Harare GMT +2. EY +263 (4) Mail address: Fax: +263 (4) , P.O. Box 62 or (4) Harare Zimbabwe

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1 1548 Zimbabwe ey.com/globaltaxguides ey.com/taxguidesapp Harare GMT +2 EY +263 (4) Mail address: Fax: +263 (4) , P.O. Box 62 or (4) Harare Zimbabwe Street address: Angwa City Kwame Nkrumah Avenue/ Julius Nyerere Way Harare Zimbabwe Principal Tax Contact International Tax Services Core Kelvin Harvey +263 (4) Rameck Masaire +263 (4) International Tax Services Operating Model Effectiveness International Tax Services International Capital Markets Kelvin Harvey +263 (4) International Tax Services Transfer Pricing Lonah Kali +263 (4) Business Tax Services Max Mangoro +263 (4) Business Tax Advisory Max Mangoro +263 (4) Kelvin Harvey +263 (4) Transaction Tax

2 ZIMBABWE 1549 Human Capital Rameck Masaire +263 (4) Indirect Tax Max Mangoro +263 (4) A. At a glance Corporate Income Tax Rate (%) 25 (a)(b) Capital Gains Tax Rate (%) 1/5/20 (c) Capital Gains Withholding Tax Rate (%) 1/5/15 (d) Branch Tax Rate (%) 25 (a)(b) Withholding Tax (%) Dividends 10/15 (e) Interest Received by Residents Paid by Banks, Other Financial Institutions and Building Societies 5/15 (f) Accruing from Treasury Bills, Bankers Acceptances and Discounted Instruments Traded by Financial Institutions 15 (g) Royalties 15 (h) Remittances 15 (i) Fees and commissions 15/20 (j) Contract Payments 10 (k) Branch Remittance Tax 15 (l) Net Operating Losses (Years) Carryback 0 Carryforward 6 (m) (a) Special tax rates apply to certain enterprises. For details, see Section B. (b) An AIDS levy of 3% is imposed on income tax payable (excluding tax on income subject to special rates). (c) Tax is imposed on capital gains on sales of immovable property and listed and unlisted marketable securities. See Section B. (d) A capital gains withholding tax is imposed on the proceeds from sales of listed and unlisted marketable securities and immovable proper ty. The 1% withholding tax on the disposal of securities listed on the Zimbabwe Stock Exchange is a final tax. See Section B. (e) The 10% rate applies to dividends paid by companies listed on the Zimbabwe Stock Exchange to resident individuals and nonresidents. The 15% rate applies to other dividends paid to resident individuals and nonresidents. (f) This is a final withholding tax imposed on residents. The following types of interest are exempt from income tax and withholding tax: Interest paid by the People s Own Savings Bank Interest on building society Class C (tax-free) shares The 5% rate applies to interest on fixed-term deposits of at least 90 days with financial institutions. (g) This is a final tax imposed on the income to maturity of treasury bills, bankers acceptances and discounted instruments traded by financial institutions that are purchased by resident investors who are not financial institutions. The tax is imposed at the time of disposal or maturity of the instrument. (h) These withholding taxes are imposed on nonresidents. The income is also subject to income tax unless a tax treaty provides that the withholding tax is a final tax. (i) (j) This is a final tax imposed on remittances transferred from Zimbabwe by nonresidents for technical, managerial, administrative or consulting expenditures in curred outside Zimbabwe in connection with a trade carried on in Zimbabwe. The 15% rate applies to payments by residents to nonresidents of technical, managerial, administrative and consulting fees. The 20% rate applies to payments for non-executive directors fees and property and insurance commissions paid to resident and nonresidents who are not employees. The tax withheld is deductible from income tax payable. However, the 15% tax is a minimum tax.

