisition of immovable property in Zimbabwe dollars.
17

VALUE OF PROPERTY (ZIM $) Up to $ 5,000

RATE

0.7% ....................3.0% ....................5.0% ....................6.0%

5,001 -$ 15,000 15,001 -$ 100,000 Over (ii) $ 100,000

For registration in the Deeds Registry of any acquisitions of property that has been acquired with foreign currencyVALUE OF PROPERTY (USD) ............RATE Up to - US$ 5,000 ....................1.0% ....................2.0% ....................3.0% ....................4.0%

5,001 - US$ 20,000 20,001- US$ 100,000 Above US$ 100,000 BONDS

Mortgages bond or notarial .....................0.4% bond or any cession or substitution of debt. BROKERS NOTES Purchase of any marketable security ..................0.25% Purchase or a sale of movable property .............0.1% Purchase or a sale of immovable property .........1.0% STAMP DUTY Off market share transfers Cheques US$2.00 US$0.05

18

Tax and your business

INSURANCE POLICIES Where policy does not exceed 31 days ............... 0.5% Where policy exceeds 31 days Crop insurance Policy of marine insurance 3.8 EXCISE DUTY With effect from 30 January 2009, excise duty on locally produced or imported clear beer, alcoholic beverages, cigarettes and tobacco will be payable in foreign currency. 3.9 SPECIAL EXCISE DUTY With effect from 30 January 2009, excise tax on second hand motor vehicles will be collected in foreign currency. The Central Vehicle Registry will allow upon change of ownership, the same alpha numeric number plates to be transferred to the new owner. 3.10 TOLLGATES With effect from 1 August 2009, ZIMRA will facilitate the collection of toll fees along major highways using the following rates. Passenger vehicle & light trucks .......US$ 1.00 Minibuses Buses Heavy Trucks Haulage Trucks ....................US$ 2.00 ....................US$ 3.00 ....................US$ 4.00 ....................US$ 5.00
st th th

.................. 2.0% .................... 5.0% .....................5.0%

Interim policy not exceeding four months ......... 3.0%

Tax and your business

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3.11

INTEREST FOR LATE PAYMENT OF TAX The interest rate for late payment of tax is 5% above the London Interbank Offered Rate (LIBOR) rate.

3.12

ROYALTY PAYMENTS ON GOLD With effect from 1 August 2009, the royalty remittance on gold is reintroduced.
st

20

Tax and your business

4. TAXATION IN ZIMBABWE: GENERAL OVERVIEW The following direct and indirect taxes are levied in Zimbabwe: Income tax which is levied on the annual income of individuals, companies, partnerships, trusts and estates. Capital gains tax which is imposed on the disposal of immovable property and marketable securities. Value added tax levied on the supply of goods and services. Various levies such as manpower development levy, standards development levy, NSSA and workers compensation insurance. Estate duties on deceased estates. Stamp duty on certain documents. Stamp duties on transfer of immovable property. Customs duties on the importation of goods. Excise duties on certain products. 5. TAXATION OF INDIVIDUALS Individuals, wherever resident, are subject to income tax on income derived from an actual or deemed Zimbabwean source. Remuneration for services rendered in Zimbabwe is taxable in Zimbabwe regardless of where payment is made. TAXATION OF EXPATRIATES Expatriates are taxable on their Zimbabwean source income irrespective of where payment is made. Where expatriates are paid wholly or partly in foreign currency, their P.A.Y.E must also be paid over to ZIMRA in the foreign currency in which they receive their remuneration. Every non-resident employer is required to appoint a local resident agent for P.A.Y.E purposes. Work permits for expatriate staff will only be granted on condition that the employer is registered for P.A.Y.E through a resident agent.
Tax and your business 21

