1 ICAZ Seminar TAXATION REFRESHER 17 March 2011
2 Zimbabwe Taxes : An Overview Coverage: Personal Income Tax Corporate Tax Capital Gains Tax Withholding Tax Presumptive Tax Value Added Tax Electronic Fiscal devices General Binding Rulings
3 Personal Income Tax Zimbabwe Individual income tax is imposed at progressive rates up to 35%. 3% AIDS levy is also imposed on the tax. Basis Individuals pay tax only on Zimbabwe-source earnings or income deemed to be from a Zimbabwean source. Source Generally where services rendered (payment location irrelevant) Deemed to be a Zimbabwean source Temporary Absence -Temporary absence means absence for a period or periods not exceeding in aggregate 183 days within a year of assessment. if greater than 183 days then not subject to tax in Zimbabwe Foreign Interest or Dividends Dividend taxed at a special rate of 20% - impacts those with offshore bank accounts, investments (e.g. May target returning Diasporans).
4 Personal Income Tax Tax Deductions and exemptions (common) The first USD 2,700 of taxable income per annum is tax free On a retrenchment package the greater of USD r 1/3 of the package to a maximum of USD is tax free. US$ 500 of bonus is tax free (WEF ). Employee NSSA and pension contributions are also tax free up to a combined amount of US$ 5,400 per annum. Medical Aid paid by employer
5 Personal Income Tax Tax Concessions For Elderly Persons Aged 55 And Above Income Tax Exemption from Income Tax of: the first US$ per annum on rental income the first US$ per annum from bankers acceptances
6 Personal Income Tax The first US$ per annum on income earned from interest on deposits to financial institutions. Pensions received from a pension fund or the Consolidated Revenue Fund Benefit arising from the disposal to him of a motor vehicle by the employer whether on termination of employment or otherwise An elderly persons credit of US$ p.a. is granted
7 Personal Income Tax Capital Gains Tax The full amount arising from the disposal of a Principal Private Residence (PPR) by persons who are 55 years or above on the date of the sale is exempt from Capital Gains Tax. The first US$ that accrues to a person aged 55 years or above on the sale of any unlisted marketable security is exempt.
8 Personal Income Tax Other credits available Blind person s credit-available to the taxpayer and also transferrable if not fully utilized 50% of expenditure on invalid appliances or fittings ( include wheel chair or mechanically propelled vehicle specially designed to carry 1 person with a physical defect or disability, any artificial limb, leg calipers or crutch, any special fitting for the modification or adaptation of a motor vehicle, bed, bathroom or toilet for use by a person who has a physical defect Spectacles or contact lenses Expenditure on prescribed drugs. Treatment by a medical or dental practitioner, medical aid contributions, hospital fees, etc Mentally or physically disabled person s credit
9 Personal Income Tax Filing and payment of tax Individuals are not required to file returns if they are on the final deduction system of paying tax. Where an individual receives more than one source of income, changes employment during the year of assessment or terminates employment during the assessment year, he/she is required to submit a return upon notice to do so by the Commissioner.
10 Personal Income Tax Common Pitfalls Benefits not accounted for in payroll (e.g. meals, cellphone, security guards, school fees, accommodation, holiday) Unless specified it is cost to employer or value to the employee Other income not disclosed/no return e.g. Non exec directors fees, investment income, rental income Not making use of credits e.g. medical costs Not making use of other benefits not taxable i.e. Loans for school fees or medical not being taxable.
11 Corporate Tax The rate of tax is 25%, although a lower rate may apply under incentive schemes. 3% AIDS levy is also charged Basis: Zimbabwe companies and individuals deriving income from trade and investment are taxed on Zimbabwe source income. Taxable income : Taxable income includes all income received or accrued from sources within Zimbabwe or deemed to be within Zimbabwe (excluding amounts of a capital nature and revenue accruals that are specified as exempt) and is calculated after deduction of specified expenditure and allowances Taxation of dividends: Dividends received from a Zimbabwe company are exempt from income tax. Foreign-source dividends are subject to tax, at 20% with any withholding tax deducted in the foreign country able to be credited up to the amount of the tax applicable in Zimbabwe.
12 Corporate Tax Tax Incentives: Reduced income tax rates apply to certain classes of taxpayers as follows: Special mining lease 15%. An additional profit tax may be levied. This can leave the effective rate higher than 25% Manufacturing or processing companies that export 50% or more of their output - 20% Operators of tourist facilities in an approved tourist development zone, 0% for the first 5 years and 25% thereafter; - (limited application going forward) Build, own, operate and transfer projects (BOOT), 0% for the first 5 years and 15% thereafter.
