mining operation exceeds 8% of gross sales, the rate is determined in accordance with the following formula: Y = 30% + [a - (ab ÷ c)]
The following are the values of the items in the formula:
• Y = the tax rate to be applied per year
• a = 15%
• b = 8%
• c = the percentage ratio of assessable income to gross sales However, if the base metal produced or recoverable under the license is copper, the mineral royalty payable is at the following rates. Level
1
2 USD4,500 but less than USD6,000
3 USD6,000 but less than USD7,500
4 USD7,500 but less than USD9,000
5 USD9,000 and above 10
The mineral royalty rate on cobalt and vanadium is 8%. A person that is in possession of minerals extracted in Zambia for which mineral royalty has not been paid is liable to pay mineral royalty at the rates set out in the table above if the mineral is copper. Effective from 2022, a mineral royalty paid is allowed as a deduction in determining taxable income for a mining entity.
A tax incentive is available to companies that are newly listed on the Lusaka Stock Exchange. A two percentage point reduction of each corporate tax rate is granted to such companies. In addition, a reduction of five percentage points (for a total reduction of seven percentage points) of each corporate tax rate is available to companies with more than 33% of their shares owned by Zambians. The incentive applies for one year only, and a company may claim the incentive only once.
Effective from January 2023, the definition of “electronic invoicing system” in the Zambian Income Tax Act is to take on the meaning assigned to the words in the Value Added Tax Act.
Effective from January 2023, the definition of “royalty” in the Zambian Income Tax Act has been revised. According to the act, “royalty” is redefined as a payment of any kind received as consideration for the use of, or the right to use, the following:
• Any copyright of a literary work
• Any artistic or scientific work, including cinematographic films, films, video tapes, sound recordings or any other like medium
• Any computer program or software
• Any patent, trademark, design or model, plan, secret formula, or process
• Any industrial, commercial or scientific equipment
• Any information concerning industrial commercial or scientific experience
Effective from 2023, the Income Tax Act has been amended to provide for the definition of a “public-private partnership” (PPP) project as a project that shall be transferred back to Zambia that involves any of the following:
• Design, finance, construction, development or operation of a new infrastructure, asset or facility
• Provision of social sector services
• Rehabilitation, modernization, expansion, operation or management of an existing infrastructure, asset or facility
With respect to the PPP, effective from 2023, an amendment has been made to the charging schedule of the act and it now provides the following:
• The tax chargeable on the income received by a special purpose vehicle undertaking a PPP project under the Public Private Partnership Act, 2009 for the first five years that a PPP project makes profit shall be 15%.
• The rate of 0% per year applies to dividends paid by an agroprocessing business approved by the Zambia Development Agency and carrying on the manufacturing of corn starch in a multi-facility economic zone or an industrial park for the 2023 to 2032 tax years.
A PPP that has been approved may claim, on a straight-line basis, wear and tear at an accelerated rate, not exceeding 100% with respect to a new implement, plant or machinery acquired and used by the special purpose vehicle for the purpose of that PPP. The tax liable on PPP income received by a special purpose vehicle is 15% for the first five years that the PPP makes a profit.
Capital gains. Capital gains are not subject to tax in Zambia.
Administration. The Zambia Revenue Authority administers the Income Tax Act. The tax year runs from 1 January to 31 December. Annual tax returns must be filed by 21 June of the following accounting year.
Companies must make four advance payments of tax, which are due on 10 April, 10 July, 10 October and 10 January. The installments are based on an estimate of the tax due for the year. The balance of tax due must be paid by the due date for filing the annual tax return.
A company may apply to the Commissioner-General to use an accounting year other than the standard tax year. However, the due dates described above for filing returns and advance payments of tax also apply to companies with an accounting year-end other than 31 December.
The following are the Pay-As-You-Earn (PAYE) bands as of January 2024.
Dividends. A 15% withholding tax is imposed on dividends paid to resident companies and individuals. A 20% withholding tax is imposed on dividends paid to nonresident companies and individuals. This is a final tax. Dividends payable by subsidiaries are also subject to withholding tax at a rate of 15%.
The option to offset the tax withheld on dividends received by a Zambian-incorporated company is available against the withholding tax payable on their own dividend distributions.
Royalty on the extraction, production and selling of ore; the mineral royalty tax rate varies depending on the type of mineral
E. Miscellaneous matters
Foreign-exchange controls. The Zambian currency is the kwacha (ZMW).
Zambia does not impose foreign-exchange controls.
Transfer pricing. Transfer-pricing rules apply to transactions between related parties. Related-party transactions must be conducted at arm’s length. Transfer-pricing rules apply to transactions with nonresident related parties as well as to transactions between local entities. The Zambian transfer-pricing regulations are based on Organisation for Economic Co-operation and Development (OECD) rules, and any price determined in accordance with OECD rules is acceptable. Effective from 1 January 2018, taxpayers must retain transfer-pricing documentation and submit it within 14 days of a request by the tax authority or they will be subject to a penalty of 80 million penalty units (ZMW24 million). Taxpayers are required to have the transfer-pricing document ready at the time of filing of the income tax return (due 21 June).
The required period for the retention of documents and information is 10 years for a business transacting with associated persons. From 2021, the threshold for the preparation of transfer-pricing documentation for local companies is increased from an annual turnover of ZMW20 million to ZMW50 million. The requirement to file a Country-by-Country (CbC) report is introduced. An ultimate parent entity that is tax resident in Zambia, and that had consolidated group revenue of EUR250 million or ZMW4,795,000 in the previous accounting year must file a CbC report with the Commissioner-General 12 months after the last day of the reporting year of the multinational enterprise (MNE) with respect to that reporting accounting year.
Effective from 1 January 2022, the legislation provides clarity with respect to the use of a single currency threshold, denominated in kwacha, for CbC reporting. Previously, the transfer-pricing regulations provided for two currencies at EUR750 million or K4.795 billion. Following this amendment, an MNE group with a consolidated group revenue of K4.795 billion or more is required to file a CbC report.
A non-reporting entity must submit a CbC report notification providing the identity and tax residence of the reporting entity in its MNE group before the close of the financial year (last day of the MNE accounting period).
Permanent establishment. The provision of services, including consultancy services, through employees or other personnel engaged by an entity in Zambia for a period or periods exceeding an aggregate of 90 days in any rolling 12-month period results in a permanent establishment.