Expatriates may be exempt from tax under the terms applicable under double taxation agreements. The usual condition is that the expatriate should be in Zimbabwe for less than 183 days in the tax year and payment is made offshore. BENEFITS The Income Tax Act provides for the taxation of fringe benefits granted by an employer in respect of services rendered. The value of the benefit is the cost to the employer except for use of furniture or quarters where the benefit is the value to the employee. DEEMED MOTORING BENEFITS The deemed motoring benefits with effect from 1 February 2009 are: Engine Capacity 1500cc or less 1501cc to 2000cc 2001cc to 3000cc Above 3000cc HOUSING AND ACCOMMODATION The benefit is based on the value to the employee, which is usually the market value of the accommodation. The value could, however, be less where the employee is forced by work circumstances to stay in a house above his standard. MEDICAL AID EXPENSES The employee is not taxed on employer contributions or refund of medical expenses by an employer. Value US$ 50 Per month US$ 60 Per month US$ 80 Per month US$100 Per month
st

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Tax and your business

BENEFITS TO EXPORT PROCESSING ZONE (EPZ) EMPLOYEES Benefits accruing to employees employed in an EPZ area are exempt from income tax but the exemption shall not exceed 50% of the total remuneration received from such employment in EPZ before applying the limitation provision. APPROVED EMPLOYEE SHARE OWNERSHIP TRUSTS Where an employee participates in an approved employee share ownership trust then any amount received or accrued on the sale or disposal of an employees shares are exempt from income tax and capital gains tax. The purchase or sale of the shares must be done by the trust. In order to enjoy the benefits, the trust arrangements have to be notarised in a deed and approved by the Commissioner. RING FENCING OF TAX LOSSES Income from employment may not be set off against losses incurred on business activities. CALCULATION OF TAX Taxable income of the individual is computed after considering amounts exempt from income tax and deductions allowable in terms of the Income Tax Act. While taxable income from employment is subject to tax at various rates, income from trade or investment is subject to tax at a flat rate of 30%. The amount of tax chargeable is then further reduced by credits, which are dependent on the taxpayers circumstances. EXEMPT INCOME Income exempt from tax includes the following: Interest received from a financial institution when tax has been withheld at source. Dividends paid by locally incorporated companies.

Tax and your business

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The greater of US$1, 000 or one third of US$9,000 of any retrenchment package received in terms of an approved retrenchment scheme. Contributions paid to a medical aid society by an employer on behalf of his employees and the value of medical treatment provided by an employer for an employee. Alimony received.

DEDUCTIONS Although fairly limited for employees, these include: Expenses incurred in the production of income or for the purposes of trade. Subscriptions to business/professional organizations. Pension fund contributions by individuals to approved funds including N.S.S.A. are allowed against income up to a maximum amount of US$300 per month. PROHIBITED DEDUCTIONS The Income Tax Act specifically prohibits certain deductions. The list includes the following: Tax payable and interest thereon. All domestic and private expenditure. Provisions for anticipated or contingent losses or expenditure. Entertainment expenditure. Expenditure incurred in earning foreign dividends. Assessed losses, other than losses arising from mining operations, brought forward for more than six years.

CREDITS The credits to which an individual is entitled to are: Mentally/physically disabled person Blind person Elderly persons credit Medical expenses
24

2009 US$900 US$900 US$900 $1 for every $2 paid

Tax and your business

The elderly persons credit is reduced proportionately when the period of assessment is less than twelve months. EMPLOYEES TAX (PAYE) Employers are required to deduct employees tax (PAYE) on all remuneration paid to employees. Executive directors are deemed to be employees and PAYE should be deducted from their salaries. FINAL DEDUCTION SYSTEM (FDS) Under the final deduction system, an employer is directed to withhold PAYE from each employees remuneration in such a way as to ensure that the amount withheld in any year of assessment is equal to the income tax payable by the employee concerned. An employee whose remuneration is subject to FDS is not required to complete an income tax return. THE CALCULATION OF TAX PAYABLE - INDIVIDUALS Gross Income Less: Pension & NSSA TAXABLE INCOME Tax on Taxable Income per Tables Less: Tax Credits NORMAL TAX PAYABLE Less: Foreign tax credit PAYE paid TAX DUE ...

Tax and your business

25

6.

TAXATION OF COMPANIES: INCOME SUBJECT TO TAX Companies and trusts, like individuals, are taxed on income derived from an actual or deemed Zimbabwean source. Foreign interest and dividends are deemed to be from a Zimbabwean source. Business income is subject to tax at an effective tax rate of 30,9% (30% plus 3% Aids Levy). Local company dividends accruing to local companies are exempt from income tax. Foreign dividends accruing to local companies are taxed at a flat rate of 20% with relief being granted on any foreign tax suffered. Local interest derived from financial institutions is exempt from income tax, but is subject to a final withholding tax of 20%.

