Businesses in Zambia generally adopt a corporate form. The two main alternative forms of corporate structures are public companies and private companies, which could be structured into any of the following categories:

• a private company limited by shares;
• a private company limited by guarantee;
• an unlimited private company;
• a public liability company;
• a partnership; or
• a sole proprietorship.

Except for partnerships, these are all taxed as separate legal entities.

The key differences are as follows:

• a public company is one that does not impose any restrictions on the right to transfer any of its shares through its Articles of Association, other than restrictions on the right to transfer a share that has not been fully paid for, and a provision for the compulsory acquisition – or right of first refusal – of shares being transferred to other members of the company in the event of shares not being fully paid for;
• a private company limited by shares is a company whose Articles limit the number of members to no more than 50;
• an unlimited private company is a private company whose Articles allow for more than 50 members;
• a company limited by guarantee is a company whose subscribers at incorporation make a declaration of guarantee specifying the amount they undertake to contribute to the assets of the company in the event of the company being wound up; and
• an additional category is an entity referred to as a business name, which can be either a partnership or a sole proprietorship for one or two individuals.

Regardless of the category, all companies are taxed similarly. However, business names (partnerships and sole proprietorships) are taxed differently from companies.

A private company limited by shares is commonly used. Investment entities, including private equity and hedge funds, prefer the route of a private company limited by shares, for the following reasons:

• for the concept of separate legal personality between the members of the company and the corporate entity itself;
• because members are not personally liable for the debt of the company and, in the event of winding up, the liability of members is limited to the extent of their respective unpaid obligation towards the capital of the company;
• because there is less stringent regulatory scrutiny than applies to a public company; and
• because a private company is taxed on the basis of profits only, after deducting the allowable expenses of the company.

The test used for determining the residence of incorporated businesses and transparent entities is whether they are incorporated or formed under the laws of Zambia, or whether the place of effective management and control of the entity’s business or affairs is within Zambia for the charge year.

Incorporated businesses are subject to corporation tax, which is currently 30%.

The tax rate for partnerships/business names or sole proprietorships is the rate of tax applied to individuals. The current top tax rate is 37% for any annual income in excess of ZMW82,800 (approximately USD4,049.51).

The presumptive tax on a person carrying on the business of betting, lotteries and gaming is as follows:

• Online Casino Live Games – 20% of gross takings;
• Online Casino Machine Games – 35% of gross takings;
• Online Lottery Winnings – 35% of net proceeds;
• Lottery Winnings (Brick and Mortar) – 15% of net proceeds;
• Online Betting – 25% of gross takings;
• Betting (Brick and Mortar) – 15% of gross takings;
• Casino Games (Brick and Mortar) – ZMW5,000 per table; and
• Gaming Machines – ZMW500.

For the purposes of betting and gaming, “net proceeds” means the gross proceeds minus sums paid out for the prizes, while “gross takings” means the total amount staked by players minus the winnings payable and redemptions by the players.

Taxable profits are calculated after deducting any losses and expenditure incurred in a charge year wholly and exclusively for the business, other than those of a capital nature, and/or any expense that may be allowable in terms of the Income Tax Act Chapter 323 of the Laws of Zambia (the “Income Tax Act”).

Taxable profits are based on the accounting profits realised after taking into account revenue expenses wholly and exclusively incurred in earning revenue.

Capital allowances are deductions that businesses can claim for wear and tear of qualifying fixed assets bought and used in a trade or business. Qualifying fixed assets include:

• buildings;
• implements;
• plant and machinery;
• fixtures and fittings; and
• motor vehicles and several other capital assets used in the production of income.

The Income Tax Act permits a “deduction for research” as an incentive. This applies to expenditure, not of a capital nature, that is incurred by a business in a charge year on experiments or research relating to the business.

There are no other special incentives that apply to particular industries, transactions or businesses.

Losses that are not of a capital nature are deductible from a business’s gains or profits.

For mining operations or businesses involved in the generation of electricity, losses may be carried forward from year to year, for a maximum of ten years. For all other businesses, such losses can only be carried forward for a maximum period of five years.

