Doing Business In... 2021

Last Updated July 13, 2021

Zambia

Law and Practice

Authors



Mulenga Mundashi Legal Practitioners (MMLP) is a leading and highly regarded corporate and commercial law firm in Zambia with over 20 years of market presence. MMLP has, over the years, become a firm of choice for the corporate world and a link to the Zambian market for several multinational corporate entities across Africa and the world. MMLP has earned its status in the market by providing good quality legal services in complex commercial litigation and arbitration matters, as well as various commercial cross-border transactions which have distinguished it from most other firms in the legal industry in Zambia. MMLP is one of Zambia’s most sophisticated full-service law firms and it operates under four broad departments – corporate, finance and commercial transactions; dispute resolution; tax and compliance; and real estate and company secretarial. The teams that work within these specific practice areas are constituted based on the expertise of each individual.

Zambia has a dual legal system consisting of general law (ie, statutory and common law) and customary law.

The following is a list of the Zambian courts from highest to lowest.

Supreme Court

The Supreme Court is the highest Court in Zambia and has general appellate jurisdiction in both civil and criminal matters. It hears and determines appeal matters from the Court of Appeal. The Supreme Court has no jurisdiction to interpret the provisions of the Constitution of Zambia, as this falls within the purview of the Constitutional Court.

Constitutional Court

The Constitutional Court ranks pari passu with the Supreme Court but its jurisdiction is limited to the interpretation of the Constitution of Zambia and any other constitution-related issues. Unlike the Supreme Court, the Constitutional Court does not have general jurisdiction to deal with any matters other than the Constitution.

Court of Appeal

The Court of Appeal has general appellate jurisdiction to hear and determine both civil and criminal matters from the High Court. Just like the Supreme Court, the Court of Appeal has no jurisdiction to interpret the Constitution of Zambia, as this jurisdiction is within the purview of the Constitutional Court.

High Court

The High Court is the court of first instance with unlimited jurisdiction in both criminal and civil matters in Zambia. To clarify, unlimited jurisdiction does not mean limitless but merely that there is no restricted territorial jurisdiction for this court.

In civil matters, for the High Court to be the court of first instance, the claim value must be above ZMW100,000, or approximately USD4,424, while in criminal matters, it usually depends on the offence. Offences such as murder can only be dealt with by the High Court.

The High Court has divisions such as the:

  • commercial division – this is a fast-track division that deals specifically with civil matters that are commercial in nature;
  • industrial relations division – this was established strictly to deal with employment or labour law-related matters;
  • family division – this was established to deal with domestic-related issues such as divorce, maintenance, etc;
  • children’s division – this was established to deal with juvenile-related matters; and
  • general division – this hears any matters as the court of first instance, or appeals from the subordinate courts.

The High Court also has appellate and supervisory jurisdiction over the subordinate courts.

Subordinate Courts

The subordinate courts have territorial jurisdiction to hear both civil and criminal matters, as the court of first instance. For civil matters, the jurisdiction is limited to any claim equal to or less than ZMW100,000 or approximately USD4,424. The jurisdiction of the matter is also dependent on the nature of the cause of action, this court has no jurisdiction to hear divorce matters, per se, except when there is an appeal from the Local Court. In criminal matters, crimes such as murder and aggravated robbery are crimes that are restricted to be tried in the High Court.

Local Courts

Local courts mainly deal with customary law-related matters. Lawyers have no audience in this court.

Small Claims Courts

Mainly deals with claims for less than ZMW10,000 or USD442. Lawyers have no audience in this court. 

In general, Zambian law and regulations do not restrict foreign investors in any sector of the economy, although there are some limitations. For example, a foreign investor may not own land in Zambia unless such an investor has procured an investment licence under the Zambia Development Agency Act. In terms of the construction regulations in Zambia, a person is not generally allowed to award a contract for any construction works to a foreign company or firm unless the foreign company or firm undertakes the construction works in partnership or jointly with a Zambian company or firm.

Foreign and domestic private entities have a right to establish and own businesses, as well as engage in all forms of remunerative activities, though investment board approval is required to transfer an investment licence for a given enterprise to a new owner.

The procedure and sanctions in the event of non-compliance will depend on the nature of the activity that the investor intends to undertake for its business. The procedure and sanction for obtaining a licence for the purposes of conducting banking business will differ to the procedure and sanction for a business that intends to undertake mining. For example, if engaged in the business of banking and finance, the sanctions for non-compliance will have to be addressed under the Banking and Financial Services Act No 7 of 2017, while in the mining business, the applicable sanctions would also be addressed under the Mines and Minerals Development Act No 11 of 2015, as amended in 2016. For this reason, it is recommended that the investor should engage local counsel before proceeding with the business, in order to avoid any risks. 

See 2.2 Procedure and Sanctions in the Event of Non-compliance. The applicable conditions are dependent on the area in which the investor undertakes its business. 

An investor's right to challenge a decision in court depends on the nature of the business the investor is entitled to carry out. The remedies are sector-dependent to the extent that the relevant legislation that deals with a particular sector shall guide on the appeal procedures. Also see 2.2 Procedure and Sanctions in the Event of Non-compliance.

There are six common types of corporate vehicles available in Zambia: 

  • sole proprietorship;
  • partnerships;
  • co-operatives;
  • private and public companies limited by shares;
  • companies limited by guarantee; and 
  • statutory corporations.

These are described in more detail below.

Sole Proprietorship

Sole proprietorships in Zambia are regulated by the Registration of Business Names Act No 16 of 2011 (the “Business Names Act”). The Business Names Act directs that any person, firm or corporation carrying on business under any name other than the true first name and surname of the owner of the business must register under the Act.

It is worth mentioning that under sole proprietorship, there is no limitation of liability. Therefore, the liability of the business extends to the owner of the business. Furthermore, under sole proprietorship, there is no minimum capital – the business is conducted on a personal basis and is usually owned by an individual.

Partnerships

Partnerships in Zambia are regulated by the English Partnership Act of 1890 (the “Partnership Act”) as read together with the Business Names Act. The Partnership Act applies in Zambia by virtue of the English Law (Extent of Application) Act Chapter 11 of the Laws of Zambia.

Partnerships in Zambia have no limitation of liability. Furthermore, there is a requirement for at least two partners and the purpose of this type of corporate vehicle is to make profit for the partners.

Co-operatives

Co-operatives in Zambia are regulated by the Co-operatives Act No 28 of 1998 (the “Co-operatives Act”). A co-operative is often conceived as a communal group of mutually dependent individuals who come together for the purpose of exploiting their strength of numbers to achieve a set economic goal. 

Co-operatives are limited liability corporate bodies with capacity to sue and be sued in their own capacity. Therefore, the liability of the members is limited to the amount unpaid on their shares. Furthermore, co-operatives are often set up by persons seeking to improve their position in areas such as agriculture and marketing.

Private and Public Companies Limited by Shares and Private Unlimited Companies

Private and public companies limited by shares are regulated by the Companies Act No 10 of 2017 (the “Companies Act”). The Companies Act allows two or more persons to incorporate a company in Zambia. Furthermore, a private and public company limited by shares incorporated under the Companies Act acquires a legal status separate from its shareholders. Therefore, the liability of the shareholders in private and public companies is limited to the amount unpaid on the shares held by the shareholders. On the other hand, a member in a private unlimited company has no limitation on the liability of the company in the event that the company has to be wound up. 