3 1550 Z IMBABWE (k) This tax is withheld from all payments made under contracts for more than a specified threshold to resident suppliers who cannot provide a tax-clearance certificate. (l) Only remittances of head office technical, managerial, administrative and consulting expenditures are subject to the 15% withholding tax. (m) Mining losses are ring fenced to specific locations and may be carried forward indefinitely. B. Taxes on corporate income and gains Corporate income tax. Income tax is levied in foreign currency on all amounts (other than capital) received or accrued in foreign currency from a Zimbabwean source or a deemed Zimbabwean source, less expenditures not of a capital nature incurred in the production of income or for business purposes. Certain specific types of income are exempt. Foreign interest and dividends accruing to taxpayers that are ordinarily resident in Zimbabwe are deemed to be from a source in Zimbabwe. A corporation is ordinarily resident in Zimbabwe if it is managed and controlled in Zimbabwe. Rates of corporate tax. Resident and nonresident companies are subject to income tax at a rate of 25%. Residents are subject to income tax at a rate of 20% on gross foreign dividends receivable. An AIDS levy of 3% is imposed on income tax payable (excluding tax on income subject to special rates). Special tax rates. Special tax rates apply to the following enterprises. Type of enterprise Rate (%) Licensed investors operating in export-processing zones and licensed before the year of assessment beginning on 1 January 2007 First five years 0 Thereafter 15 Mining operations of companies and trusts 15 Special mining lease operations 15 (plus additional profits tax) Build-own-operate-transfer (BOOT) and build-operate-transfer (BOT) projects Years 1 through 5 0 Years 6 through Year 11 and thereafter 25* Industrial park developers that commenced operations before the year of assessment beginning 1 January 2010 First five years 0 Thereafter 15 Manufacturing enterprises exporting 50% or more of their production 20 * The 3% AIDS levy is also payable. Interest received by residents on deposits with Zimbabwean financial institutions and building societies is exempt from income tax, but it is subject to a final withholding tax at a rate of 15%. A final withholding tax at a rate of 15% is also imposed on the income to maturity of treasury bills, bankers acceptances and discounted

4 ZIMBABWE 1551 instruments traded by financial institutions that are purchased by resident investors that are not financial institutions. The tax is im - posed at the time of disposal or maturity of the instrument. No deduction for expenses and losses is permitted from interest subject to the final taxes described above. Other interest received by residents is taxable at the regular corporate income tax rate and may be offset by expenses and losses. Tax concessions. In the past, export-processing zones were designated in the major business centers and border areas of Zimbabwe. Concessions have recently been restricted to licenses issued before 1 January 2007 to certain investors to operate in these zones. The concessions are in the form of reduced rates or an exemption with respect to the following taxes: Income tax on profits (0% rate for five years and 15% rate for subsequent years) Capital gains tax Nonresident and resident shareholders taxes on dividends Nonresident taxes on remittances, fees and royalties Customs duty Value-added tax on goods and services (refundable) Foreign entities that provide finance for development in Zimbabwe are exempt from income tax and capital gains tax. Capital gains. Withholding tax is imposed on the gross proceeds derived from sales of listed marketable securities and immovable property. The withholding tax rates on the disposal of assets ac quired before 1 February 2009 are 1% for listed marketable securities and 5% for unlisted marketable securities and immovable property. The withholding tax rates on disposal of assets acquired on or after 1 February 2009 are 1% for listed marketable securities, 5% for unlisted marketable securities and 15% for immovable property. This tax is offset against any capital gains tax assessed on the transaction. Capital gains derived from the disposal of immovable property and unlisted securities acquired before 1 February 2009 are taxed at the greater of 5% of the gross sale proceeds and the amount of the withholding tax withheld on disposal. Capital gains derived from disposals of immovable property and unlisted marketable securities acquired after 1 February 2009 are taxed at a rate of 20%. Gains are determined by deducting from the selling price the cost plus an allowance of 2.5% per year on the cost from the date the cost was incurred to the date of disposal. Capital allowances recaptured for income tax purposes (see Section C) are excluded from gains. Capital gains withholding tax is offset against any capital gains tax assessed on the transaction. Capital gains derived from the disposal of listed securities are exempt from capital gains tax, effective from 1 August 2009, but the gross sale proceeds are subject to 1% capital gains withholding tax which is a final tax. Administration. Zimbabwe s tax year ends on 31 December. Tax returns must be filed on 30 April. The Revenue Authority prefers that companies use accounting years ending in September, October, November or December of a given tax year. Self-assessment has been introduced for specified taxpayers.