Tax Returns Filing The tax year for all taxpayers is 31 December. Taxpayers who are on the self assessment scheme are required to submit their tax returns not later than four months after the end of the tax year. Specified taxpayers who are required to be on self assessment include those registered or are required to be registered under Category C for st VAT as at 31 December 2007 or thereafter, or are registered under the Banking Act (Chapter 24:20) or under the Insurance Act (Chapter 24:07). LOSS CARRYOVERS Assessed losses may be carried forward for a period of 6 years. No loss carry backs are allowed.
st

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Tax and your business

TREATMENT OF GROUP COMPANIES Each group company is treated as a separate taxpayer and losses may not be transferred between the different companies. Provision is made for assets to be transferred between group companies at income tax values during the course of a merger or reconstruction without suffering any tax recoupment. On sale of the assets, outside the group, the allowances are then subject to a recoupment. THIN CAPITALISATION Any interest, finance charge or other consideration payable by a local branch or subsidiary which exceeds a debt to equity ratio of three to one is not allowable for tax. TRANSFER PRICING Tax avoidance provisions are available which adjust the prices of goods and services in terms of certain transactions conducted between related parties to reflect an arms length price which would have been applied had the transactions been concluded on normal commercial grounds between unrelated parties. PROVISIONAL TAX The provisional payment dates for the year ended 31 December 2009 are: 25 March 2009 ..10% 25 June 2009 .25% 25 September 2009 ..30% 20 December 2009 .35% 100%
th th th th st

Tax and your business

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7.

CAPITAL ALLOWANCES In calculating taxable income, expenditure and losses (other than that of a capital nature) are allowed to the extent to which they are incurred for the purposes of trade or in the production of income liable to tax. Capital expenditure is allowed in the form of special initial allowance, wear and tear and investment allowance. The applicable rates differ according to the nature and category of the asset. It should be noted that where S.I.A. is claimed, an accelerated rate of 25% wear and tear is applicable. Immovable assets can only qualify for S.I.A. if they are constructed by the taxpayer. Donated or inherited assets can only qualify for the lower wear and tear rates. Asset Special Initial allowance % 50 50 50 50 Wear and Tear % 2,5 5 5 5 25

Investment allowance % 15 15 15 15

Commercial Building Industrial Building Farm Building and Improvements Staff Housing Movable Assets

NOTE: The investment allowance is granted to growth point area operators only.
28 Tax and your business

SPECIAL INITIAL ALLOWANCE (SIA) The rate of SIA in respect of allowable capital expenditure is 50 %. There is no apportionment of SIA. The tax payer may elect to claim SIA on capital expenditure incurred on the following: the construction of farm improvements, industrial buildings, railway lines, staff housing and tobacco barns. additions or alterations to existing farm improvements, industrial buildings, railway lines, staff housing and tobacco barns. the purchase of new or second hand articles, implements ,machinery or utensils.

SIA is available only in the year in which the asset is used by the taxpayer for the purposes of trade. WEAR AND TEAR ALLOWANCE (W&T) The allowance is available on commercial buildings, farm improvements, industrial buildings, railway lines, staff housing, tobacco barns, articles, implement, machinery and utensils. SCRAPPING ALLOWANCE The scrapping allowance is available when the income tax value of the asset exceeds any proceeds on the sale of the asset. RECOUPMENT A taxable recoupment arises when the sale proceeds of an asset exceed the income tax value of the asset. The recoupment is restricted to the original cost of the asset where the sale proceeds exceed cost.

Tax and your business

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INVESTMENT ALLOWANCE A 15% investment allowance is available over and above the normal capital allowances on new or unused articles, machinery excluding motor vehicles used in a growth point area or on the construction of or additions to commercial or industrial buildings or staff housing. Special initial allowance can be claimed on commercial buildings constructed at gazetted growth point areas. The following restrictions apply when claiming capital allowances. MOTOR VEHICLES The maximum amount allowable on the purchase of a passenger motor vehicle is USD$10 000. STAFF HOUSING The ranking cost of staff housing is USD$25,000. SCHOOLS, HOSPITALS, NURSING HOMES OR CLINICS With effect from 1 January 2009 the deductible limit on capital expenditure on schools, hospitals, nursing homes or clinics is US$100 000 per annum.