It is noteworthy that the minimum share capital of a private and public company incorporated under the Companies Act is ZMW15,000 or USD665 at the prevailing exchange rate and ZMW1,500,000 or USD66,500 at the prevailing exchange rate.

Companies Limited by Guarantee

Companies limited by guarantee are regulated by the Companies Act. The Companies Act requires a subscriber to an application for incorporation of a company limited by guarantee to make a declaration of guarantee, specifying the amount that the subscriber undertakes to contribute to the assets of the company in the event that it is wound up. A company limited by guarantee acquires a legal status that is separate from the guarantors. Therefore, the liability of the members is limited to the amount unpaid of the amount guaranteed by the members.

Furthermore, a company limited by guarantee is required to have a minimum guaranteed amount of ZMW15,000 (or USD665 at the prevailing exchange rate) and a minimum of two guarantors. It is worth mentioning that this form of corporate vehicle is suitable where the owners of the company do not intend to make any profit for any members of the company or any person concerned in its promotion or the management of the company.

Statutory Corporations

Statutory corporations are semi-autonomous entities created by an act of parliament. They include, but are not limited to, the following:

  • the Bank of Zambia established under the Bank of Zambia Act No 46 of 1996 of the Laws of Zambia;
  • the National Pension Scheme Authority established under the National Pension Scheme Authority Act Chapter 256 of the Laws of Zambia;
  • the Zambia Development Agency established under the Zambia Development Agency Act No 11 of 2006 of the Laws of Zambia;
  • the Patents and Companies Registration Agency established under the Patents and Companies Registration Agency Act No 15 of 2010 of the Laws of Zambia; and
  • the Workers' Compensation Fund established under the Workers' Compensation Fund Act No 10 of 1999 of the Laws of Zambia. 

Incorporation of a Company with the Patents and Companies Registration Agency

The Patents and Companies Registration Agency (PACRA) is responsible for regulating the registration of companies in Zambia. In order to incorporate a private or public company limited by shares or by guarantee, a party must first clear the proposed name of the company with the PACRA. The name clearance process takes anything between one to three days. It is advisable to submit the preferred name and two alternative names for clearance in case the preferred name is not available (ie, because it is identical or too similar to an existing registered or reserved name). The search fee is ZMW90 (or approximately USD4).

A company limited by shares or guarantee is required to have a minimum of two members. If the members are corporate bodies, there is a requirement to provide a copy of the certificates of incorporation upon submission of the application for incorporation of the Zambian company. The fee for incorporation of a company in Zambia is 2.5% of the nominal share capital of the company with a cap of ZMW2,500,000 (or approximately USD110,685).

A company must have at least two directors, of which at least half 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 director/s), shall be resident in Zambia. 

Private companies in Zambia are subject to a number of post-incorporation reporting and disclosure obligations. Among these, private companies are required to report to the Companies Registry at PACRA by filing, among other things, the following documents:

  • annual returns – an annual return is a statutory document which gives the status of the company as at the date of its submission, in terms of basic information such as its shareholding, its registered office, and who the directors are as at the date of filing (a company is required to file its annual return within three months following the end of the financial year of the company); and
  • any changes to the incorporation of the company must be filed with the Registrar, including (but not limited to) amendments to the articles of the company, resolutions passed by the company from time to time, and changes to the physical address of the company.

The Financial Intelligence Centre

It should also be noted that the Financial Intelligence Centre Act No 46 of 2010 as amended by Act No 4 of 2016 (the “FIC Act”) has established the Financial Intelligence Centre (the “Centre”). The Centre is the sole designated agency responsible for receiving, requesting, analysing and disseminating the disclosure of suspicious transaction reports. A “suspicious transaction report” refers to a report submitted on suspected money laundering, financing of terrorism or other serious offence, or attempted money laundering, financing of terrorism or other serious offence, whether in the form of a data message or otherwise. Furthermore, the director of the Centre may request financial information from a reporting entity, as is relevant, to enable the Centre to fulfil its functions. Section 2 of the FIC Act defines a “reporting entity” to include an institution or designated non-financial business or profession supervised by the Centre. A “designated non-financial business or profession” includes, among others, a casino or gaming operator.

In view of the above, it is evident that a private company designated as a reporting entity under the FIC Act is required to disclose certain information to the Centre to enable the Centre to conduct its functions under the Act.

The management structure available in Zambia is the one-tier management system. The Companies Act vests the management of the business of the company in the directors of the company. However, there are certain acts relating to the management of the company that may not be undertaken by the directors except with authorisation from the shareholders in the form of an ordinary resolution.

Furthermore, the Companies Act goes further to demonstrate that the duties of the directors in managing the company may be restricted by other provisions of the Act and the articles of association, which may reserve certain powers for the shareholders. Put differently, shareholders may exercise any powers that are reserved for them in the Companies Act or the articles of the company. However, such powers may only be exercised at a meeting of the shareholders or in lieu of such meeting, by way of a round-robin resolution passed in accordance with the Companies Act.

The position above was confirmed by the Supreme Court of Zambia in the case of Ruharo Limited v Jan Willem Kloppers Appeal No 118/2016 where the Supreme Court held as follows: “Firstly, we must start our discourse by rejecting the appellant's assertion which seems to suggest that shareholders have overriding authority over company affairs to the extent of usurping the power which by statute, is vested in directors, relating to employment matters as this is not supported by law.”

Generally, under Zambian law, a company incorporated under the Companies Act acquires a separate legal status from the directors, officers or shareholders of the company. A director, officer or shareholder of the company cannot be held liable for any acts of the company unless the corporate veil has been lifted or set aside by the court, which may happen in one of two main ways:

  • by way of statute or act of parliament; or 
  • by common law. 

In terms of Zambian statute, Section 175 of the Corporate Insolvency Act No 9 of 2017 (CIA), a corporate veil may be lifted if it can be proved that the company was trading fraudulently. Furthermore, under common law, a corporate veil may be lifted for any of the following reasons: 

  • where the veil of incorporation is being used for some fraudulent or improper purpose;
  • where it becomes necessary to determine the character of the company;
  • where trust and agency relationship are involved; and
  • where the interests of third parties are at stake.

The Supreme Court in the case of Madison Investment Property and Advisory Company Limited v Peter Kanyinji Appeal No 010/2016 had the opportunity of pronouncing on the circumstances under which a corporate veil may be lifted. The Supreme Court held that: “... there are two vital elements to lifting the veil which were there so eloquently elaborated, namely, concealment and evasion of an existing legal restriction or obligation, coupled with the absence of conventional remedies”. 

Section 3 of the Employment Code Act governs the rules relating to the employment relationship. It states that the relationship between the employer and employee, where work is carried out in accordance with instructions and under the control of an employer, may include:

  • the integration of the employee in the organisation of the enterprise where the work is – 
    1. performed solely or mainly for the benefit of the employer; and
    2. carried out personally by the employee; and 
  • work that – 
    1. is carried out within specific working hours or at a workplace specified by the employer; 
    2. is of a particular duration and has a certain permanency; 
    3. requires the worker’s availability; 
    4. requires the provision of tools, materials and machinery by the employer; and 
    5. is remunerated and constitutes the employee’s sole or principal source of income.