5 1552 Z IMBABWE Corporate tax must be paid during the relevant tax year. Provisional payments equaling specified percentages of the estimated total tax payable are due on the following dates: 25 March: 10% 25 June: 25% 25 September: 30% 20 December: 35% Penalties can be imposed for late or incorrect returns, and late payments are subject to interest at a rate of 10% per year. Withholding taxes that are not considered final taxes are credited to the income tax imposed on the income from which the tax has been withheld. Dividends. Dividends received by a resident corporation from another resident corporation are exempt from withholding tax and income tax. A 10% withholding tax is imposed on dividends paid by companies listed on the Zimbabwe Stock Exchange to resident individuals and nonresidents. A 15% withholding tax is imposed on other dividends paid to resident individuals and nonresidents. Gross dividends received from foreign companies are subject to tax at a rate of 20%. Foreign tax relief. If relief is not provided by a treaty, a unilateral tax credit is given for foreign withholding tax. The tax credit may not exceed the Zimbabwean income tax imposed on the income. C. Determination of trading income General. Income tax is levied on all income from a source in Zimbabwe or deemed to be in Zimbabwe. The following types of interest are exempt from income tax: People s Own Savings Bank interest Interest from certain building society investments Interest on deposits with financial institutions and income from treasury bills, bankers acceptances and discounted instruments traded by financial institutions is subject to a final withholding tax at a rate of 15%. For further details regarding this withholding tax, see Section B. Expenses incurred for business purposes are generally deductible. The following expenses are not deductible: Expenses incurred in the production of exempt income or in come not derived or deemed to be derived from Zimbabwe Pension fund contributions in excess of a specified amount Cost of attending trade missions and conventions in excess of a specified amount Rent or repairs for premises not occupied for purposes of trade Payments in restraint of trade Entertainment expenses Payments in excess of a specified amount for the lease of passenger motor vehicles (as defined) Interest relating to excess debt in a company with a debt-toequity ratio that exceeds 3:1 General administration expenses charged by a holding or subsidiary company or foreign head office that exceed 0.75% of expenditure incurred during the preproduction phase or 1% of tax-deductible expenditure incurred after the beginning of trading or the production of income

6 ZIMBABWE 1553 Donations of up to a specified threshold for the construction, maintenance or operation of hospitals and schools run by the state, local authorities or religious organizations and donations to ap - proved research institutions are deductible. A double tax deduction is allowed for specified export market development expenditure. Amounts contributed to approved scientific and educational bodies for industrial research or scientific experimental work are also deductible for tax purposes. Inventories. The only acceptable inventory valuation methods for tax purposes are cost, using the first-in, first-out (FIFO) method, and market value. Provisions. In general, only specific provisions are deductible for tax purposes. Tax depreciation. Depreciation charged in the financial statements is not deductible; instead, a 25% special initial allowance is granted on the cost of certain assets. A wear-and-tear allow ance of 25% of cost is granted in the following three years. The special initial allow ance is granted on the cost of construction or additions to fixed assets other than land and certain buildings and also on the purchase price of movable property. If the special initial allowance is not claimed, a wear-and-tear allowance at vary ing rates is granted on these assets. The following are the rates and the methods of computing this wear-and-tear allowance for certain assets. Asset Method Rate (%) Commercial buildings Straight-line 2.5 Industrial buildings* Straight-line 5 Office equipment Declining-balance 10 Motor vehicles Declining-balance 20 Plant and machinery Declining-balance 10 * Toll roads and toll bridges declared to be such under the Toll Roads Act are included in this category. All capital allowances are subject to recapture on the disposal of assets on which such allowances have been claimed. Any amounts recaptured are subject to tax at the regular corporate tax rate. The full sale price of mining assets on which capital allow ances have been granted is subject to tax at the corporate tax rate for mining. Relief for losses. Mining losses are ring fenced to specific locations and may be carried forward indefinitely. Other losses may be carried forward for six years. Losses may not be carried back. Groups of companies. Zimbabwean law does not contain measures for filing consolidated returns or for relieving losses within a group. Transfers of assets in a merger or group reconstruction between companies under common control may be made at the tax value for both income tax and capital gains tax purposes. On the subsequent disposal of such assets outside the group, the gain or loss to the seller is computed with reference to the cost to the first transferor within the group. D. Other significant taxes The following table summarizes other significant taxes.

