doing business in Zambia

doing business in Zambia country profile time zone GMT+2 official language English population 17 293 692 currency Kwacha ( ZMW ) government structure economic data Executive: The president is head of state and government, and commander-in-chief of the armed forces. He/she is directly elected by absolute majority popular vote in two rounds, if needed, for a five-year term (eligible for a second term). Cabinet is appointed by the president from among members of the National Assembly. Legislative: Zambia has a unicameral National Assembly. Judicial: The judiciary is headed by the chief justice and under the chief justice are the Supreme Court, the High Court, the Industrial Relations Court, the Subordinate Courts and the Lower Courts. The Supreme Court is the final court of appeal, with judges appointed by the president subject to ratification by the National Assembly. Next presidential and parliamentary elections: August 2021 Nominal GDP (USD billions): 20.91 GDP per capita (USDs): 1.21 Inflation rate (% change): 9.10 Government revenue (% of GDP): 17.89 Government gross debt (% of GDP): 58.82 *Source: IMF Zambia s economy is reliant on mining and agriculture, with the latter being the provider in the Zambian economy, accounting for roughly 70% of total. risk ratings World Economic Forum Global competitive index (2016-2017): 118/138 World Bank ease of doing business (2017): 98/190 Corruption perception index (2016): 87/176 international treaties and memberships international and regional organisations and customs unions bilateral treaties related agreements / institutions dispute resolution intellectual property ( IP ) treaties African Caribbean and Pacific Group of States African Development Bank African Union Common Market for Eastern and Southern Africa ( COMESA ) International Monetary Fund Multilateral Investment Guarantee Agency South African Development Community United Nations World Intellectual Property Organization World Trade Organization Zambia receives preferential treatment under the following agreements: http://ptadb.wto.org/country.aspx?code=894 Zambia has reciprocal promotion and protection of agreements with France, Germany, Italy, Mauritius, the Netherlands and Switzerland. Agreements have been signed with Belgium-Luxembourg Economic Union, China, Cuba, Egypt, Finland, Ghana and the United Kingdom, but these have not yet entered into force. African Growth and Opportunity Act Multilateral Investment Guarantee Agency Convention on the Recognition and Enforcement of Foreign Arbitral Award (New York Convention) International Centre for Settlement of Investment Disputes UN Commission on International Trade Law A comprehensive list of IP-related treaties signed by Zambia is available at: http://www.wipo.int/wipolex/en/profile.jsp?code=zm See the trade marks sections below for further detail. 2017 08 1

legal regime applicable legal regime dispute resolution land acquisition, planning and use competition Zambia s legal system is based on English common law and customary law. International arbitration is a right of investors covered by bilateral treaties. If both parties agree, investors may resort to international arbitration under the Arbitration Act. There are two categories of land in Zambia: state land (which comprises 6% of total land); and customary area land (which comprises 94%). As a result, there are two types of land tenure, leasehold and customary tenure. Leasehold tenure lasts for 99 years and is renewable for a further 99 years. No freehold system exists in Zambia. Acquiring leaseholds requires the consent of the Commissioner of Lands and is conditional upon being a permanent resident of Zambia, being an investor within the terms of the Zambia Development Agency ( ZDA ) Act, and having registered a company under the Companies Act with not less than 75% Zambian shareholding. merger control The Zambian Competition and Consumer Protection Act regulates merger control in Zambia. The Competition Act defines a merger as the acquisition of a legal interest by an enterprise in another enterprise. Therefore, a merger occurs where an enterprise acquires or establishes direct or indirect control over the whole or part of the business of another enterprise, or when two or more enterprises mutually agree to adopt arrangements for common ownership or control over the whole or part of their respective businesses. The Competition Act sets out examples of what constitutes control for the purposes of merger regulation. Mandatory notification applies to merging parties that have a minimum combined turnover or assets, whichever is higher, in Zambia of at least ZMW15-million. Filing fees are equal to 0.1% of an undertaking s turnover or assets, whichever is higher, with a maximum fee of ZMW5-million. The Zambian competition authority may take into account public interest considerations in making a determination on the merger. Zambia is a pre-implementation regime, therefore approval must be sought from the Zambian