The definition of the employment relationship prioritises the need to look at who controls the individual, whether or not they are integrated into the entity and carry out and perform work at a specific workplace or within specific working hours, and if the remuneration is their sole or principal source of income.

Employment contracts, whether oral or written, form the basis of the employment relationship based on the definition of employee in the Employment Code Act. However, terms established by collective agreement are automatically incorporated into individual employees’ contracts of employment without the need for express agreement and incorporation. This is because Section 71(3)(c) of the Industrial and Labour Relations Act provides that every collective agreement which has been approved by the minister shall be binding on the parties to it. This has been confirmed in several cases such as Pamodzi Hotel v Godwin Mbewe and Daniel Peyala v Zambia Consolidated Copper Mines. 

The basic requirements for the formation of ordinary contracts such as offer and acceptance, capacity to contract, the intention to create a valid legal relationship and consideration, are required for a valid contract of employment. In addition to this, only individuals above the age of 15 may enter into employment contracts.

Under Zambian law, a contract can either be written or oral. Every employer is required to prepare and maintain, at their expense, a record of contract for every employee under an oral contract of service. The record, which should be guided by the First Schedule to the Employment Code Act, must contain the following details: 

  • the name, sex and nationality of the employee; 
  • the name, address and occupation of the employer; 
  • the date of engagement and capacity in which the employee is employed; 
  • the type of contract; 
  • the place of engagement; 
  • the rate of wages and any additional payments in kind;   
  • the intervals of payment of wages; and
  • any other prescribed particulars. 

According to the Second Schedule to the Employment Code Act, a written contract of employment must include the following:

  • the name of the employer; 
  • the name of the undertaking in which the employee is to be employed; 
  • the official address of the employer; 
  • the nature of the business conducted by the employer; 
  • the name of the employee; 
  • the age of the employee; 
  • the sex of the employee; 
  • the permanent address of the employee; 
  • the nationality of the employee; 
  • the identity and social security numbers of the employee; 
  • the place of engagement of the employee; 
  • any other particulars necessary for the employee’s identification; 
  • the date of commencement, form and duration of the contract of employment; 
  • the date on which the employee’s period of service began, taking into account any employment with a previous employer that may count towards that period; 
  • the place at which, or the geographical limits within which, any work under the contract is to be performed; 
  • the ordinary working hours and days; 
  • the wages to be paid and the scale or rate of wages, the method of calculating the wages and details of any other benefits; 
  • the details of any cash payments, payments in kind or any other benefits; 
  • the intervals of payment of the wages of the employee, monthly or over a shorter period, as the case may be; 
  • if applicable, the particulars of any food to be provided under the contract or any cash equivalent of the food; 
  • the deductions to be made to the employee’s wages; 
  • the nature of the employment and tasks, where applicable and practical, and the general operations involved, and such additional details as may be necessary to clarify the nature of the work for which the employee has been contracted; and 
  • any other prescribed particulars. 

Where an employee is illiterate or cannot understand the language in which the contract is written, or the provisions of the contract of employment, the employer must have the contract attested and explained to the employee in a language that the employee understands. Such an employer is required, within 30 days of entering into a written contract of employment, to submit three copies of the contract to an authorised officer for the purpose of attestation. Attestation entails affirming the correctness or truth, or witnessing an act or event, or bearing witness to an act or event as by signature or oath. 

A normal day’s work is eight hours of actual work and Section 75 provides that employees are entitled to overtime when they work in excess of 48 hours per week. The bottom line of these provisions is that an employee shall work for a maximum of eight hours per day and the total hours worked shall not exceed 48 hours per week. Workers who fall under the Shop Workers Ministerial Order are allowed to work for a maximum of 45 hours per week, excluding meal hours.   

An employee who works in excess of 48 hours in a week is entitled to overtime pay at a rate of 1.5 times their hourly rate for work on a normal working day, and double their hourly rate for work done on a public holiday or weekly rest day.

Zambian law does not recognise the concept of “employment at will”. Under Zambian law, an employer can only initiate termination of a contract if they give a valid reason related to the employee’s conduct or capacity, or the employer’s operational requirements. Furthermore, the employer must give the employee the opportunity to be heard, prior to dismissal for conduct or performance. Employers can thereafter terminate with notice or without notice (for serious breach of the contract of employment), or payment in lieu of notice (which must be accompanied by a valid reason).

Employees can terminate the contract of employment by resigning but they are not required to give a valid reason when they do so.

A contract of employment is also deemed to expire when the employee retires, dies or their fixed term contract comes to an end.

Collective Redundancies

For collective redundancies, Section 55(2) of the Employment Code prescribes that an employer must give all the affected employees at least 30 days’ notice, afford an opportunity to the affected employees to consult on the measures to be taken to minimise the termination and the adverse effects, as well as inform the labour commissioner or a labour officer of the decision to terminate the employees. This process must take a minimum of 60 days before the actual implementation of the collective redundancy.

The concept of formalised representations under Zambian law is recognised by the existence of trade unions. Section 5(1)(b) of the Industrial and Labour Relations Act is clear that an employee has the right to be a member of a trade union of that employee’s choice. An employee also has the right to choose whether or not to join a union. It is therefore not mandatory for employees to be represented. Employees are only represented if they choose to be members of a trade union. Where an employee is represented by a trade union, it is mandatory that the employee is consulted with respect to the conclusion or extension of collective agreements, in relation to collective redundancies and transfers to another employer.

Pay As You Earn

According to the Income Tax Act No 323 of the Laws of Zambia (the “Income Tax Act”), Pay As You Earn (PAYE) is the method used to deduct tax from employees’ emoluments in proportion to what they earn. Employers are required to remit tax deducted to the Zambia Revenue Authority (ZRA). The Income Tax Act defines "emoluments" as the total earnings of an employee from employment. These include wages, salaries, overtime, leave pay, commissions, fees, bonuses, gratuities and any other payments from employment or office. Under the PAYE system, the amount of tax which the employer deducts from any pay depends on the employee’s total gross pay and the applicable tax rates. The personal income tax rates are as follows.

Income bands

  • First ZMW4,000 – 0%.
  • Above ZMW4,000 up to ZMW4,800 – 25%.
  • Above ZMW4,800.01 up to ZMW6,900 – 30%.
  • Above ZMW 6,900.01 – 37.5%.

The following benefits to employees are not subject to PAYE: 

  • Labour Day awards; 
  • ex gratia payments; 
  • medical expenses; 
  • funeral expenses; 
  • sitting allowances for councillors; and 
  • benefits that cannot be converted into cash, such as free residential housing provided by the employer, canteen expenses and personal access to holder cars, ie, vehicles provided to employees for professional and personal use.

National Pension Scheme

The National Pension Scheme Act No 40 of 1996 of the Laws of Zambia (the “NPS Act”) requires employers to register their employees as members of the National Pension Scheme. The National Pension Scheme is compulsory for all workers in Zambia, except those who are exempted under the NPS Act. The three main benefits of the National Pension Scheme are retirement benefit (at age 55), invalidity (when a member is physically incapacitated), and survivors’ benefit (in case of the death of a member). These benefits seek to protect the members and their families against destitution in retirement and other situations. 