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Tax and your business

8.

WITHHOLDING TAXES: RESIDENTS / NON RESIDENTS RESIDENT SHAREHOLDERS TAX [R.S.T.] Dividends from Zimbabwean resident companies which are distributed to locally resident individuals, trusts and partnerships are subject to a withholding tax of 20%. This rate is reduced to 15% for distributions made by companies quoted on the Zimbabwe Stock Exchange. No tax is however withheld on dividends distributed by one Zimbabwean resident company to another. RESIDENTS TAX ON INTEREST (RTI) Financial institutions are required to withhold a 20% residents tax from interest paid from a Zimbabwean source on any loans or deposits to a person who is ordinarily resident in Zimbabwe. With effect from 1 January 2009, there is a tax free portion of USD$250 per month on interest accruing on any deposit with a financial institution including interest on bankers acceptances and other discounted instruments to a taxpayer aged 55 years and above. NON-RESIDENTS TAX ON INTEREST (NRTI) Interest paid from a source within Zimbabwe or payable by a person who is ordinarily resident or who carries on business in Zimbabwe to a nonresident is subject to a 10% withholding tax. The 10% NRTI will be repealed with effect from 1 August 2009. NON-RESIDENT (NRST) SHAREHOLDERS TAX ON DIVIDENDS
st st

A 20% NRST is deductible from dividends distributed by Zimbabwean companies including private business corporations to non-residents. The rate is 15% on dividends distributed by companies listed on the Zimbabwe Stock Exchange.

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NON-RESIDENTS TAX ON FEES (NRTF) A withholding tax of 20% is imposed on fees paid to non-residents in respect of technical, managerial, administrative or consultative services. This includes directors fees. The withholding tax does not apply to fees paid by licensed investors. NON-RESIDENTS TAX ON ROYALTIES (NRTROY) A 20% withholding tax is chargeable on royalties paid to non-residents for the use of patents, trade marks, formulae, equipment, motion picture etc. Again Licensed investors are exempt. NON-RESIDENTS TAX ON REMITTANCES (NRTR) A 20% tax is levied on amounts remitted outside Zimbabwe in respect of allocable expenditure, being expenditure of a technical, managerial, administrative, or consultative nature incurred by non-residents outside Zimbabwe but in connection with their trade in Zimbabwe. This does not apply to licensed investors. BANKING INSTITUTION LEVY This was introduced with effect from the tax assessment year ended st 31 December 2001. The levy is imposed on any banking institution registered or required to be registered in terms of the Banking Act (Chapter 24:02). The levy due is 5% of a banks net profit at the end of its accounting year in the year of assessment concerned. The levy can be reduced by the proportion that loans to small and medium term enterprises have to the total loan portfolio. The levy is payable not later than 3 months after the end of the banks accounting year. WITHHOLDING TAX ON NON EXECUTIVE DIRECTORS FEES Directors fees payable to non executive directors are subject to a 20% withholding tax payable to ZIMRA within 15 days from the date that they are paid out to the director.
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9.

PRESUMPTIVE TAXES The following presumptive taxes apply: SMALL SCALE MINERS A presumptive tax of 5% based on the gross value of the mineral, precious metals and stones is charged to small scale miners. Taxi Cab Operators The presumptive tax is USD$100 per quarter year for each taxicab so operated. Commuter Transport Operators The presumptive tax of each omnibus per quarter year is: USD$150 per bus of a carrying capacity of 8-14 passengers; USD$200 per bus of a carrying capacity of 15 24 passengers per quarter;

USD$400 per bus of a carrying capacity of 25 36 passengers per quarter; USD$650 per bus of a carrying capacity of 37 passengers and above per quarter.
th th th

Payment for each Quarter must be made by 20 January, 20 April, 20 th July and 20 October of each year of assessment. Informal Traders The presumptive tax is 10% of the rent paid by the informal trader. Hair Saloons The presumptive tax is USD$1,500 per quarter. Cross Boarder Traders The presumptive tax is 10% of the value for duty purposes of the commercial goods imported.
Tax and your business 33

