Worldwide VAT, GST and Sales Tax Guide
• Reverse charge on services provided by a nonresident to a taxable person in Zambia
• Importation of goods and services from outside Zambia, regardless of the importer’s status
Effective 1 January 2024, the VAT Act provides that a recipient of an imported service is liable to pay tax on the importation of that service if:
• The recipient of the service did not pay tax in the jurisdiction from which the service was exported from.
• The supplier of the service is not a Zambian resident and has not appointed a tax agent.
• The services supplied do not fall under the Act’s definition of cross-border electronic services.
Input tax accrued from imported services cannot be claimed, deducted or form a tax credit.
In addition, from 1 January 2024, it has been clarified that VAT on the importation of goods shall be charged as if the tax as a duty under the Customs and Excise Act and is accordingly payable by the importer of the goods.
The VAT Act provides that goods are regarded as being supplied in Zambia if:
• The goods are exported from Zambia.
• The goods are supplied within Zambia.
• The supply of the goods involve entry into Zambia.
• The supply involves installation or assembly of the goods at a place in Zambia.
Withholding VAT. Withholding VAT is a mechanism where the responsibility to account for and pay the VAT due on the supply of goods or services is shifted to the person making the payment, i.e., the customer. Withholding VAT works very much in the same way as normal VAT. The revenue authority through the Commissioner-General appoints agents for purposes of withholding VAT on payments made to VAT-registered suppliers. Normally, large companies with a lot of suppliers are appointed as withholding VAT agents, e.g., mining and manufacturing companies. Once the agent is appointed, the legal obligation of the VAT due on all supplies shifts to the agent from the supplier. Therefore, ultimately, the responsibility to ensure that all the VAT that is due on the agents’ purchases is properly accounted for and is remitted to the revenue authority by the due date shifts to the agent.
Effective use and enjoyment. To avoid instances of non-taxation or double taxation, jurisdictions can apply “use and enjoyment rules” that allow a service that is “used and enjoyed” in the jurisdiction to be taxed or prevent a service that is “used and enjoyed” outside the jurisdiction from being taxed. If a service is taxed in the jurisdiction under the “use and enjoyment” provisions, a non-established supplier of the service may be required to register for VAT in that jurisdiction where it has customers that are not taxable persons. In Zambia, electronically supplied services are subject to the “use and enjoyment” provisions (for both business-to-business [B2B] and business-to-consumer [B2C]). The requirement means that a tax agent must be appointed by the non-established supplier to register for VAT and comply with regulatory obligations.
Transfer of a going concern. Transfer of going concern rules do not apply in Zambia. As such, VAT applies to all sales of a business or part of a business capable of separate operation including assets.
Transactions between related parties. In Zambia, there are no specific rules that indicate the value for VAT purposes for transactions between related parties. However, the Transfer Pricing Regulations (Statutory Instrument No. 24 of 2018), outlines that such transactions must be valued at arm’s length. This means that the results of a controlled transaction should be consistent with the results that would have been realized in a comparable transaction between independent persons dealing under comparable conditions. This entails that such transactions involving goods and services supplied in Zambia must be at arm’s length, subject to VAT at the appropriate rate.
There are no other specific e-commerce rules for imported goods in Zambia.
Online marketplaces and platforms. No special rules exist for online marketplaces and platforms in Zambia.
Registration procedures. Businesses are required to apply for VAT registration if they make supplies of taxable goods/services, and their turnover exceeds registration threshold of ZMW800,000 per annum.
Businesses apply by filing a prescribed ZRA application form either manually (by paper) or using e-registration. The following documents must be attached:
• Sketch of map of location
• Bank statements covering a period of three months
• Business plan
• Certificate of registration or incorporation
• Evidence records such as cash book, purchase daybook, sales daybook, invoice books, a set of accounts and confirmed orders/signed contracts for existing business
• Tax clearance certificate
• VAT knowledge form
Businesses whose turnover does not meet the statutory threshold may register for VAT voluntarily.
Deregistration. A taxable person whose turnover falls below the registration threshold for VAT can deregister after the end of the relevant accounting year. The taxable person is required to notify the Commissioner-General in writing through Form VAT 99. To complete any deregistration, the taxable person is required to ensure that there are no tax obligations on that account.
Changes to VAT registration details. Changes to VAT registration details (such as the change in the trading name of the business or the name and/or address of any partner in the business, a change in the address of the principal place at which the business is carried out) shall not require the cancellation of registration. The taxable person must notify any Domestic Taxes Office for amendment of such details and update these details online.