The rate of contributions is 10% of the monthly gross earnings of an employee, however, this is shared equally between the employer and employee at 5% each. This contribution is subject to the contributions ceiling in each prevailing year. The earnings ceiling is ZMW23,188 per month. This means that the maximum an employee or employer will contribute per month at 5% is ZMW1,159.40. The total maximum monthly contribution by both the employee and employer for 2021 is ZMW2,318.80.

Workers' Compensation

According to the Workers' Compensation Act No 10 of 1999 of the Laws of Zambia, the Workers' Compensation Fund Control Board is a social security scheme responsible for compensating workers in respect of accidents suffered and diseases contracted during the course of employment. An employer is required to make a yearly contribution known as an assessment payment. These payments are not uniform across all employers but are determined by the occupational classification, which is linked to the degree of risk associated with a particular activity.

National Health Insurance

According to the National Health Insurance Act No 2 of 2018, subscription to the National Health Insurance Scheme is mandatory for all citizens or residents above the age of 18 years, including employees, members of pension schemes and self-employed people. Employers must register their employees with the Scheme and pay monthly contributions, as well as deduct a contribution from the employee’s salary to contribute to the Scheme. The contribution rate for employers and employees is 1% of the basic monthly salary, to be paid by the 10th of the following month. Self-employed persons are to pay 1% of their declared monthly income.

Value Added Tax

According to the Value Added Tax Act Chapter 331 of the Laws of Zambia (the “VAT Act”) all goods and services supplied by a taxable supplier are standard rated, unless expressly exempted or zero rated. Goods and services which are exempt are shown in the Value Added Tax (Exemption) Order, while those that qualify for zero rating are shown in the Value Added Tax (Zero-Rating) Order. Standard-rated supplies attract Value Added Tax (VAT) at a rate of 16%, zero-rated supplies attract VAT at 0%, while exempt supplies do not attract any VAT at all. Any individual or company selling goods or services that has a turnover above ZMW800,000 per annum must register for VAT. Taxpayers below the ZMW800,000 registration threshold who wish to be considered for voluntary VAT registration can apply to the ZRA.

Capital Gains

There is no capital gains tax in Zambia. However, if a resident or non-resident sells property in Zambia, property transfer tax (PTT) on the value of the sale will apply, at a rate of 5%. The Property Transfer Tax Act Chapter 340 of the Laws of Zambia (the “PTT Act”) defines “property” as:

  • any land in Zambia;
  • a share issued by a company incorporated in Zambia or a share issued by a company incorporated outside Zambia where the company directly or indirectly owns at least 10% of the shares in a company incorporated in Zambia; and
  • a mining right issued under the Mines and Minerals Development Act, 2015, or an interest therein.

The rate of tax is:

  • 10% of the realised value in respect of a mining right;
  • 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.

PTT 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.

Corporate Income Tax

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. Incorporated businesses are subject to corporation tax at 35%. The tax rate for partnerships or business names or sole proprietorships is the rate of tax charged on individuals as stated in 5.1 Taxes Applicable to Employees/Employers.

Income earned by hotels and lodges on accommodation and food services will be taxed at a reduced rate of 15% for the charge year 2021. This reduction was introduced in order to provide tax relief to hotels and lodges as a result of decreased income due to the COVID-19 pandemic.

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

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 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.

Other Taxes under the Income Tax Act

  • withholding tax on commodity royalty at 15% for non-residents;
  • withholding tax on management and consultancy fees at 15% for residents and 20% for non-residents;
  • withholding tax on interest payments at 15% for residents and 20% for non-residents;
  • withholding tax on dividends at 15% for residents and 20% for non-residents;
  • withholding tax on rental payments at 10%; and
  • mineral royalty tax, which varies depending on the type of mineral. 

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

The mineral royalty rates for copper increase by 1.5 percentage points at all levels of the previous price ranges:

  • the first level of the scale at 5.5% is applicable when the copper price per tonne is less than USD4,500;
  • the second level of the scale at 6.5% is applicable when the copper price per tonne is USD4,500 or more, but less than USD6,000;
  • the third level of the scale at 7.5% is applicable when the copper price per tonne is USD6,000 or more, but less than USD7,500;
  • the fourth level of the scale at 8.5% is applicable when the copper price per tonne is USD7,500 or more, but less than USD9,000; and
  • the fifth level of the scale at 10% should apply when the copper price per tonne rises to USD9,000 and above.

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

  • casino live games – 20% of gross takings; 
  • casino machine games – 35% of gross takings; 
  • lottery winnings – 35% of net proceeds; 
  • betting – 25% of gross takings; 
  • gaming – 
    1. slot machines (bonanza): ZMW250 per machine; and 
    2. gaming machines: ZMW500 per machine (limited pay-out). 

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

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.

Consolidated tax grouping is not permitted, thus groups of companies cannot utilise separate company losses.

In Zambia, thin capitalisation is, broadly, the use of debt capitalisation between associated enterprises so as to reduce unreasonably the taxable profits of the debtor company and thus have a substantial effect on tax liabilities. The Income Tax Act sets out Zambia’s thin capitalisation limit by providing that in ascertaining business gains or profits in a charge year, a deduction shall not be allowed on gross interest expense that exceeds 30% of the tax earnings before interest, tax, depreciation and amortisation.

This provision limits the amount of gross interest expense that can be deducted to 30% of the tax earnings before interest, tax, depreciation and amortisation (EBITDA). The 30% limitation is on gross interest and applies on the tax EBITDA. In addition to the foregoing, the 30% limitation applies to all sectors (except those regulated under the Banking and Financial Services Act, Pension Scheme Regulation Act or the Insurance Act) and to all borrowings, irrespective of whether the parties are related or not.

The transfer pricing legislation is detailed in the Income Tax Act and the Income Tax (Transfer Pricing) Regulations, Statutory Instrument No 20 of 2000 as amended by the Income Tax (Transfer Pricing) (Amendment) Regulations, Statutory Instrument No 24 of 2018. In addition to the foregoing, Practice Note 2/2018 sets out the commissioner-general’s interpretation of the transfer pricing legislation. The fundamental features of Zambia’s transfer pricing rules are set out in Practice Note 2/2018 as follows:

“4.1. Zambia’s Transfer Pricing Rules provide for the application of the ‘arm’s length principle’ to controlled transactions. This means that the results of a controlled transaction should be consistent with the results that would have been realised in a comparable transaction between independent persons dealing under comparable conditions. 

4.2. Section 97A of the Income Tax Act and the Transfer Pricing Regulations require that assessable (taxable) income of a person is calculated on the basis that the arm’s length principle is applied in relation to all controlled transactions. 

4.3. In cases where the conditions of a controlled transaction are not in accordance with the arm’s length principle, then the taxpayer must make the appropriate adjustments to ensure that the assessable income of such a person is calculated in accordance with the arm’s length principle... 

4.4. Where a calculation of assessable income is not in accordance with the arm’s length principle and the result is that the measure of assessable income is understated, or a measure of assessable loss is overstated, then the Commissioner-General shall make the necessary adjustment to calculate the assessable income in a manner consistent with the arm’s length principle.”

Therefore, the onus is on a taxpayer to ensure that tax returns submitted to the ZRA are adjusted for any non-arm’s length transactions. Taxpayers are also required to ensure that there is sufficient evidence to demonstrate that transactions with connected entities are undertaken in line with the arm’s length principle.

