In this GMS Flash Alert reports on several measures affecting individuals and their multinational employers in this year’s Zimbabwean Finance Act.
Zimbabwe’s Finance Act 2 of 2017 took effect upon its publication Government Gazette No. 18 of 24 March 2017.
The Act contains provisions concerning individuals that affect the taxation of severance, rental income, pension pay-outs, various tax credits, employee fringe benefits, nonresident directors’ fees, and permanent establishment.
In most cases, the effective date for these measures is 1 January 2017.
We highlight some of these measures in this GMS Flash Alert.
While there have been no significant changes in the taxation of individuals, including employees on international assignment, it is important to be aware of the few changes the Finance Act introduced and to make adjustments – to payroll and to compliance – where appropriate.
However, there are important changes affecting fees paid to nonresident board directors that will lighten the tax burden on such directors.
Also, with the introduction of a defined “permanent establishment” provision in Zimbabwean tax law, awareness needs to be raised around the possibilities of exposing the home company to the risk of establishing a taxable presence in Zimbabwe when it sends employees into Zimbabwe to perform work on behalf of the home company.
The Finance Act 2 of 2017, embodies the measures contained in the budget announced by the Minister of Finance and Economic Development on 8 December 2016.
The definition of permanent establishment has been introduced into the Income Tax Act with respect to income earned by nonresidents who perform employment services within Zimbabwe, where this is not already captured by an existing Double Taxation Agreement.
Double Taxation Agreements in general specify that income earned from the performance of employment services for a period exceeding in the aggregate 183 days during a 12-month period within Zimbabwe is taxable in Zimbabwe.
Payment of fees to nonresident directors currently attracts withholding taxes at 20 percent in accordance with the 33rd Schedule (Tax on Non-Executive Director’s Fees), and at 15 percent in accordance with the 17th Schedule (Nonresidents’ Tax on Fees). In order to eliminate double taxation of the same income, board fees accruing to non-executive directors are exempt from the nonresidents tax on fees with effect from 1 January 2017. As such, their board fees are only subject to the 20-percent withholding tax in accordance with the 33rd Schedule to Income Tax Act (Chapter 23:06).1
Specialised expatriate staff working for an employer with a Special Economic Zone investment license are to enjoy a preferential flat-tax rate at 15 percent with effect from 1 January 2017.
The “investment license” means an investment license issued in terms of Special Economic Zones Act (Chapter 14:34) issued by statutory instrument number 7 of 2016.
“Special Economic Zone” means any part of Zimbabwe declared as such in terms of the Special Economic Zones Act (Chapter 14:34) issued by statutory instrument number 7 of 2016.
The Reserve Bank of Zimbabwe has incentivized the remittance of funds from overseas into a local bank account channeled through any authorized dealer by crediting the respective bank accounts with a 5-percent incentive. This incentive will apply to remittances received by expatriates and will be exempt from income tax.
Income Tax Rates and Thresholds
The income tax bands, by which rates of tax are charged, in respect of income from employment are presented below.
- The tax-free band remains at US$3,600 per annum or US$300 per month.
- The upper income tax bands remains at US$240,000 per annum or US$20,000 per month. The effective maximum rate of tax (including AIDS levy) is 51.75 percent
There is no change in 2017 as compared with 2016 to the income tax bands.
|2016 and 2017 Annual Tax Tables|
|3,601||-||18,000||-||20% of excess||3,600|
|18,001||-||36,000||2,880+||25% of excess||18,000|
|36,001||-||60,000||7,380+||30% of excess||36,000|
|60,001||-||120,000||14,580+||35% of excess||60,000|
|120,001||-||180,000||35,580+||40% of excess||120,000|
|180,001||-||240,000||59,580+||45% of excess||180,000|
|240,001||-||and over||86,580+||50% of excess||240,000|
(a) There is a 3% AIDS levy on tax – effective top rate of 51.50%
(b) The table above applies to tax payable by individuals, deceased or insolvent estates and estates of individuals under legal disability.
Source: Finance Act Chapter (23:04).
The maximum tax-free bonus remains at US$1,000.
The tax-free amount allowed in respect of severance income will be the higher of US$10,000 or 1/3 of the severance income, up to a maximum of 1/3 of US$60,000.
Rental income and interest from discounted instruments and deposits earned by elderly persons (a person above 55 years) is exempt from income tax up to a maximum of US$250 per month in respect of each class of income (rent; deposit interest; discounted instruments income).
With effect from 1 January 2016, the tax-free amount permitted in respect of pension income received from the Consolidated Revenue Fund or a pension fund other than a “retirement annuity fund,” by a person below the age of 55 years will be the higher of US$10,000 or one-third of the income received, up to the maximum of a third of US$60,000.
Pension income paid from a pension fund or Consolidated Revenue Fund to elderly taxpayers (who are 55 years old or more) is exempt from income tax.
Persons aged above 55 years or more: US$75 per month.
|Motoring benefits||Per annum|
Source: Finance Act Chapter (23:04).
1 Please refer to the Finance Act 3 of 2017 and Income Tax Act (Chapter 23:06) for detailed information.
For more details on the Zimbabwe budget, see “The Zimbabwe National Budget 2017,” (PDF 1.20 MB) a publication of the KPMG International member firm in Zimbabwe.
The information contained in this newsletter was submitted by the KPMG International member firm in Zimbabwe.
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