D. Rates
The term “taxable supplies” refers to supplies of goods and services that are liable to a rate of VAT, including the zero-rate.
The VAT rates are:
• Standard rate: 16%
• Zero-rate: 0%
The standard rate of VAT applies to all supplies of goods or services unless a specific measure provides for the zero rate or an exemption.
Examples of goods and services taxable at 0%
• Exports of goods
• Books and newspapers
• Foreign aid donations
• Medical supplies and drugs
• Petrol and diesel
• Bread and wheat
The term “exempt supplies” refers to supplies of goods and services that are not liable to VAT and that does not qualify for input tax deduction.
Examples of exempt supplies of goods and services
• Health and educational services
• Supply of water and sewerage services
• Most public transport services
• Real estate transactions
• Financial services (except fee-based banking services, which are subject to VAT at the standard rate)
• Insurance services (except property insurance and casualty insurance, which are subject to VAT at the standard rate)
• Basic foods
• Agricultural supplies
Option to tax for exempt supplies. Option to tax for exempt supplies is not allowed in Zambia.
E. Time of supply
The time when VAT becomes due is called the “time of supply” or “tax point.” In Zambia, the tax point is when the earliest of the following events occurs:
For the supply of goods:
• The time when they are removed from the seller or supplier’s premises.
• The time when made available to the person to whom they are supplied.
• Then a payment is received.
• The time when a tax invoice is issued.
For the supply of services:
• The time when a of supply for prepayments is the date when payment is received.
• The time when a tax invoice is issued.
• The time when they are rendered or performed
Deposits and prepayments. Most deposits serve primarily as advance payments, and they therefore create tax points when received. However, certain deposits are not consideration for a supply and their receipt does not create a tax point. This latter treatment includes deposits taken as security to ensure the safe return of goods hired out, if they form part of the consideration. The time of supply is when the deposit is refunded when the goods are returned safely.
Continuous supplies of services. If a supplier provides services on a continuous basis and receives payments regularly or from time to time, the tax point is the earliest of the conditions as stated above being met. Examples include supplies of water, gas or any form of power, heat, refrigeration or ventilation, etc.
Goods sent on approval for sale or return. When a business supplies goods on “sale or return” terms, the goods have not been sold and the supplier still owns them until such time as the customer adopts them. Adoption means the customer pays for them or otherwise indicates willingness to keep them. Until the goods are adopted, the customer has an unqualified right to return them at any time, unless there is an agreed time limit. The tax point for these consignments is the earliest date of adoption, payment or invoicing.
Reverse-charge services. The time of supply for the supply of reverse-charge services is the time when tax is due and payable. It is, the earliest of the following:
• The time when a payment is received.
• The time when a tax invoice is issued.
• The time when the services are rendered or performed.
Leased assets. The time of supply for the supply of leased assets is whichever is the earliest of the following times:
• The time when payment of the lease rental is received from the lessee.
G. Recovery of VAT by non-established businesses
Input tax incurred by non-established businesses that are not registered for VAT in Zambia is generally not recoverable. However, a refund scheme allows a VAT refund to be paid to a nonestablished business that purchases goods from a Zambian VAT-registered supplier for onward export.
The refund scheme applies to foreign passport holders that are on a business visit to Zambia. The scheme applies only to commercial export consignments that do not otherwise qualify for VAT zero rating. The refund is restricted to VAT paid on goods supplied by a participating supplier. VAT incurred on other expenditure in Zambia is not recoverable using this scheme.
The foreign exporter pays the full VAT amount on the export consignment to a participating supplier at the time of purchase. The first time that the scheme is used, the participating supplier must issue a commercial export tax invoice (Form VAT 283) and a commercial export authorization (Form VAT 284). For subsequent exports, the supplier need only issue Form VAT 283. The exporter must declare the goods to Customs at the port of exit from Zambia, and at the same time submit Forms VAT 283 and VAT 284 for verification and certification.
Customs officials at the port of exit retain copies of Forms VAT 283 and VAT 284 for first exports and subsequently dispatch them to the Zambia Revenue Authority for processing. The exporter may retain a certified copy of the forms for its records.
After the refund has been processed, the amount is sent to the exporter’s destination address, or an authorized representative may collect the refund in Lusaka. The exporter must indicate an authorized representative on Form VAT 284.