In Zambia, there are overarching anti-avoidance provisions, whereby if the commissioner-general of the ZRA 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, the commissioner-general may, if he/she determines it to be just and reasonable, direct that such adjustments shall be made regarding liability for tax as he/she considers appropriate to counteract the avoidance or reduction of liability for tax that would otherwise be effected by the transaction.

The Competition Act provides that a merger occurs where an enterprise, directly or indirectly 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. Accordingly, a merger may be achieved where:

  • an enterprise purchases shares or leases assets in, or acquires an interest in, any shares or assets belonging to another enterprise;
  • an enterprise amalgamates or combines with another enterprise; or
  • where a joint venture occurs between two or more independent enterprises.

The Competition Act further provides that a person controls an enterprise if they meet the following change-of-control criteria. The person:

  • beneficially owns more than 50% of the issued share capital of the enterprise;
  • is entitled to vote a majority of the votes that may be cast at a general meeting of the enterprise, or has the ability to control the voting of a majority of those votes, either directly or through a controlled entity of that enterprise; 
  • is able to appoint or to veto the appointment of a majority of the directors of the enterprise;
  • is a holding company and the enterprise is a subsidiary of that company;
  • in the case of an enterprise which is a trust, has the ability to control the majority of the votes of the trustees, to appoint the majority of the trustees or to appoint or change the majority of the beneficiaries of the trust;
  • has the ability to materially influence the policy of the enterprise in a manner comparable to a person who, in ordinary commercial practice, can exercise the element of control referred to in the five points above; or
  • has the ability to veto strategic decisions of the enterprise, such as the appointment of directors, and other strategic decisions which may affect the operations of the enterprise.

It should be noted that a merger is reviewable by the Competition and Consumer Protection Commission (the “Commission”) if it meets the prescribed threshold or other criteria (as provided in the Competition Act and the Commission Merger Guidelines 2015) as described in 6.4 Abuse of Dominant Position. The prescribed threshold for merger notification is met where the combined turnover or assets in Zambia, whichever is higher, of the merging parties is at least ZMW15 million (approximately USD663,000 at the prevailing exchange rate). 

Therefore, there are instances where a transaction amounts to a merger but is not notifiable, as the prescribed threshold has not been met. The Competition Act defines "assets" to include physical assets, businesses, shares and other financial securities, brands and intangible assets including goodwill, intellectual property rights and know-how.

Role of the Commission

Any party to a merger transaction seeking clarification as to whether the proposed merger requires the authorisation of the Commission, subject to review by the Commission under Section 27, may apply to the Commission for negative clearance in the prescribed manner and form on payment of the prescribed fee.

Parties to a merger transaction that meets the prescribed threshold under subsection (5) must apply to the Commission for authorisation of the proposed merger in the prescribed manner and form. 

On receipt of the proposed merger notification, the Commission will carry out a market assessment of the proposed merger to determine the likely effects of the merger in the relevant market, on trade and the economy in general.

The Commission must complete its assessment of a proposed merger and issue its determination within a period of 90 days from the date of application for authorisation, unless a party to the proposed merger fails to provide information to the Commission during the period of assessment that is required for the completion of the assessment.

Where the Commission does not issue its determination regarding a proposed merger within the period specified, the proposed merger will be deemed to be approved.

The Commission shall, in considering a proposed merger, assess whether the merger is likely to prevent or substantially lessen competition in a market in Zambia.

The Commission may approve or reject the application.

Duties of Companies

Where two or more companies seek to amalgamate/merge, the board of each company is required to pass a resolution stating that amalgamation is in the best interest of the company, and that the board of directors is satisfied, on reasonable grounds specified, that the amalgamated company will satisfy the solvency test immediately after the amalgamation.

The board resolutions must be submitted to the Registrar of Companies at least 30 days before the date when the proposed amalgamation is to take effect, together with:

  • a special resolution of each company approving the amalgamation;
  • the amalgamation proposal;
  • a copy of the proposal to amalgamate sent to every secured creditor; and
  • a copy of the public notice.

Duties of the Registrar of Companies

The Registrar of Companies shall, on receiving the documents above: 

  • where the amalgamated company is the same as one of the companies being amalgamated, issue a certificate of amalgamation; or 
  • where the amalgamated company is a new company, enter the particulars of the company on the register, and issue a certificate of incorporation in the prescribed form and manner, to the company.

In terms of Section 8 of the Competition and Consumer Protection Act, all agreements, decisions or concerted practices that have the object or effect of preventing, restricting or distorting competition are prohibited. 

The Act defines an agreement as any form of agreement between enterprises, whether or not it is legally enforceable, which is implemented or intended to be implemented in Zambia and includes an oral agreement or a decision by a trade association or an association of enterprises. Under Zambian Competition Law, the Act recognises two kinds of restrictive agreements, namely horizontal and vertical agreements.

A horizontal agreement between enterprises is prohibited per se, and void, if the agreement:

  • fixes, directly or indirectly, a purchase or selling price or any other trading conditions;
  • divides markets by allocating customers, suppliers or territories specific types of goods or services;
  • involves bid rigging, unless the person requesting the bid is informed of the terms of the agreement prior to making the bid;
  • sets production quotas; or
  • provides for collective refusal to deal in, or supply, goods or services.

Unlike horizontal agreements, vertical agreements do not involve a combination of market power, but rather involve agreements between suppliers and buyers or other entities at different levels of the distribution supply chain, to act in an anti-competitive manner.

In relation to a concerted practice, Section 3 of the Competition and Consumer Protection Act defines this as a practice which involves some form of communication or co-ordination between competitors, which falls short of an actual agreement but which replaces their independent action and restricts or reduces competition between them.

Abuse of dominant position is prohibited by the Competition and Consumer Protection Act. Section 16 of the Act states that abuse of dominant position includes but is not limited to:

  • imposing, directly or indirectly, unfair purchase or selling prices or other unfair trading conditions;
  • limiting or restricting production, market outlets or market access, investment, technical development or technological progress in a manner that affects competition;
  • applying dissimilar conditions to equivalent transactions with other trading parties;
  • making the conclusion of contracts subject to acceptance by other parties of supplementary conditions which by their nature or according to commercial usage have no connection with the subject matter of the contracts;
  • denying any person access to an essential facility;
  • charging an excessive price to the detriment of consumers; or
  • selling goods below their marginal or variable cost.

When evaluating whether an entity has abused its dominant position, the court will look carefully at the conduct outlined in 16 (2) of the Act and seek to determine whether the conduct of the dominant undertaking prima facie restricts competition or exploits the restriction of competition inherent in the dominant position in a way that runs counter to the purpose of Section 16 of the Act as whole. In other words, the test seeks to deduce whether the conduct under review causes competitive harm. 

A patent is defined in terms of the Patents Act No 40 of 2016 (the “Patents Act” or the “Act”) to mean “letters patent granted for an invention which meets the requirements specified in section fifteen” of the Act. The Act further provides that the length of protection of a patent once registered is 20 years from the date of filing the application for the grant of a patent. The Act further provides that a patentee or an exclusive licensee may, six months before the expiry of the term of a patent, apply for an extension of the term of the patent for a period not exceeding two years.