13 Corporate Tax Tax Filing requirements Tax returns must be filed by 30 April after the close of the tax year (CG usually issues public notice). The annual return must be supported by financial statements (which need not be audited). Income tax is paid quarterly, based on estimated annual taxable income, on 25 March, 25 June, 25 September and 20 December during the assessment year for taxpayers on a 31 December financial year end. For those with financial year ends other than 31 December, the Commissioner may allocate different payment dates upon application by the taxpayer
14 Corporate Tax Penalties and Interest Interest on unpaid tax is levied on late remittances at a rate of 10% ( w.e.f 1 January 2010). Penalties of up to 100% of unpaid and late paid taxes also may be imposed Certain offences carry fines and/or imprisonment A civil penalty of up to $30 per day may be levied on late submission of tax returns up to a maximum of 181 days
15 Corporate Tax Anti-avoidance rules: Transfer pricing: While no specific legislation is in place, where the authorities deem that a transaction was not conducted at arm's length, a "fair" price may be substituted. Thin capitalisation: Expenditure incurred by a local branch or subsidiary of a foreign company or by a local company or its subsidiary in servicing debt contracted in connection with the production of income to the extent such debt causes the person to exceed a debt-to-equity ratio of 3:1 is disallowed. Debt not defined but in practice excludes non interest bearing debt i.e Trade creditors. Equity not defined in practice accounting treatment adopted (share capital, reserves etc) Excess deemed to be a dividend for purposes of Withholding Taxes
16 Corporate Tax Group Allocated Expenditure - general administration and management expenditure allocated within a group of companies (local or foreign) in excess of 1% of the total allowable deductions is disallowed. General administration and management expenditure not defined Foreign costs disallowed also treated as a dividend for WHT purposes Check formualae provided in Act as some other considerations. Capital Allowances- Generally- SIA now 25% in first year Accelerated W&T 25% per annum for next three years SME s can access a 50%,25%,25% structure Criteria
17 Corporate Tax Pitfalls Claiming where prohibited e.g. Provision for bad debts, entertainment, fines and penalties Underestimation of Provisional Tax Payable Non Submission of estimates (ITF12B) impacts other aspects such as tax clearance Not accounting for all income e.g. Income received in advance when not a deposit. Not applying industry specific rules e.g. Royalties payable to government allowed as deduction by miner but not other royalties.
18 Capital Gains Tax Capital gains tax is chargeable on gains from a source within Zimbabwe from the sale or deemed sale of specified assets: immovable property (land and buildings) and marketable securities (stocks and shares). Amounts received on sale of any marketable security which was subjected to withholding tax are exempt from CGT Capital gains from the sale or disposal of a marketable security and immovable property acquired before 1 February 2009 is the amount realised from the sale or disposal at a rate of 5%. A sale of a marketable security and immovable property acquired after that date is taxed at 20% after allowing deductions such as the cost of acquisition, additions and alterations of the specified asset and inflation allowance (2.5% per annum)
19 Capital Gains Tax An inflation allowance of 2.5% of the cost, alterations and additions of the asset is granted. Certain deferrals may be elected where assets are transferred under a scheme of reconstruction or merger between companies under the same control. This arises where shares are exchanged for no cash consideration under such a scheme, or if a business property that has been sold is replaced shortly thereafter. Zimbabwe also imposes a capital gains withholding tax of 15% for immovable assets and 1% for,marketable securities that are listed.
20 Capital Gains Tax Unlisted securities are subject to 5% withholding tax on the price at which the security was sold. CGT is payable to Zimra within 30days from date of payment CGTWT is payable to Zimra no later than the 3 rd working day from the date when the payment was made or within such further time as the Commissioner may for good cause allow
21 Withholding Tax Dividends : dividends from securities listed on the Zimbabwe stock exchange are taxed at a rate of 10%; otherwise, the rate is 15%. The tax rate may be reduced under a tax treaty. Where a company s export receipts exceed 15% of its total receipts, the amount of any dividend is deemed to be the amount determined in accordance with the formula AxB/C A=Amount of the dividend B=Total receipts from Zimbabwe C=Total receipts (Zim+External)
22 Withholding taxes Interest: Bank interest from a Zimbabwean source is taxed at 15%. Non-Resident tax on interest was repealed (w.e.f ) Royalties : Royalties paid to non-residents are subject to a 15% withholding tax. The rate may be reduced under a tax treaty. Remittances: Remittances paid to non-residents are subject to a 15% withholding tax. Applies to group allocable expenditure (targets Zim branches of foreign companies)
23 Withholding Tax Tenders: A 10% withholding tax is deducted from any payment above $250 to a supplier who does not possess a valid tax clearance (ITF 263) The tax is payable by the 10 th day of the month following the month of deduction. Fees: Fees paid to non-residents are subject to a 15% withholding tax. The rate may be reduced under a tax treaty. Applicable fees managerial, administrative, technical, consultative nature Non executive directors fees- 20% (Local or foreign)
24 Withholding Tax Common Pitfalls in regard to WHT Tax treaties (DTA s) not considered Significant benefits can flow (Consult us!) Contracts not clear or structured properly leads to interpretation issues Effective date of payment Generally earlier of accrual or actual payment. Contracts can trigger implied accrual even if not booked. e.g fees determined with reference to a % of revenue even if not invoiced.