The deductibility of gross interest expense is limited to 30% of a company’s tax earnings before interest, tax, depreciation and amortisation (EBITDA) and cannot be carried forward for more than five years. However, for companies carrying on mining operations or electricity generation, the disallowed interest deduction cannot be carried forward for more than ten years. This limit excludes businesses on the turnover tax system and taxpayers engaged under the Banking and Financial Services Act.

Consolidated tax grouping is not permitted under the Income Tax Act. Groups of companies cannot utilise separate company losses.

There is no capital gains tax in Zambia; however, if a resident or non-resident sells property in Zambia, the provisions of the Property Transfer Tax Act Chapter 340 of the Laws of Zambia will apply.

“Property” is defined as:

• any land in Zambia;
• a share issued by a company incorporated in Zambia or a share issued by a company incorporated outside Zambia that directly or indirectly owns at least 10% of the shares in a company incorporated in Zambia;
• a mining right issued under the Mines and Minerals Development Act, 2015;
• a mineral processing licence issued under the Mines and Minerals Development Act, 2015; and
• intellectual property.

“Share” is defined to include stock, certificate, warrant or equivalent rights, and an interest in a mining right or an interest in a mineral processing licence.

The tax rates are as follows:

• 10% of the realised value in respect of a mining right for a mining licence;
• 5% of the realised value in respect of a mining right for an exploration licence;
• 10% of the realised value in respect of a mineral processing licence;
• 5% of the realised value in respect of land;
• 5% of the realised value in respect of shares; and
• 5% of the realised value in respect of intellectual property.

Property Transfer Tax at a rate of 5% of the realised value is also payable on the transfer of any shares in a non-resident holding company that holds at least 10% of the issued shares in a company incorporated in Zambia. The realised value for the transfer of shares in a non-resident company is limited to the value of the effective shareholding in the Zambian entity. Effective shareholding is defined as the extent of control or ownership in a company incorporated in Zambia by the company incorporated outside Zambia, expressed as a percentage.

Insurance Premium Levy is imposed on all insurance premiums for all classes of insurance business, excluding reinsurance, at the rate of 5%.       

The Income Tax Act provides for the following maximum tax rates for turnover received by a person or partnership from the letting of property:

• 0% per annum on turnover that does not exceed ZMW12,000;
• 4% per annum on turnover between ZMW12,000 and ZMW800,000; and
• 12.5% per annum on turnover that exceeds ZMW800,000.

This applies to a landlord or a person or partnership who is appointed by the Commissioner-General as withholding agent.

Mining companies are required to pay a mineral royalty, which varies depending on the type of mineral, as follows:

• 5% of the norm value for base metals (other than copper, cobalt and vanadium);
• 5% of the gross value for energy and industrial minerals;
• 6% of the gross value for gemstones;
• 6% of the norm value for precious metals; and
• 8% of the norm value for cobalt and vanadium.

The current mineral royalty regime with respect to copper is as follows:

• 4% of the norm value when the norm price of copper is less than USD4,000 per tonne;
• 6.5% of the norm value when the norm price of copper is USD4,000 or higher per tonne but less than USD5,000 per tonne;
• 8.5% of the norm value when the norm price of copper is USD5,000 or higher per tonne but less than USD7,000 per tonne; and
• 10% of the norm value when the norm price of copper is USD7,000 or higher per tonne.

The mineral royalty is deductible for corporate income tax purposes.

Closely held businesses mostly operate in corporate form.

The legislation and rules that govern professionals in Zambia do not permit them to practise as corporate entities to the extent that they are separate and distinct entities from their practice.

There are no rules that prevent closely held corporations from accumulating earnings for investment purposes.

A company that declares and pays dividends will have to deduct withholding tax at a rate of 20% and obtain a withholding tax certificate from the Zambia Revenue Authority. The withholding tax will be treated as an advance payment by the individual shareholder to the extent that, when the aggregate income of the shareholder is calculated in the charge year after the submission of the annual tax return, the withholding tax will be treated as a credit towards the final tax liability.