competition authorities prior to implementation of the proposed transaction. A merger that meets the prescribed threshold and is implemented without the commission s authorisation is void. Enterprises that go ahead with notifiable mergers without the Commission s approval are liable to fines of up to 10% of their annual turnover. Zambia is a member of the regional competition body, COMESA, which has merger control. Merger activities in Zambia should be conducted with COMESA in mind. prohibited practices The Competition Act prohibits price fixing; market allocation; bid rigging; setting production quotas and collective refusal to deal in, or supply, goods and services; and the practice of resale price maintenance. However, a supplier or producer may recommend a minimum resale price to the re-seller of a good or a service in certain circumstances. Horizontal and vertical practices are regulated. The Competition Act regulates the abuse of a dominant position. The Zambian authority operates a corporate leniency programme for enterprises that voluntarily disclose the existence of any agreement that is prohibited under the Competition Act and cooperate with the Zambian authority in its investigations. An enterprise that is party to a prohibited horizontal or vertical agreement or abuses its dominant position is liable to pay the commission a fine not exceeding 10% of its annual turnover. Where an offence under the Competition Act is committed by a body corporate or unincorporate body, every director or manager of the body corporate or unincorporate body shall be liable, upon conviction, as if the director or manager had personally committed the offence, unless the director or manager proves, to the satisfaction of the court, that the act constituting the offence was done without the knowledge, consent or connivance of the director or manager or that the director or manager took reasonable steps to prevent the commission of the offence. COMESA regulates prohibited practices in the COMESA area. Activities in Zambia should be conducted with this regional competition body in mind. immigration Expatriate staff working in Zambia on a short-term basis are required to apply for a temporary permit, whereas expatriate staff intending to live and work in Zambia on a longer term basis are required to apply for an permit. The maximum number of work permit applications that may be made by a company is not prescribed by law, but the Director General of Immigration will restrict the granting of permits where there are sufficient local resources or appropriately qualified local staff in Zambia seeking. local vs secondment typical fixed term contracts and It is not a legal requirement for either local or foreign employees to be employed by a local entity in Zambia to work in Zambia. It is therefore possible to second a foreign employee to work in Zambia without having to conclude an contract with a local entity. However, in terms of applicable immigration laws, an expatriate must be in a relationship with a Zambian entity and it is therefore typically required to enter into an contract with a Zambian entity for purposes of obtaining a work permit. It is legally permissible to conclude fixed-term contracts of and a fixed-term contract may be renewed for subsequent terms. However, the cumulative duration of the successive fixed-term contracts of with an employer must be as prescribed. There is currently 2017 08 2

temporary services participation in statutory schemes payment in local currency restraint of trade agreements foreign regime regime registration / licensing business licence / commercial licences Zambia Revenue Authority ( ZRA ) no guidance in the form of a Statutory Instrument regarding the prescribed number of successive fixed-term contracts. Where an employee who is engaged on a fixed-term contract of service continues in with the same employer after expiration of the prescribed cumulative period, the contract of service shall be deemed to be a permanent contract. Labour broking is allowed in Zambia, provided that the labour broker is registered as an agency and has obtained the requisite permit from the Ministry of Labour. Expatriates are obliged to contribute to the compulsory national pension scheme in Zambia, which is administered by National Pension Scheme Authority ( NAPSA ). Employees who are older than 55 years (ie, retirement age) are exempted from the NAPSA scheme. It is not required for employees to be paid in local currency. Restraint of trade agreements are valid in Zambia as long as their scope does not do more than is reasonably necessary to protect the legitimate business interests of the employer. A restraint of trade agreement will only be valid and enforceable if the restraint is reasonable in the sense described above and not against public policy. The employer need only show that a valid agreement exists and that the employee has breached the restraint agreement. The employee bears the onus of proof to show that the restraint is against public