25 Presumptive Tax Traders who are not registered with ZIMRA are required to pay presumptive taxes as follows: Operators of restaurants or bottle stores and Operators of cottage industries: $300 per quarter and payable no later than 10 days after the end of each quarter. Commuter omnibus carrying passengers- $175 per quarter Commuter omnibus carrying passengers-$300per quarter Commuter omnibus carrying more than 37 passengers-$400per quarter Small Scale Miners: 2% of sale proceeds Informal Traders: 10% of rentals
26 Value Added Tax Taxable transactions VAT is payable in respect of a broad range of goods and services supplied by registered operators or which are imported. The standard rate of VAT in Zimbabwe is 15%. The VAT rate is 0% on some food stuffs. Some supplies are exempt from VAT, such as education, public transport, financial and medical services Special rate on unbeneficiated chrome exports 20%
27 Value Added Tax VAT Registration : The VAT registration threshold is USD 60,000 per annum. Where the annual taxable turnover is lower, voluntary registration may be considered upon application to the Zimbabwe Revenue Authority. Supply is deemed to take place at the time an invoice is issued or the time any payment is received which ever time is earlier Filing and VAT payment : WEF 1 January 2011, the due date for the submission of VAT returns and payment has been extended from the 15th to the 20th of the month following the end of the tax period. Penalties and Interest: Interest on unpaid tax is levied on late remittances at a rate of 10% per annum. Penalties of up to 100% of unpaid and late paid taxes also may be imposed. A civil penalty of up to $30 per day may be levied on late submission of tax returns up to a maximum of 181 days
28 Value Added Tax-Imported Services Defined-means a supply of services that is made by a supplier who is resident or carries on business outside Zimbabwe to a recipient who is a resident of Zimbabwe to the extent that such services are utilised or consumed in Zimbabwe otherwise than for the purpose of making taxable supplies; Applies to those entities that make exempt supplies E.G imported services made by a bank
29 Imported Services VAT is not payable on ; a supply which, if made in Zimbabwe, would be charged with tax at the rate of 0%. or would be exempt from tax.
30 VAT on Imported Services VAT on imported services is payable to Zimra within 30days from the time an invoice is issued by the supplier or recipient in respect of that supply or the time any payment is made by the recipient in respect of that supply, whichever time is the earlier. The value of supply of imported services is the value of the consideration for the supply, or the open market value of the supply, whichever is the greater. VAT on imported services is accounted for on a VAT 9 return. Appears no Penalty presently in the act for non compliance but may be subject to a fine.
31 VAT Common Pitfalls VAT on imported services not accounted for and paid over VAT claimed on invalid tax invoices Quotes, Invoices that don t meet all the requirements Not applying for VAT registration when threshold met Making payment without submitting returns. Wrong completion of returns e.g. not disclosing zero rated or exempt supplies and revenue then does not tie to financials. Not paying over VAT on income received in advance
32 Electronic Fiscal Devices An Update The implementation date of the 1 st of January 2011 had not been moved and ZIMRA will soon be making follow ups ZIMRA advised that the suppliers had confirmed that the devices were now available and ready for use. Encouraged to contact the suppliers For any problems approach Mr. Govha or Ms Tauzeni.
33 Electronic Fiscal Devices A reminder on claiming tax 50% is claimable as input tax Claim capital allowances on the remaining 50% The devices are zero rated Extensions will only be granted on application where an order has been placed (quote not sufficient)
34 Transitional Matters A general binding ruling was issued by the Commissioner on how the Commissioner General shall exercise his discretion in approving rates of exchange applied in converting the 2008 closing balances that were expressed in Zimbabwe dollars to US dollars for tax purposes. This was gazetted on the 1 st of October 2010( well after 2008 returns were submitted)
35 Binding General Ruling The ruling applies only to ; movable and immovable assets, trading stock and assessed loss. The ruling does not apply to; Outstanding ZW$ monetary balances such as, bank balances, creditors, debtors and other liabilities as at 31 December 2008
36 Binding General Ruling Suggest Re-visit the 2008 financials and see if they are in line with the ruling. Submit amended return if necessary
37 Customs High Level Issues National Project Status only customs concessions granted not a fix for all taxes. Mining Rebates Recently granted mining location specific and must be applied for Beware of transfer pricing policy ZIMRA increasingly questioning purchases from related parties
38 Contact Information Monica Gotora
39 Thank you