Application for a patent is filed at the Patents and Companies Registration Agency. The Act also requires that an application for a patent should contain:

  • a request for the grant of a patent; 
  • a description of the invention; 
  • one or more claims; 
  • drawings, where they are referred to in the description or the claim; 
  • an abstract; and 
  • any other requirements as may be prescribed.

The Patents Act also requires that, where the applicant for the grant of a patent is not the inventor, the request for the grant of the patent must be accompanied by proof of the applicant’s right to apply for the patent. Where the applicant for the grant of a patent is not resident in Zambia, the Act requires that such applicant must file and process the application through a patent agent registered in accordance with Section 115 of the Patents Act.

The application for a grant of a patent must be accompanied by a request to grant a patent and it must contain the following information:

  • the name of the applicant; 
  • the name of the inventor; 
  • the title or subject matter of the invention; and
  • any other information, as may be prescribed.

The Patents Act also requires that the application for the grant of a patent must be accompanied by a complete specification or a provisional specification which indicates the title of the subject to which the invention relates.

In terms of enforcement, the Patents Act gives a patentee or exclusive licensee the right to commence court proceedings against a person who is alleged to have infringed or is performing any act likely to cause an infringement of a patentee’s right in a patent. In terms of remedies, the court may, on an application for infringement by a patentee or an exclusive licensee, grant any of the following reliefs: 

  • an injunction to prevent an infringement of the patentee’s or exclusive licensee’s right, where infringement is imminent, or to prohibit the continuation of an infringement; 
  • an order that the infringing product or article be delivered up; 
  • award of damages;
  • account of profits; 
  • payment of royalties; 
  • destruction or disposal of infringing products or articles, as the court considers appropriate, in accordance with laws relating to public health and the environment; or 
  • any other remedy the court may consider appropriate.

The Trade Marks Act

The Trade Marks Act Chapter 401 of the Laws of Zambia (the “TM Act” ) defines a trade mark to mean “a mark used or proposed to be used in relation to goods for the purpose of indicating, or so as to indicate, a connection in the course of trade between the goods and some person having the right either as proprietor or as registered user to use the mark, whether with or without any indication of the identity of that person, and means, in relation to a certification trade mark, a mark registered or deemed to have been registered under section forty-two”. According to the TM Act a trade mark registered in accordance with the TM Act is for a period of seven years, but may be renewed from time to time. The TM Act also provides that on expiration of a duration of seven years, the proprietor of the registered trade mark may apply to have the registered trade mark renewed for a further period of 14 years from the date of expiration of the original registration or of the last renewal of registration.

The TM Act provides that a person claiming to be the proprietor of a trade mark used or proposed to be used by them, and who is desirous of registering it, must apply in writing to the Registrar of the Patents and Companies Registration Agency in the prescribed manner for registration either in Part A or in Part B of the register. The TM Act requires that a trade mark must be registered in respect of particular goods or classes of goods as set out in Schedules 3 and 4 of the Trade Marks Act. 

Application process

When an application for registration of a trade mark has been accepted by the Registrar of the Patents and Companies Registration Agency, whether absolutely or subject to conditions or limitations, the applicant shall, as soon as possible after acceptance, advertise the application as accepted and the advertisement must set forth all the conditions and limitations subject to which the application has been accepted.

Any person may, within two months from the date of advertisement of an application, give notice to the Registrar of opposition to the registration, and the notice must be given in writing and must include a statement of the grounds of opposition. The TM Act provides that when an application for registration of a trade mark has been accepted, and either:

  • the application has not been opposed and the time for notice of opposition has expired; or 
  • the application has been opposed and the opposition has been decided in favour of the applicant; the Registrar shall, unless the application has been accepted in error or unless the High Court otherwise directs, register the trade mark, which will be registered as of the date of application for registration.

Remedies

In terms of remedies, a TM provides that no person shall be entitled to institute any proceedings to prevent or to recover damages for the infringement of an unregistered trade mark, but nothing in the TM Act shall be deemed to affect the rights of action against any person for passing off goods as the goods of another person or the remedies in respect thereof.

Definition

The Industrial Design Act No 22 of 2016, (the “ID Act”) defines a design to mean “an industrial design taking the form of features of shape, configuration, pattern, ornament or composition of lines or colours applied to any article, whether in two dimensional or in three dimensional or in both forms, by any industrial process or means, which in the finished article appeal to, and are judged solely by the eye, and are not related to functionality; but does not include any mode or principle of construction or anything which is in substance a mere mechanical device”.

Registration

The ID Act provides that a registered design is valid for a period of five years from the filing date of the application for the registration of a design and may be renewed for a further period of five years.

In terms of the ID Act, a design is eligible for protection by registration if the design is new and has individual character, as provided in accordance with this Act. The Act further provides that an application for the registration of a design lodged with the Patents and Companies Registration Agency must contain the following information: 

  • the name and residence of the creator of the design; 
  • the name and residence of the applicant; 
  • where the applicant has a representative, the name and address of the representative;
  • where the applicant is a legal entity, the name and nature of the entity; 
  • a detailed description of the design; and 
  • any other requirements as may be prescribed.

Enforcement and Relief

In terms of enforcement, the ID Act grants a proprietor or exclusive licensee of a design the right to commence court proceedings against a person who is alleged to have infringed, or is performing an act likely to cause an infringement of, a proprietor’s right to a registered design. In an action for infringement by the proprietor(s) or exclusive licensee, the Act provides that the court has the jurisdiction to grant any of the following reliefs:

  • an injunction to prevent an infringement of the proprietor’s or exclusive licensee’s right, where infringement is imminent, or to prohibit the continuation of an infringement; 
  • an order that the infringing product or article embodying a registered design be delivered up; 
  • damages; 
  • account of profits; 
  • royalty;
  • destruction or disposal of infringing products or articles embodying a registered design, as the court considers appropriate, in accordance with the laws relating to public health and the environment; or 
  • any other remedy the court may consider appropriate.

Definition

The Copyright and Performance Rights Act Chapter 406 of the Laws of Zambia as amended by Act No 25 of 2010 (the “CPR Act” or the “Copyright Act”), does not expressly define the term copyright, however, the Act provides that a copyright is a property right which subsists in accordance with the Act in the following areas of creativity:

  • original:
    1. literary works; 
    2. musical works; 
    3. artistic works; or
    4. computer programs; and
  • compilations; 
  • audio-visual works; 
  • sound recordings; 
  • broadcasts; 
  • cable programmes; and 
  • typographical arrangements of published editions of literary works.

Duration

In terms of duration of protection, the Copyright Act offers varied lengths of protection depending on the nature of the "work". In terms of a literary, musical or artistic work or compilation, the registration shall expire at the end of a period of 50 years from the end of the calendar year in which the author dies. Registration for audio-visual work or sound recording shall expire (i) at the end of a period of 50 years from the end of the calendar year in which it is made; or (ii) at the end of the period of 50 years from the end of the calendar year in which it is first published. The copyright in a broadcast or cable programme shall expire at the end of the period of 50 years from the end of the calendar year in which the broadcast or cable programme was first transmitted. Copyright in a computer program will expire at the end of the period of 50 years from the end of the calendar year in which the program was first published. Copyright in the typographical arrangement of a published edition will expire at the end of the period of 25 years from the end of the calendar year in which the edition was first published.