policy, or is unreasonable in the sense of restraining more than is reasonably necessary to protect the employer's legitimate business interest and unenforceable. The Zambia Devlopment Agency ( ZDA ) was established in terms of the ZDA Act, as a one-stop facility to assist investors in securing permits, exemptions, licences, bonded status, land, etc. from the appropriate institutions. It is not compulsory to apply for an certificate from the ZDA, but this is required if the investor wishes to access incentives. The following general non-industry specific registrations/licences may also be required: A general business/trading licence is to be obtained from the Local Municipal Council in the area where the business operates. A company must apply to the ZRA for a single taxpayer identification number, covering corporate income tax, Pay As You Earn, withholding tax ( WHT ) and value-added tax ( VAT ) or turnover tax, where relevant. National Pension Scheme Authority ( NAPSA ) Workers Compensation Fund Control Board ( WCFCB ) industryspecific licences A company whose taxable turnover is expected to exceed the VAT registration threshold of ZMW800 000 per annum is required to register for VAT. Employers are obliged to register with NAPSA and obtain an employer registration number. In addition, each employee is to be issued with a social security number. Employers must also register with the WCFCB in the region where the company is established, but there is no requirement for separate registration of each employee. Industry-specific licences may also be required. incentives Investments incentives are available under the ZDA Act to investors in industrial parks and multi-facility economic zones for manufacturingrelated businesses and export trade. Incentives are also granted to investors involved in priority sectors or products. exchange control regulation types of entities available for foreign Since the abolition of the Exchange Control Act in 1994, there are no controls on the conversion and transfer of currency from Zambia. Investors are free to repatriate any funds, whether or not they are generated from a source in Zambia, provided they have been derived from legitimate sources and the necessary taxes and duties have been paid. Private company (company limited by shares; company limited by guarantee); unlimited liability company; public company; foreign company; associations; partnerships; and trusts. 2017 08 3

private limited liability company minimum number of shareholders minimum share capital A minimum of two shareholders is required. There is no mandatory legal requirement for local shareholding but certain procurement guidelines and industry-specific legislation may offer incentives where the entity incorporates local participants. The Companies Act does not prescribe a specified minimum share capital. However, Statutory Instrument 53 of 2014 prescribes the minimum share capital for a private company limited by shares as ZMW10 000. directors A company must have at least two directors. More than half of the directors of a company, including the managing director, if the company has one, and at least one executive director, if the company has executive directors, must be resident in Zambia. In practice, an expatriate working on a work permit in Zambia will be regarded as a resident for this purpose. company secretary A company must appoint a company secretary, who must be resident in Zambia, if an individual, and incorporated in Zambia, if a body corporate. auditor A company must, within three months after its incorporation, appoint an auditor/s, who shall hold office until the close of its first annual general meeting. registered address shelf companies registration process The company must have a registered office in Zambia and a registered postal address to which all communications and notices may be addressed. A company may use its accountants, lawyers or company secretary s offices as its registered address. The Companies Act does not specifically make provision for shelf companies, but certain legal and company secretarial firms in Zambia have shell companies for sale. Companies are registered with the Patents and Companies Registration Agency and registration takes approximately two working days to complete once all the required documents have been submitted. tax tax system Zambia operates a source-based tax system. Both resident and non-resident companies are subject to corporate income tax on all income of a revenue nature accruing from a source within or deemed to be within Zambia. In addition, resident companies are taxable on interest and dividends received from a source outside Zambia. corporate residence corporate tax rate capital gains tax ( CGT ) withholding tax ( WHT ) rates double tax agreements ( DTAs ) A company is resident in Zambia if: it is incorporated or formed under the laws of Zambia; or the central management and control of its business or affairs are exercised in Zambia. Resident companies and permanent establishments of