10. CAPITAL GAINS TAX A capital gains tax of 20 per cent is chargeable on gains arising from the sale of immovable property and marketable securities. With effect from 1 January 2005 persons over 59 years are not taxed on capital gains arising from the sale of a principal private residence. Gains from marketable securities listed on the Zimbabwe Stock st Exchange are liable to tax with effect from 1 September 2005. Allowable deductions in the determination of a capital gain are the cost of the asset, additions thereto, and an inflation allowance. Mortgage bond interest or any other interest which was incurred in financing the purchase of a specified asset can also be claimed if the amount is not allowable for income tax purposes. Where a specified asset is sold under a suspensive sale, an allowance is granted for installments not yet due. The allowance is normally claimed on immovable property sold under deed of sale agreements.
st

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Tax and your business

CAPITAL GAINS TAX ELECTIONS Legislation allows for the transfer of immovable property or marketable securities without imposing tax on the seller in certain circumstances. Such circumstances are as follows: sale of a principal private residence where proceeds are used to acquire another principal private residence; transfer between spouses; transfers in a reconstruction scheme or merger and is between companies under the same control; transfer by a branch of a foreign company to a company incorporated in Zimbabwe; transfer of shares in exchange for a marketable security for no cash consideration in a scheme of reconstruction or merger; transfer by an individual to a company controlled by him if the asset continues to be used for purposes of trade by the company; when immovable property used for trade purposes is disposed of and is replaced by another immovable property used for trade purposes as well, then any gain on the disposal can be postponed to the extent that the sale amount is used to purchase the new property. transfers by a company to a private business corporation into which the company has been converted into or vice versa, in the course of or in furtherance of that conversion.

Notes Capital gains tax is not levied on transfer by the executor of a deceased estate or on gains by a licensed investor if the asset formed the whole or part of the investment to which the licence relates.

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11. VALUE ADDED TAX (VAT) VAT is an indirect tax levied at 15% on the supply of goods and services. VAT is also levied on the importation of goods and services in certain circumstances. EXEMPT SUPPLIES: Exempt supplies are supplies that are exempt from VAT. Common examples of exempt supplies are: supply of financial services supply of educational services supply of health services renting of residential accommodation

TAXABLE SUPPLIES Taxable supplies are charged to tax at either the zero rate or the standard rate of 15%. ZERO RATED SUPPLIES Zero rated supplies are charged to tax at the zero percent. Common examples of zero rated supplies are: Certain basic foodstuffs e.g. milk, bread, sugar, salt Certain goods used for farming purposes Exported good and services The sale of a going concern between two VAT traders.

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Tax and your business

VAT ON IMPORTATION OF GOODS VAT is chargeable and payable on the importation of any goods into Zimbabwe. Goods are deemed to be imported on the date the goods are cleared. VAT is paid at the same time as customs duty. IMPORTED SERVICES VAT is payable on the supply of an imported service. An imported service is one that is made by a supplier who is not a resident of Zimbabwe to a recipient who is a resident of Zimbabwe and who does not utilize the service for making taxable supplies. The recipient of the services must within 30 days of the time of importation declare and pay the VAT to ZIMRA. INPUT TAX No credit for input VAT may be claimed in respect of the following: goods or services acquired exclusively for the making of exempt supplies sporting and social club fees and subscriptions entertainment expenditure.

Input tax credit may only be claimed upon production of a valid tax invoice.

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12. PAYROLL TAXES 12.1 P.A.Y.E. Employers are required to withhold P.A.Y.E. from employees remuneration according to the P.A.Y.E. tax deduction tables unless otherwise instructed by a tax deduction directive from the Commissioner General. P.A.Y.E. must be remitted to ZIMRA by the 3 day of the month following the month in which the P.A.Y.E. was withheld. 12.2 SOCIAL SECURITY The state operated pension scheme is known as the National Social Security Authority (NSSA). Both the employer and employee contribute 4%. 12.3 WORKERS COMPENSATION INSURANCE Employers are required to insure their employees against accident at work that could result in disability or death. Employers are therefore required to pay monthly, to NSSA an amount of workers compensation insurance. The amount varies according to the sector of the industry. 12.4 STANDARDS DEVELOPMENT LEVY This is a levy paid towards the Standards Association of Zimbabwe. Payments are made every quarter at a rate of 0,25% of the quarterly wage bill. 12.5 ZIMDEF TRAINING EMPLOYER Every employer is required to pay monthly a manpower levy of 1% of the monthly wage bill to the Zimbabwe Manpower Development Fund.
rd

