Thinking beyond borders
The legislation provides that the tax liability will be calculated according to the rates provided in the charging schedule for each charge year on the income received in that charge year:
Expatriates are subject to the normal Pay-As-You-Earn (PAYE) regulations. Further, if the expatriates are deemed to be residents in Zambia, then any foreign investment income arising is subject to tax in Zambia.
Based on the legislation and irrespective of whether or not an individual is tax resident in Zambia, any income earned (including cash and non-cash benefits) from duties performed in Zambia, by virtue of the expatriates’ employment, will be liable to tax in Zambia, unless a double tax treaty applies.
All income that is deemed to be sourced in Zambia by expatriates will be taxed in Zambia under PAYE. Further foreign interest and dividend income earned by expatriates will be taxed in Zambia if the expatriates are considered to be tax resident in Zambia.
The residence concept according to the law states that:
“An individual is, for the purposes of this Act, not treated as a resident in the Republic who is in the Republic for some temporary purpose only and not with any view or intent of establishing his residence therein, and who has not actually resided in the Republic at one or several times for a period equal in the whole to 183 days in any charge year, but if any such individual resides in the Republic for the aforesaid period they shall be treated as resident for that year.”
In view of the above provision, if expatriates will be in Zambia for more than 183 days in a charge year (calendar year), then they will be considered to be tax resident in Zambia. Therefore, their foreign interest and dividend income will also be subject to tax in Zambia.
There is no tax trigger point for Zambia. All business travelers that stay for a period of more than 183 days in a charge year will become tax residents in Zambia. The general procedure for expatriate employees is to then submit a tax return. This is particularly the case if they require a tax clearance certificate on return to their home country.a charge year
The following Zambian-sourced income is taxable according to the law:
In addition, as noted above worldwide interest and dividend income is taxable for Zambian resident individuals.
Emoluments are defined in the law as:“...any salary, wage, overtime, leave pay, commission, fee, bonus, gratuity, benefit, advantage (whether or not that advantage is capable of being turned into money or money’s worth), allowance, including inducement allowance, pension or annuity, paid, given, or granted in respect of any employment in office, wherever engaged in or held.”
This means that generally all cash allowances, and the provision of direct benefits is taxable under PAYE. However, please note that specific rules apply to the provision of accommodation and personal to holder vehicles which are taxable on the employer and not subject to PAYE.
PAYE is calculated on the employee’s gross emoluments less any statutory deductions such as the National Pension Scheme Authority (NAPSA).
The tax rates for the charge year 2015 are as follows, with amounts listed in Zambia kwacha (ZMW):
|ZMW0||ZMW 36 000||0%|
|ZMW 36 000.01||ZMW 45 600||25%|
|ZMW 45 600.01||ZMW70 800||30%|
|ZMW 70 800
Statutory deductions include payments to NAPSA.
Under the provisions of the NAPSA Act, every person who is employed by a company which is registered with NAPSA is required to be registered as a member of the scheme.
This registration is mandatory for all expatriates. Previously, NAPSA did not enforce collection of NAPSA contributions from expatriates. However, now only an employee of an international organization who is not a citizen of Zambia is exempt.
NAPSA defines an ‘international organization’ as an organization that is neither registered with the Patents and Companies Registration Agency (PACRA) nor the Registrar of Societies in Zambia.
The duty to report and withhold PAYE and NAPSA rests with the employer. Where the overseas employer does not have a presence in Zambia, then, based on current legislation, it is the person or partnership making the payment that is responsible for deducting the tax from the employee’s pay and accounting for it to the Zambia Revenue Authority (ZRA).
In addition to Zambia’s domestic legislation that provides relief from international double taxation, Zambia has entered into double taxation treaties with various countries to prevent double taxation, and allow cooperation between Zambia and overseas tax authorities in enforcing their respective tax laws. These double tax treaties can provide relief from the obligation to deduct PAYE from employees on short term assignments.
There is a risk that an expatriate may create a permanent establishment (PE) if they are acting on behalf of an enterprise and have the right to conclude contracts in Zambia in the name of the enterprise. No PE will be created if the person carries out these activities through a fixed place that is specifically listed in the legislation as not giving rise to a PE.
Taxable supplies under value-added tax (VAT) are subject to VAT at one of two rates:
Registration is required as soon as a supplier’s value of taxable supplies exceeds the minimum threshold (currently ZMW800 000 per annum).
Every supplier that is registered for VAT, and that makes taxable supplies or that procures foreign services, is to account for VAT through the submission of a monthly VAT return to ZRA for each tax period. The VAT return must be submitted no later than the 21st day after the end of each tax period.
A Zambian business which imports services from outside Zambia is required to account for reverse VAT on those invoices. This should be irrecoverable unless the foreign supplier appoints a local Zambian tax agent.
There is no specific provision in the legislation that mentions transfer pricing with regards to employees working in different jurisdictions and cross-border benefits. However, Zambia does have transfer pricing rules and generally follows OECD principles.
Zambian residents are required to withhold tax at 20% on payments for ‘management and consulting fees’ to non-resident suppliers. A withholding tax return and payment should be made by the 14th day of the month following the with holdable payments. The 20% rate can be reduced under a double tax treaty on application to the ZRA.
Expatriate staff who intend to work in the country for a period of less than 30 days may apply for a multiple or single entry business visa. The business visa will entitle the expatriate staff to stay in the country for 30 days. Visitors from ‘qualifying’ countries will be issued with business visas at the port of entry. In all other cases the visitor will need to obtain the business visa from the Zambian Embassy/Mission abroad before traveling to Zambia.
If the expatriate staff needs to stay in the country after the business visa expires, then an application for a temporal employment permit should be made. The temporal employment permit is valid for a period of 90 days with the option of one renewal after expiry.
Expatriate staff who intend to live and work in the country for a period of more than 6 months are required to apply for an employment permit. An employment permit conferstemporary status and enables the holder of the employment permit to work in Zambia for a specified period.
The period of validity of an employment permit, in any case, shall be for a period from the date of its issue to a date, as the Director-General of Immigration (having regard to all the circumstances of the case) thinks fit, and shall be capable of extension for a further period or periods to a maximum of 5 years from the date of its issue.
Currently there are no specific provisions in the legislation that mentions data protection, but it is general practice for confidential data to be protected.