foreign companies are subject to corporate tax at the rate of 35%. Reduced rates apply to entities engaged in mining, farming, non-traditional exports and chemical fertilizer manufacturing, whereas an increased rate may apply to the electronic communication industry. There is no capital gains tax in Zambia, however, a 5% property transfer tax applies on the transfer of immovable property and unlisted shares. WHT rate (%) payment to residents non-residents branch profits N/A 15% dividends 15%/ exemptions apply 15%/ exemptions apply interest 15% 15% royalties 15% 20% Management and technical service fees 15% 20% DTAs are in force with Canada, China, Denmark, Finland, France, Germany, India, Ireland, Italy, Japan, Kenya, Mauritius, the Netherlands, Norway, Romania, Seychelles, South Africa, Sweden, Switzerland, Tanzania, Uganda and the United Kingdom. losses Losses may be carried forward for a period of five years. Companies carrying on mining operations or hydro, solar or wind electricity generation may carry forward their losses for up to 10 years. transfer pricing thin capitalisation The transfer pricing rules in Zambia grant the commissioner general power to adjust profits from commercial or financial transactions between associates to reflect arm s length conditions. Two persons are associated if one of them participates, directly or indirectly, in the management, control or capital of the other, or if another person participates, directly or indirectly, in the management, control or capital of both of them. With the exception of companies carrying out mining operations, which are subject to a debt to equity ratio of 3:1, thin capitalisation is dealt with under the general transfer pricing rules. 2017 08 4

employee taxes social security contributions There is no specific guidance on the acceptable level of debt to equity ratio applicable to other industry sectors, but in practice, the ZRA generally allows a debt to equity ratio of 1:1. Depending on individual circumstances, it may be possible to negotiate with ZRA for an alternative debt to equity ratio. The income tax rates applicable, in general, for individuals effective 1 January 2017, are: annual chargeable income (ZMW) tax rate up to 39 600 0% 39 601-49 200 25% 49 201-74 400 30% over 74 400 37.5% Both employers and employees are obliged to contribute 5% of an employee s gross salary, limited to a maximum contribution of ZMW894.61, to the National Pension Scheme Authority. payroll taxes With effect from 1 January 2017, employers with an annual turnover exceeding ZMW800 000 are liable to a skills development levy at a rate of 0.5% on payroll. stamp duty There is no stamp duty in Zambia, but a 5% property transfer tax applies on the transfer of immovable property and unlisted shares. VAT taxable supplies VAT rate 16% registration threshold reverse VAT on imported services VAT is payable on any taxable supply of goods or services in Zambia and the importation of goods and services into Zambia. Every supplier carrying on business in Zambia whose taxable annual turnover exceeds ZMW800 000 in any relevant year or ZMW200 000 in any relevant quarter, must apply for VAT registration. Voluntary registration for companies with a turnover below the above threshold is allowed. Output VAT is to be declared by a recipient of services rendered by a foreign service provider under a reverse-charge mechanism. There is no corresponding claim for the input VAT. Alternatively, the non-resident supplier may appoint a local agent to account for the VAT on the supplies of the non-resident, in which case the local recipient should be entitled to claim an input credit. trade marks international conventions, treaties and arrangements Madrid Union (Agreement and Protocol) Paris Union Trade-Related Aspects of Intellectual Property Rights World Intellectual Property Organization World Trade Organization classification The international classification of goods applies (there is no provision for services). A separate application is required for each class. categories of trade marks filing Provision is made for: goods marks only (not service mark); certification marks; defensive marks; and series marks. Signed Power of Attorney; eight prints of the mark; and certified copy of priority documents (if applicable), with verified English translation. procedure Applications are examined as to inherent registrability and conflict with prior existing registrations/applications. Once accepted, the application is published for opposition purposes. oppositions Opposition may be lodged within two months following the date of advertisement of the trade mark application. The deadline is non-extendible. duration and renewal A trade mark registration is effective for an initial period of seven years from filing date, thereafter, renewable for further periods of 14 years. For more information or assistance please contact: Celia Becker executive Africa regulatory and business intelligence cbecker@ensafrica.com cell: +27 82 886 8744 2017 08 5