To qualify for this scheme, the export should be sent through the following designated exit points from Zambia:
• Lusaka International Airport
• Mpulungu Border Post
• Kasumbalesa Border Post
• Mwami Border Post
• Nakonde Border Post
• Chirundu Border Post
• Kazungula Border Post
• Victoria Falls Border Post
To participate in the scheme, a foreign business must apply in writing to the Commissioner of VAT. An application form (Form VAT 282) may be obtained by writing to the following address:
The Assistant Commissioner – VAT Credibility
Zambia Revenue Authority
1st Floor, Eastern Wing
Revenue House
Private Bag W136
Lusaka Zambia
H. Invoicing
VAT invoices. A supplier of taxable goods and services must issue a tax invoice to the purchaser. A valid tax invoice is required to accompany all claims for input tax deduction. The period for which tax invoices can be used to support input tax recovery is three months.
All tax invoices must be issued with a ZRA approved software package. Taxable persons can apply for approval from the tax authority of their accounting packages prior to the issuance of invoices.
Credit notes. A credit note may be used to reduce the VAT charged on a supply of goods or services. Credit notes should show the same information as tax invoices.
Electronic invoicing. Electronic invoicing is mandatory in Zambia for all taxable persons.
Scope of electronic invoicing. For B2B, B2C and business-to-government (B2G) supplies, electronic invoicing is mandatory for all taxable persons in Zambia. There is no threshold beyond which taxable persons are required to adopt electronic invoicing in Zambia. The requirements related to electronic invoicing are the same as those for paper invoicing.
From 1 January 2024 it is mandatory for all taxable persons to use the electronic invoicing system (EIS). The amended VAT Act defines EIS as “the core system which has a fiscal memory capable of generating and storing fiscal information and transmitting production, invoicing and stock data in real time to the tax authority and has the capacity to generate and record data and other reports and includes software applications and web-based applications.”
Taxable persons must have the EIS in place at the time of registering for VAT. The application for EISs can be done electronically (via the tax online system) or physically (by paper in person). The statutory provision allows for the Commissioner-General to apply their discretion in approving the use of a document, device or equipment other than an EIS for a certain category of taxable persons. It is mandatory to capture and electronically transmit to the ZRA the taxable person identification number (TPIN) and names of both the buyer and seller of goods and services in all B2B and B2G transactions.
An electronic payment machine must be available at a point of sale for use as a mode of payment for the customer.
Eligible accounting packages must have the capacity to:
• Print tax invoices, credit notes and debit notes bearing all the mandatory features of a tax invoice.
• Generate automatic and consecutive document numbering with inbuilt safeguards against reallocation or resetting of the numbers in any circumstance; transactions, once posted and a tax invoice has been printed, must become read-only to all users. Or, where editing is possible, a read-only audit trail showing the original details are built into the program.
• Produce periodic transaction reports showing the invoice number, invoice date, customer’s name, description of goods or services supplied, value before VAT and VAT amount.
The Commissioner-General may allow a taxable supplier to use accounting software (electronic fiscal devices) to issue a tax invoice if that accounting software is integrated with the tax invoice management system.
Simplified VAT invoices. Simplified VAT invoicing is not allowed in Zambia. As such, full VAT invoices are required.
Self-billing. Self-billing is not allowed in Zambia.
Proof of exports. Goods exported from Zambia are zero-rated. However, to qualify for a zero rating, exports must be supported by customs evidence (for example, copies of export documents, copies of documents showing importation in the receiving country and proof of payment by the customer) that proves the goods have left the country.
Foreign currency invoices. Invoices issued using a foreign currency must indicate the equivalent in the domestic currency, which is the Zambian kwacha (ZMW) using the exchange rate for the date of the transaction.
Supplies to nontaxable persons. There are no special invoicing rules for supplies to nontaxable persons. As such, full VAT invoices are required.
Records. In Zambia, examples of what records must be held for VAT purposes include tax invoices and credit notes, proof of importation and exportation of goods. All records and accounts must be preserved in English.
In Zambia, VAT books and records can be kept outside of the country. However, while the VAT Act is silent on whether records need to be kept locally or can be kept outside the country, in practice, taxable persons tend to keep records locally as it is easier to retrieve the documents once requested for by the tax authorities. The only requirement is for information to be provided upon request from the Commissioner-General.
Record retention period. All records and accounts must be held for at least six years and be made available for inspection to authorized officers of the ZRA on demand.
Electronic archiving. Electronic archiving is allowed in Zambia. However, the VAT Act does not specifically provide for electronic archiving. It is recommended to archive records electronically in addition to manual archiving (i.e., by paper).