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13. ESTATE DUTY Estate duty is chargeable on the net value of a deceased persons estate. The applicable rates vary on a sliding scale from 1.02% per $100 or part thereof, up to a maximum of 5% where the dutiable amount is USD$50,000 or above. EXEMPTIONS Where there is a surviving spouse or minor child the value of a family home as defined is not subject to estate duty. Transfer duty is not chargeable where a property is transferred to a beneficiary who is a spouse or blood-relative or adopted child of the deceased or to a trustee. Donations may be exempt if they were made 5 years or more prior to death. Payments from policies specifically taken out to pay estate duty are not taxable only to the extent of the duty payable. 14. STAMP DUTY Stamp duty is imposed on bonds, brokers notes, cheques, policies of insurance and registration in a Deeds Registry on the acquisition of immovable property. 15. CUSTOMS DUTY Customs duty is levied on all goods imported. The effective rates of duty range from 0% to 100%.Import tax is levied on most goods at the VAT standard rate of 15%. In general, Zimbabwe imposes restrictions on the importations of a range of goods which require import permits or licences e.g. agricultural products and explosives.

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16. CONVERSION OF SPECIFIED AMOUNTS INTO FOREIGN CURRENCY Description of Item Proposed amounts allowable annually (US$) 1 800 500 200 200 50 000 50 000 500

1. 1.1 1.2 1.3 2. 3. 4.

Arrear pension contributions: as a deduction Annuity, allowance or pension paid to former employee Annuity, allowance of pension paid to former partner Annuity, allowance or pension paid to a dependent of a former employee or partner Payments to the Public Private Partnership Fund Payments to the Destitute Homeless Persons Rehabilitation Fund Co-operative societies: Deductions allowed in respect of income derived by a co-operative, agricultural company or co-operative society Expenditure allowed on maintenance of roads, buildings, bridges or water, public or sanitation works managed by the local authority Passenger motor vehicle (PMV): Maximum amounts allowable on leasing a passenger motor vehicle Minimum amounts of tax not collectable by Commissioner Minimum amounts of PAYE not refundable Lump sum payments (Pensions) which shall not be included in gross income. Valuation of farm trading stock (livestock):fixed standard values of livestock and stud livestock Restricted capital expenditure on permanent building used

5.

50 000

6. 7.1 7.2 8 9. 10.

40

10 000 0.50 0.50 1 800 150 10 000

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as: dwelling of staff employed at a school, hospital, nursing home or clinic in connection with mining operations 11. 12. Capital expenditure on school, hospitals, nursing homes Expenditure and clinics: incurred Restriction on staff housing 5 000 10 000 4 000

13.1 Renewal or Replacement expenditure on buildings, works or equipment (mining) 13.2 Renewal or Replacement expenditure on buildings, works or equipment: mine is owned, tributed, or leased by a company under the control of not more than 4 individuals. 14.1 Allowable Benefit Fund contributions by employers 14.2 Allowable employee pension contributions

1 500 1 800 1 800 150 600 480 6 000

14.3 Allowable employer pension contributions 15. 16. 17. An amount paid by way of a wage to domestic worker. The amount should not exceed a monthly minimum wage Resident Shareholders Tax on dividends and interest income refundable where taxpayer is over 55 years of age

Resident Shareholders Tax on dividends and interest income refundable where taxpayer is below 55 years of age 18. Presumptive Tax of 10% is charged in informal traders: An Informal trader is an individual who carries on trade for his own account from which he derives a gross income less than 19. A company to be a small to medium enterprise (SME), its assets should be less than 20. 21. 22. 23 Fine for failure to register for banking Institution levy Assessed loss that is written off in any year Exemptions from CGT on marketable securities to persons over 55 years old Amounts to be deducted where the final CGT is a small