If an individual shareholder sells their shares in a corporation, property transfer tax will apply at a rate of 5% of the realised value.

Dividends on shares in publicly traded companies are subject to withholding tax at a rate of 20%.

The sale of shares in publicly traded companies is not subject to any tax under the Property Transfer Tax Act.

In the absence of income tax treaties, Zambian law provides for withholding tax on the following:

• management and consultancy fees, at a rate of 15% for residents and 20% for non-residents;
• interest, at a rate of 15% for residents and 20% for non-residents;
• dividends, at a rate of 15% for residents and 20% for non-residents;
• royalties, at a rate of 15% for residents and 20% for non-residents;
• commissions, at a rate of 15% for residents and 20% for non-residents;
• winnings from gaming, lotteries and betting other than winnings received by an individual by virtue of employment or office, at a rate of 15% (this excludes brick and mortar casinos);
• a public entertainment fee, at a rate of 20%;
• a commodity royalty, at a rate of 15%; and
• the distributed income of an income real estate investment trust, which is the gross rent collected by that income real estate investment minus 25% of gross collections.

In the absence of income tax treaties, there are no reliefs available.

Local tax authorities collect withholding tax that is deductible by reference to the date of payment or the date of accrual for the following categories or areas:

• management and consultancy fees;
• interest;
• dividends;
• royalties;
• commissions;
• winnings from gaming, lotteries and betting other than winnings received by an individual by virtue of employment or office;
• commodity royalty; and
• the distributed income of an income real estate investment trust.

The primary tax treaty countries used by foreign investors to make investments in Zambian corporate stock or debt are as follows:

• the Netherlands;
• the United Kingdom;
• Ireland;
• the Seychelles; and
• South Africa.

Local tax authorities do not challenge the use of treaty country entities by non-treaty country residents.

The primary transfer pricing issue for inbound investors who operate through local corporations or subsidiaries is whether the loans granted by the investors to their associated local corporations – or the goods and/or services rendered by the investors to the local subsidiaries – are done so on an “arm’s length basis”.

Local tax authorities challenge the use of related-party limited risk distribution arrangements for the sale of goods and the provision of services locally.

Zambia's local transfer pricing rules and/or enforcement do not vary from the OECD standards. Zambia recently made amendments to the Income Tax (Transfer Pricing) Regulations 2000 when it promulgated the 2018 Transfer Pricing (Amendment) Regulations, the 2020 Transfer Pricing (Amendment) Regulations, the 2021 Transfer Pricing (Amendment) Regulations and the 2022 Transfer Pricing (Amendment) Regulations. As a result, the Income Tax (Transfer Pricing) Regulations 2000 are now construed in a manner that is consistent with the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, as supplemented and updated from time to time.

Local tax authorities are more aggressive on transfer pricing now owing to the amendments to the Transfer Pricing Rules, which now require taxpayers to prepare and maintain transfer pricing records and documentation. The Income Tax Act requires taxpayers to maintain documentation and records for a period of ten years after the completion of the transaction or operation to which they relate. The Transfer Pricing Rules empower the local tax authorities to request additional information they consider necessary from the taxpayer during the audit process. This further documentation may encompass new information, which can be used by the tax authorities for earlier years.

Where there is a double taxation treaty in force between the jurisdictions of the parties to a controlled transaction, the provisions of that treaty will prevail over the provisions of the Income Tax Act in the resolution of any dispute concerning international transfer pricing. The use of the mutual agreement procedure (MAP) is only permissible where it is contained in a double taxation agreement. Given the lack of case law pertaining to transfer pricing disputes and the fact that the Zambia Revenue Authority does not release information on such disputes, it is difficult to state with certainty how often international transfer pricing disputes are resolved through double taxation treaties and MAPs.

There is no publicly available information to ascertain whether MAPs are becoming more common on the back of more enquiries and disputes.

Compensating adjustments are allowed/made when a transfer pricing claim is settled. There are no difficulties in operating a MAP where a transfer pricing claim applies, as long as the MAP is available in a double taxation agreement.