7 1554 Z IMBABWE Nature of tax Rate (%) Value-added tax; on the supply and importation of goods and services; certain items are exempt, including, financial services, medical services, fuel, tobacco, educational or training services, long-term residential leases and transport of passengers by road or rail; suppliers of qualifying goods and services with an annual value in excess of a specified threshold must register; the annual threshold is currently USD60,000 Standard rate 15 Exports, prescribed drugs and services supplied by designated tourist facilities to tourists that are paid for with foreign currency, as well as certain other items 0 Presumptive taxes on different bases and at various rates are imposed on informal traders, small-scale miners, and operators of taxicabs, omnibuses, goods vehicles, driving schools, hair-dressing salons, cottage industries, waterborne vessels, fishing rigs and licensed and unlicensed bottle stores and restaurants. E. Miscellaneous matters Foreign-exchange controls. The legislation and regulations with respect to foreign-exchange controls are currently under review. The present rules are discussed below. The government still imposes broad controls over all transactions involving a nonresident. Applications through commercial banks are re quired for the approval of most transactions of this nature. Com mercial banks refer exceptional items to the Reserve Bank of Zimbabwe. Foreign investment of up to 35% in primary issues of shares and bonds is permitted if funded by inward transfers of foreign exchange. Purchases and disposals by foreign investors in the secondary market require specific approval from the authorities. Agreements relating to foreign borrowings require registration with the commercial banker of the borrower before implementation. Borrowings in excess of specified limits require the approval of the Reserve Bank of Zimbabwe. The approvals are granted based on the merits of the borrowings in accordance with guidelines set by the External Loans Coordinating Committee. The guidelines provide that foreign borrowings may be approved only if they are used to fund productive, export-oriented ventures that have the potential to generate sufficient foreign currency for loan principal and interest repayments without recourse to the foreigncurrency market. Foreign loans to purchase shares, existing companies or real estate, or to fund private consumption, personal loans or retail inventories, are generally discouraged. With the approval of the authorities, 100% of after-tax normal trading profits may be remitted to nonresident shareholders within one year after the accrual of the profits. After-tax dividends and capital gains derived from investments on the Zimbabwe Stock Exchange are fully remittable.

8 ZIMBABWE 1555 Debt-to-equity rules. Debt-to-equity rules apply to all companies (see Section C). F. Treaty withholding tax rates The rates shown in the table reflect the lower of the treaty rate and the rate under domestic tax law. Dividends (a) Interest Royalties Fees % % % % Botswana (b) 5/ Bulgaria Canada Congo (Democratic Republic of) (b) France Germany Iran (b) Kuwait (b) 0/5/ Malaysia Mauritius Namibia (b) 5/ Netherlands Norway Poland Serbia (b) South Africa 10/ Sweden United Kingdom Non-treaty countries 10/ (a) Except for the Iran treaty, the reduced treaty rates apply only if the recipient is a company that controls at least 25% of the voting power of the payer company. (b) The entry into force of these treaties has not yet been published.