20 000 1 000 100 1 800 50

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DEEMED LOAN BENEFITS Description Loan Benefit of Statutory Interest Rate Proposed Proposed Threshold where Statutory Rate no interest is Charged (US$) 1 000 Difference between interest charged by the employer and the Statutory rate of interest of 5% above Libor Difference between interest charged by the employer and the Statutory rate of interest of 5% above Libor

Loan benefit 12.5% below ZW$35 000

Loan benefit 16% above ZW$35 000

1 000

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17. TAX RATES Summary of Tax Rates 2007 2009 Income tax Companies and Trusts Basic Rate Aids Levy Effective rate Capital Gains Tax Listed securities Unlisted securities Immovable property Principal private residence (over 59 years) Withholding Taxes Residents and non resident shareholders tax:- Zimbabwe Stock Exchange listed company - Any other Company Residents Tax on Interest Non-Residents tax on Interest Fees and Royalties Remittances Capital gains withholding tax - Immovable property - Listed shares - Other shares Tobacco Levy - Sellers - Buyers 2007 % 30 3 30,90 20 20 20 nil 2008 2009 % % 30 30 3 3 30,90 30,90 20 20 20 nil 20/10 20 20 nil

15 20 20 10 20 20 15 5 10 nil 1,5

15 20 20 10 20 20 15 5 10 nil 1,5

15 20 20 10 20 20 15/1 5 10 nil 1,5

Listed shares are subject to a final withholding tax of 1% with effect from st 1 August 2009.

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Special Income Tax Rates

Foreign dividends Growth Point Areas:New manufacturing project - first 5 years New Infrastructure project - first 5 years Licensed Investors: EPZ operations - first 5 years - thereafter BOOT/BOT Arrangements - first 5 years - next 5 years - third 5 years - thereafter Industrial Park, Developer - first 5 years - thereafter Taxable income of a tourist facility in an Approved development zone - first 5 years - thereafter Taxable income from operation of tourist facility 60% or more of turnover consist of foreign currency receipts Taxable income from manufacturing or processing company which exports 50% or more of its outputs Taxable income of pension fund trade or investment Taxable income of individual from trade or investment Taxable income of company or trust derived from mining operations Taxable income of holder of special mining lease 44 2007 20 10 15 0 15 0 15 20 30 0 10 2008 20 10 15 0 15 0 15 20 30 0 10 2009 20 10 15 0 15 0 15 20 30 0 15

0 15 20

0 15 20

0 15 20

20 15 30 15 15

20 15 30 15 15

20 15 30 15 15

Tax and your business

18. DOUBLE TAXATION AGREEMENTS The following agreements are in force and the applicable withholding taxes are as follows: DIVIDENDS FEES ROYALTIES % % % Botswana Bulgaria Canada France Germany Iran Malaysia Mauritius Namibia Netherlands Norway Poland South Africa Sweden UK Normal rate 10 10/20 10 10 10/20 5 10 10 5/10 10/20 15/20 10 15/20 15/20 5/20 15/20 10 10 10 10 7,5 20 10 20 20 10 10 20 20 10 10 20 10 10 10 10 7,5 5 10 15 10 10 10 10 20 10 10 20

Reduced rate on non-residents shareholders tax applies to a dividend declared by Zimbabwean companies to non-resident companies controlling 25% or more of the voting power of the paying company.
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19. COMPARATIVE RATES OF TAXES PAYABLE IN CERTAIN SOUTHERN AFRICAN STATES Botswana INDIVIDUAL TAX Maximum rate Level of taxable income at which maximum rate applies COMPANY TAX Manufacturing 50% Normal non mining, local Non-resident Branch Mining and other OTHER TAXES Distributed Profits Tax CGT VAT NRST NRTI NRTF Royalty Tax (withholding tax) 25% P120 000 35% N$200 000 40% R525 001 38,625% US$36 000 Namibia South Africa Zimbabwe

15% 25% 25% 25% 25% 10% 15% 15% 15%/10% 15%

18% 35% 35% 55%diamond 38% other 15% 5%/10% 10.5%

28% 28% 33% 37%gold 10% 10%/14% 14% 12%

20% 30,9% 15% 20% 15% 15%/20% 10% 20% 20%

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Tax and your business