There is no difference in the way local branches of non-local corporations and local subsidiaries of non-local corporations are taxed.

There is no capital gains tax in Zambia. However, if a non-resident sells shares in a company in Zambia, property transfer tax on the value of the sale will apply, at a rate of 5% of the realised value of the shares.

5% property transfer tax is also payable on the transfer of any shares in a non-resident holding company that holds at least 10% of the issued shares in a company incorporated in Zambia. The realised value for the transfer of shares in a non-resident company is limited to the value of the effective shareholding in the Zambian entity. Effective shareholding is defined as the extent of control or ownership in the company incorporated in the Republic by the company incorporated outside the Republic, expressed as a percentage.

There is an exemption from the payment of property transfer tax for indirect transfers arising out of a group reorganisation that does not result in any change in the effective shareholding of the Zambian entity. However, the exemption is only available to companies that have been part of the group of companies for at least three consecutive years preceding the group restructuring.

If the shares are in a publicly listed and traded company, there will be no property transfer tax.

There are no change of control provisions that could trigger tax or duty charges.

No formulas are used because local affiliates of foreign-owned companies are treated as independent entities that are selling goods and services in Zambia.

If a local affiliate makes a payment for management and administrative expenses incurred by a non-local affiliate, the local affiliate should be able to demonstrate that the transaction is on an “arm’s length” basis in order for the expense to be allowed as a deduction, in accordance with the Transfer Pricing Regulations.

The only restriction is that the interest rates charged by non-local affiliates to local affiliates should be charged on an “arm’s length” basis in accordance with the Transfer Pricing Regulations.

Zambian income taxation is based on the principles of “residence” and “source”. Corporate tax will not be imposed on a local corporation’s income that is not derived from a source within Zambia or not deemed to be derived within Zambia. However, interest and dividends received by local corporations from a source outside Zambia will be subject to Zambian corporate tax.

The following are non-deductible expenses as prescribed under the Income Tax Act:

• capital expenditure or loss of capital, other than loss of stock in trade, unless specifically permitted under the Act;
• any loss or expense that is recoverable under any insurance contract or indemnity; and
• any tax or penalty chargeable under the Act.

Dividends from foreign subsidiaries of local corporations are taxed at the standard corporate tax rate of 30% on the basis that they constitute income accruing to the local corporation.

Intangibles developed by local corporations can be used by non-local subsidiaries in their business without incurring local corporate tax, as there are no regulations covering this.

There is no tax on local corporations in respect of the income of their non-local subsidiaries; this also applies to non-local branches of local corporations.

No rules related to the substance of non-local affiliates apply.

If a local corporation receives income on the sale of shares in a non-local affiliate, it will be considered as income and will be subject to local corporate tax.

There are overarching anti-avoidance provisions, under which the Commissioner-General of the Zambia Revenue Authority may – if he or she has reasonable grounds to believe that the main purpose or one of the main purposes of any transaction was the avoidance of, or reduction of liability for, tax for any charge year, or that the main benefit that might have been expected to accrue from the transaction within the three years immediately following the completion thereof was the avoidance or reduction of liability for tax – direct that such adjustments shall be made as regards liability for tax as he or she considers appropriate to counteract the avoidance or reduction of liability for tax that would otherwise be effected by the transaction, if he or she determines it to be just and reasonable.

The routine audit cycles of the Zambia Revenue Authority involve:

• investigations; and
• routine audits, usually covering a period of up to five years.

The following recommended BEPS changes have already been implemented:

• capacity enhancement through the creation of a transfer pricing unit, and capacity building of staff in international taxation;
• setting out the following five transfer pricing methods through regulations – a taxpayer is required to choose only one of the methods to determine the “arm’s length” basis for a given transaction:
1. a comparable uncontrolled price method;
2. a resale price method;
3. a cost-plus method;
4. a transactional net margin method; or
5. a transactional profit split method;
• strengthening domestic anti-abuse legislation; and
• rationalising tax treaty incentives and scaling down on tax holidays.