Application and Registration

An application for registration of a copyright must be lodged with the Registrar of the Patents and Companies Registration Agency, and the application must contain the following information:

  • a claim for registration, in a form approved by the Registrar;
  • a copy of the work in which copyright is claimed; 
  • particulars of –
    1. the owner of the copyright; 
    2. the type of copyright claimed and any limitations on the copyright held by that owner; 
    3. the date on which the copyright arose; 
    4. the person from whom the copyright was acquired, if the owner of the copyright is not the first owner of the copyright; and
    5. any other matters required by the approved form; and 
  • a statutory declaration that they are the owner of the copyright described.

The CPR Act provides that on receiving a claim for the registration of a copyright, the Registrar will register the copyright, assign it an identifying number and issue a certificate of registration stating:

  • that on the date specified in the certificate, the person named in the certificate claimed the copyright in the work;
  • the type of copyright claimed and any limitations; 
  • the date on which the copyright arose; and 
  • that a copy of the work may be inspected at the office of the Registrar.

Infringement

According to the CPR, an infringement of a copyright is actionable in court at the suit of the owner of the copyright. In an action for infringement of copyright, all such relief by way of damages, injunctions, accounts or otherwise shall be available to the plaintiff as is available in respect of the infringement of any other property right. The CPR further provides that in an action under this section, proof of actual damage will not be required.

Under Zambian law, computer programs such as software and databases are protected under the Copyrights and Performance Rights Act Chapter 406 of the Laws of Zambia as discussed in 7.4 Copyright. The CPR Act defines computer program to mean “a set of instructions, whether expressed in words or in schematic or other form, which is capable, when incorporated in a machine-readable medium, of causing an electronic or other device having information-processing capabilities to indicate, perform or achieve a particular function, task or result”. 

In relation to the protection trade secrets, there is currently no specific piece of legislation under Zambian law that makes provision for trade secrets, however, the use of trade secrets or undisclosed information in commerce, trade and industry in Zambia has been practised widely. Recognition of trade secrets is an obligation on members of the World Trade Organisation, of which Zambia is a member, through the Trade-Related Aspects of the Intellectual Property Rights Agreement (“the TRIPS Agreement”) as well as the Paris Convention. Furthermore, the Patents Act No 40 of 2016 and the Industrial Designs Act No 22 of 2016 also provide for recognition of the Paris Convention, which provides for the protection of undisclosed information.

The Data Protection Act No 3 of 2021 was enacted with the view to:

  • provide an effective system for the use and protection of personal data;
  • regulate the collection, use, transmission, storage and other processing of personal data;
  • establish the Office of the Data Protection Commissioner and provide for its functions;
  • provide for the registration of data controllers and licensing of data auditors;
  • provide for the duties of data controllers and data processors; and
  • provide for the rights of data subjects.

The Data Protection Act provides for the following.

(1) A data controller shall process and store personal data on a server or data centre located in the Republic.

(2) Despite the requirement in (1), the Minister of Communications may prescribe categories of personal data that may be stored outside the Republic.

(3) Despite the requirement in (2), sensitive personal data shall be processed and stored in a server or data centre located in the Republic.

The Office of the Data Protection Commissioner is responsible for the regulation of data protection and privacy in the Republic of Zambia. The Data Protection Commissioner is responsible for the day-to-day administration of the office. The role of the Data Protection Agency through the Office of the Data Protection Commissioner is to:

  • register controllers and data processors;
  • license data auditors;
  • disseminate information and promote the participation of stakeholders in the process of data protection in the Republic of Zambia;
  • advise the government of the Republic of Zambia on matters relating to data protection;
  • keep and maintain a register of data controllers, data processors and data auditors;
  • represent the government of the Republic of Zambia internationally on matters relating to data protection;
  • conduct research and development relating to data protection;
  • ensure proper and effective co-ordination and collaboration with similar regional and international authorities;
  • receive and investigate complaints under the Data Protection Act; and
  • vary the conditions and terms of a licence issued under the Data Protection Act.

No major legislative reforms are expected in the foreseeable future.

Mulenga Mundashi Legal Practitioners

Plot 11058
First Floor Zimbabwe House
Haile Selassie Avenue
Long Acres, PO Box 34072
Lusaka
Zambia

+260 211 254248/50

info@mmlp.co.zm www.mmlp.co.zm
Author Business Card

Trends and Developments


Authors



Mulenga Mundashi Legal Practitioners (MMLP) is a leading and highly regarded corporate and commercial law firm in Zambia with over 20 years of market presence. MMLP has, over the years, become a firm of choice for the corporate world and a link to the Zambian market for several multinational corporate entities across Africa and the world. MMLP has earned its status in the market by providing good quality legal services in complex commercial litigation and arbitration matters, as well as various commercial cross-border transactions which have distinguished it from most other firms in the legal industry in Zambia. MMLP is one of Zambia’s most sophisticated full-service law firms and it operates under four broad departments – corporate, finance and commercial transactions; dispute resolution; tax and compliance; and real estate and company secretarial. The teams that work within these specific practice areas are constituted based on the expertise of each individual.

The Gaming and Betting Industry in Zambia

The evolution of technology, the mass adoption of smartphones and internet penetration have had a massive impact on how business is done in Zambia, nowhere more so than the betting and gaming sector, which is now accessible to the consumer market both through walk-in and online casinos. The growth of casinos, gaming, betting and the lottery industry (the "Gaming and Betting Industry”) in Zambia has instigated the need for amendment to the various pieces of legislation that govern the industry. Historically, the legal environment related to gaming and betting was structured in a manner that only catered for land-based operators by imposing a casino levy, which did not take into account the advent of e-commerce and online transactions related to betting and gaming.

Current legislation

Currently, the following legislation, collectively known as "the Acts", governs the Gaming and Betting Industry:

  • the Betting Control Act, Chapter 166 of the Laws of Zambia, which came into operation on 17 January 1958 authorises the wagering on sporting events, as well as on horse racing events;
  • the Lotteries Act, Chapter 163 of the Laws of Zambia, which came into operation on 1 November 1957 provides for the control and regulation of lotteries; and
  • the Casino Act, Chapter 157 of the Laws of Zambia, which came into operation on 1 April 1992, as repealed and replaced by the Tourism and Hospitality Act No 13 of 2015, which provides for the control and regulation of land-based casinos. 

It is noteworthy that the Acts only apply to land-based operators and were enacted at a time when the internet did not exist in Zambia (media reports suggest that Zambia only came to have full internet access on 22 November 1994).

Deficiencies in the tax legal realm

A recent spike in the Zambian market of online betting and gaming has exposed an overall functional inequality from a legislative perspective, particularly from a tax point of view. In as much as administrative inadequacies have been present on account of the archaic nature of the existing laws listed above, this deficiency extended into the tax legal realm too, with regard to the following.

  • Failure to define and provide clarity with respect to an identifiable tax point for calculating Value Added Tax (VAT) on online betting.
  • The definition of “winnings” and the tax point in determining the applicable income tax for online gaming and betting. 
  • Enforcement and tracking of non-compliance; including providing an equally applicable enforcement mechanism which applies to land-based and online-based operators.
  • Regulation of the Gaming and Betting Industry under the Acts has been the responsibility of various government ministries, including the Ministry of Tourism and Arts, the Ministry of Finance, and the Ministry of Local Government and Housing. This overlap has resulted in ineffective oversight of the Gaming and Betting Industry and poor enforcement of legislation.