I. Returns and payment
Periodic returns. The tax period for VAT is one month. Returns must be filed by the 16th day for withholding VAT and the 18th day for normal VAT after the end of the tax period. Electronic filing of VAT returns is mandatory if there are 10 or more transactions.
Periodic payments. Full payment is due by the same date as the filing deadline of the VAT return (see above). A payment registration number (PRN) is generated online, and this number will be used to make payment via online banking.
Electronic filing. Electronic filing is mandatory in Zambia for all taxable persons. These returns are filed on the tax online system of the Zambia Revenue Authority (Tax Online 2). However, the law provides for submission of manual returns for taxable businesses with less than 10 transactions in a tax period.
Payments on account. Payments on account are not required in Zambia.
Special schemes. Cash accounting. All VAT-registered businesses are required by law to account for tax based on the invoices issued, except where the law has given relief for cash accounting. The businesses, which are permitted to use the payment or cash accounting basis, are required to account for VAT to the extent that payment has been made or received. Therefore, output tax is accounted for on payments received and input tax is recovered only on those invoices where payment has been made for taxable supplies received.
The cash accounting concession is restricted to businesses that carry on mining activities and are licensed under The Mines and Mineral Development Act and to members of the Association of Building and Civil Engineering Contractors (ABCEC). Intending traders are automatically required to adopt cash accounting if an application has been made and approved by the tax authority. These include businesses that carry on exploration, electricity generation, farming, etc.
Annual returns. Annual returns are not required in Zambia.
Supplementary filings. No supplementary filings are required in Zambia.
Correcting errors in previous returns. The new online system, Tax Online 2, does not allow amendments to be made online. Therefore, all amendments for returns should be made in writing to the Commissioner-General stating the reasons for need of amendment to the return.
Digital tax administration. Electronic invoicing system. Effective 1 January 2024, taxable persons are required to use the EIS. The use of EIS is considered real-time reporting/live invoicing in Zambia. For further detail, see the Electronic invoicing subsection above.
J. Penalties
Penalties for late registration. ZMW3,000 (10,000 penalty units) for each tax period that the taxable person is eligible to register but remains unregistered. The taxable person is also liable to an assessment on the sales made in the same period; input tax deduction is not allowed.
Penalties for late payment and filings. The penalty for late payment is 0.5% of the tax payable in respect of the period covered by the return for each day the payment is late. Interest is charged at the Bank of Zambia Discounted Rate plus 2%.
Penalties for late filings are ZMW300 (1,000 penalty units) per day or 0.5% of the tax due, whichever is greater, for each day the return is late.
Effective 1 January 2021, the penalty for failure to use an electronic payment machine at a point of sale is ZMW27,000 (90,000 penalty units).
Penalties for errors. Interest is charged at the Bank of Zambia discount rate plus 2% on amounts underdeclared on VAT returns, e.g., under-declarations discovered and assessed following a VAT inspection visit.
Failure to issue a tax invoice from an approved computer package, preprinted tax invoice book or a fiscalized cash register can result in a penalty of ZMW90,000 (300,000 penalty units). There is an increase of the penalties for the failure to use an electronic invoicing system and willfully refusing or failing to issue a tax invoice from an electronic invoicing system. The change reflects the following penalties: a penalty of ZMW30,000 for the first offense, ZMW60,000 for the second offense, and ZMW90,000 or imprisonment for a term not exceeding three years or to both for the third or subsequent offense.
A taxable supplier who fails to issue a tax invoice commits an offense and is liable to receive a penalty not exceeding ZMW30,000 for the first offense, ZMW60,000 for the second offense and ZMW90,000 or a term not exceeding three years or both for the third or subsequent offense.
There are no specific penalties associated with the late notification or failure to notify the tax authorities of changes to a taxable person’s VAT registration details. For further details, see the subsection Changes to VAT registration details above.
Penalties for fraud. Penalties for the issuance of false returns and statements attract a fine of up to ZMW6,000 (20,000 penalty units) or imprisonment not exceeding two years, or both. Penalties for fraudulent evasion of tax attract a fine of up to ZMW90,000 (300,000 penalty units) or six times the amount of the tax sought to be evaded or recovered, whichever is greater, or imprisonment not exceeding three years, or both.
An escalatory fine is also chargeable on false returns and statements.
Personal liability for company officers. The VAT Act provides that where an offense under the Act is committed by a company, with the knowledge of its director, manager, partner or shareholder, the individual will be liable for the offense and may be convicted to the penalty or term of imprisonment specified for that offense.
Statute of limitations. The statute of limitations is Zambia is six years. The tax authority can go back six years to review any returns that were previously submitted.