In 2017, the Zambian government joined the Inclusive Framework on Base Erosion and Profit Shifting (BEPS) and agreed to adopt the BEPS project agreement, the country-by-country reporting measures to prevent tax treaty shopping and also the minimum standards that were set out by the OECD and G20 nations in 2015.

By so doing, the Zambian government aims to increase its tax revenue payments and reduce the tax burden on easy-to-pay taxes by creating an atmosphere of fairness among the companies that are liable for tax, which, it is hoped, will lead to voluntary compliance.

There are currently no changes being made or discussed in relation to the Two-Pillar model, but tackling BEPS is one of the key priorities of the Zambian government, as can be seen from the regular amendments to the Transfer Pricing Regulations, to align them with the OECD Transfer Pricing Guidelines for MNEs. Therefore, as the Two-Pillar model will benefit the country, the tax authorities are likely to implement it to some extent. However, Pillar 2 will introduce a global minimum corporate tax rate set at 15%, which would not have a particular impact on Zambia, where the corporate tax rate for local and foreign companies is 30%. Pillar 1 is primarily focused on reallocating taxing rights among states, and with respect to digital companies is a model that the tax authorities would consider giving effect to as services offered by MNE digital companies are widely used in Zambia, so taxing these companies would increase Zambia’s revenue growth.

International tax is an issue that preoccupies the tax authorities and multinationals operating in Zambia. However, there is not much intense public scrutiny or interest that could have an influence on BEPS recommendations.

The Zambian government is under intense pressure to raise revenue to plug the fiscal deficit experienced in the recent past. On account of this, there will always be a challenge to keep marginal tax rates low, which is not consistent with a competitive tax code. Furthermore, because of the fiscal pressure, there is a constant review of legislation that may not create predictability and certainty, which is an incentive for tax avoidance.

There are no key features of the Zambian competitive tax system that might be more vulnerable than other areas of the tax regime. Zambia does not have state aid rules or other similar constraints.

The current provisions of the Zambian Income Tax Act have dealt with hybrid instruments and the BEPS process that has been implemented through the Transfer Pricing Regulations of 2000 as amended in 2018, 2020 and 2022. In this regard, the recommended changes will not have any significant impact on how the authority deals with hybrid instruments.

Zambia has a territorial tax regime, and interest deductibility restrictions are tailored to this regime.

The CFC proposals would be defective in Zambia to the extent that Zambian legislation is intended to cover Zambian income or income deemed to be Zambian income because it is earned by entities resident in Zambia.

The proposed double taxation convention limitation of benefit and anti-avoidance rules are not likely to have any impact in Zambia.

Transfer pricing changes have not made a radical change to the Zambian tax regime. The taxation of profits from intellectual property is not a particular source of controversy in Zambia.

Zambia is currently in favour of the proposed provisions for transparency and country-by-country reporting as they will help Zambian tax authorities deal with profit shifting and avoidance by local corporates affiliated to multinational enterprises. In Zambia, country-by-country reporting only applies to multinational enterprise groups with business entities in two or more states and an annual consolidated revenue exceeding ZMW4.795 billion during the immediately preceding accounting year.

The filing requirements are applicable to Zambian tax resident entities of multinational enterprise groups for tax years ending on 31 December and each subsequent tax year. Country-by-country reporting provides for the automatic exchange of reports among tax administrations in jurisdictions in which the multinational enterprise group operates.

To align with international practice relating to country-by-country reporting, multinational enterprises are required to provide the following information:

• an overview of allocation of income, taxes and business by tax jurisdiction;
• a list of the constituent entities in the multinational enterprise group aggregated per tax jurisdiction; and
• ancillary information such as the nature of the activities of a respective constituent entity.

There are currently no changes being made or discussed in relation to the taxation of transactions effected or profits generated by digital economy businesses operating largely from outside Zambia.

The country has not yet taken a position in relation to the BEPS proposals for digital taxation, and there is no legislation in place at the moment.

Payments in respect of royalties for the use of intellectual property from a source within Zambia or deemed to be within Zambia to a non-resident are subject to withholding tax at the rate of 20%.