In light of the above deficiencies, companies in the Gaming and Betting Industry have sought legal counsel with a view to pioneering overall change and encouraging the advancement of the legal environment in relation to gaming and betting in Zambia. To this end, this firm has been in engagement with the Zambia Revenue Authority (ZRA) and the government of the Republic of Zambia through the Ministry of Finance and the Ministry of Tourism (being the line ministries in charge of issuing casino licences and gaming licences, respectively). The engagement has been through meetings, written proposals and presentations in order to assist in revising the laws to adapt to the current commercial environment.

Developments in tax legislation

Consequently, there have seen some notable developments in respect of tax legislation vis-à-vis gaming and betting in recent years.

In 2014, the Income Tax Act Chapter 323 of the Laws of Zambia was amended to introduce the requirement to deduct withholding tax at a rate of 20% on winnings from gaming, lotteries and betting, for land-based and online operators. Since this amendment, all winnings from gaming, lotteries and betting in money or money's worth have been subject to withholding tax. For the purposes of collecting withholding tax, a “winning” is defined as follows: 

  • for lotteries – anything won, whether in money or in money’s worth; and 
  • for gaming or betting – anything won from gaming or betting in money or money’s worth, less the total amount staked by the person. 

In 2019, the Zambian government abolished the 20% casino levy through the Income Tax (Amendment) Act No 17 of 2018. Following the abolishment of the casino levy, new presumptive taxes were introduced, which came into effect on 1 January 2019. These taxes apply to both land-based and online operators. The presumptive taxes that were introduced are as follows: 

  • casino live games – 20% of gross takings;
  • casino machine games – 35% of gross takings;
  • lottery winnings – 35% of net proceeds;
  • betting – 10% of gross takings; and
  • gaming:
    1. slot machines (bonanza) – ZMW250 per machine per month; and
    2. gaming machines (limited pay-out) – ZMW500 per machine per month.

The changes also provided a definition of “net proceeds” as the gross proceeds less sums paid out for the prizes, and “gross takings” as the total amount staked by players less the winnings payable. Furthermore, the tax payable per month for the casino live games, casino machine games, lottery winnings and betting is computed on the net income (total takings less pay-outs), and the tax payable for slot machines and gaming machines is a fixed amount per machine per month. 

As a result of the foregoing amendments to the Income Tax Act, businesses in the Gaming and Betting Industry that were already registered with the ZRA were required to migrate to the presumptive tax regime effective from 1 January 2019, and new businesses that are liable to pay presumptive tax are required to notify the ZRA within 30 days of the establishment of the business. The ZRA was also appointed as the interim regulator of the Gaming and Betting Industry in order to handle the transition as new modalities of taxing the industry are being worked out. By introducing these new taxes and appointing the ZRA as the interim regulator, the government aims to achieve a boost in revenue collection from the industry and also strengthen the regulation and taxation system. 

In 2021, the government, through the Income Tax (Amendment) Act No 20 of 2020 which came into effect on 1 January 2021, increased the presumptive tax on betting from 10% to 25% of gross takings.

In as much as the advancements were appreciated, the introduction of presumptive tax presented fresh challenges with respect to the interplay of taxes in the Gaming and Betting Industry, particularly between VAT and presumptive tax. With the introduction of presumptive tax, the expectation was that VAT would no longer apply, as this would present the unfair position of double taxation with respect to the application of VAT vis-à-vis presumptive tax, which would be unfair and unreasonable. 

As already highlighted, the current legislation applicable to the Gaming and Betting industry does not provide guidance on at which point VAT becomes calculable, and does not provide sufficient direction on how VAT should be applied to gaming services. The assumption was that the introduction of presumptive tax would result in the abolition of VAT on account of the identified deficiencies. The absence of the requested guidance means that VAT is not properly calculable and has an overall effect on general tax compliance. 

Clarification sought from the ZRA

Engagement with the relevant institutional stakeholders has continued, and written proposals and consultations have been undertaken, to seek clarification from the ZRA in respect of the following:

  • at what tax point VAT needs to be applied in the value chain;
  • whether gaming and betting revenue is deemed inclusive of VAT;
  • how to treat bonus wagers provided at no cost by a bookmaker to a punter;
  • with gaming and betting revenue subject to presumptive tax, how presumptive tax is to be treated for VAT purposes; and
  • whether, in order to prevent double taxation, an input VAT deduction will be allowed for presumptive tax.

Engagements in this regard are still ongoing and formal responses are awaited from the ZRA. 

The inter-ministerial technical committee

Notwithstanding the introduction of these reforms, the legal framework is yet to be fully developed, as the legislation that regulates the Gaming and Betting Industry is still “fragmented” and only governs land-based operators. Therefore, there is a need to harmonise the legislation and regulate online operators. In order to deal with this problem, the government announced in 2021 that an inter-ministerial technical committee (“the Committee”) had been established in a bid to harmonise the current regulations, and to establish one regulator for the country’s Gaming and Betting Industry. The Committee has already drafted the policy and implementation framework, with the new legislation set to regulate both physical and online operators in Zambia. Once this legislation comes into effect, both online and land-based operators in the Gaming and Betting Industry will come under the purview of the new regulation. 

Ongoing goals

In the meantime, local legal firms are committed to continue working with the ZRA and the government to ensure that the tax administration in the Gaming and Betting Industry is effective and to ensure increased revenue collection for the fiscus through improved enforcement.

Mulenga Mundashi Legal Practitioners

Plot 11058
First Floor Zimbabwe House
Haile Selassie Avenue
Long Acres, PO Box 34072
Lusaka
Zambia

+260 211 254248/50

info@mmlp.co.zm www.mmlp.co.zm
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Law and Practice

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Mulenga Mundashi Legal Practitioners (MMLP) is a leading and highly regarded corporate and commercial law firm in Zambia with over 20 years of market presence. MMLP has, over the years, become a firm of choice for the corporate world and a link to the Zambian market for several multinational corporate entities across Africa and the world. MMLP has earned its status in the market by providing good quality legal services in complex commercial litigation and arbitration matters, as well as various commercial cross-border transactions which have distinguished it from most other firms in the legal industry in Zambia. MMLP is one of Zambia’s most sophisticated full-service law firms and it operates under four broad departments – corporate, finance and commercial transactions; dispute resolution; tax and compliance; and real estate and company secretarial. The teams that work within these specific practice areas are constituted based on the expertise of each individual.

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Mulenga Mundashi Legal Practitioners (MMLP) is a leading and highly regarded corporate and commercial law firm in Zambia with over 20 years of market presence. MMLP has, over the years, become a firm of choice for the corporate world and a link to the Zambian market for several multinational corporate entities across Africa and the world. MMLP has earned its status in the market by providing good quality legal services in complex commercial litigation and arbitration matters, as well as various commercial cross-border transactions which have distinguished it from most other firms in the legal industry in Zambia. MMLP is one of Zambia’s most sophisticated full-service law firms and it operates under four broad departments – corporate, finance and commercial transactions; dispute resolution; tax and compliance; and real estate and company secretarial. The teams that work within these specific practice areas are constituted based on the expertise of each individual.

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