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Author: Tax Matrix Team

The rebirth of the Zimbabwe dollar through Statutory Instrument 142 of 2019 has seen a renewed interest in the exchange controls rules. The enforcement of these rules had been relaxed due to the multicurrency system that had been in place since February 2009. This article seeks to highlight some of the key exchange control rules to be observed in Zimbabwe.

Selling in foreign currency

The use of foreign currency in domestic transactions was outlawed by SI142 except in specified cases or when one is licenced by the Reserve Bank of Zimbabwe (RBZ). Sale of commodities in foreign currency in Zimbabwe without a licence to do so is a serious offence in terms of the Exchange Control Act [Chapter 22:05] with offender liable to a fine up to level fourteen (ZW$10,000) or 5 times the value of the commodity concerned, whichever is the higher. In the event that one sells or transacts in foreign currency, the relevant taxes from such income will still be required to be paid in foreign currency because the laws requiring payment of tax in foreign currency are still in place. Tax law does not care about the legal status of a transaction but follows a transaction. Meanwhile, operators of designated tourist facilities and tourist agents; hunting safari operators and providers of: a cellular telecommunication service; a fixed line telephone service; a postal service; an electronic mail service; an Internet service; an international transit service are designated as exporters for exchange control purposes. They must ensure that services/goods provided to foreign persons/entities are paid for in foreign currency which must be received in Zimbabwe within 90 days from the last day of the month in which services/goods were provided.

Cash on the person

Mere possession of foreign currency is not illegal. However, possession of currency exceeding US$10,000 by an individual is considered hoarding and is an offence in terms of theBank Use Promotion Act [Chapter 24:24]. Also, every trader, and parastatal shall, unless it has good cause for not doing so, deposit in an account with a financial institution no later than the close of normal business hours on the day following that on which the cash is received or on the next banking day which is surplus to its requirements or in excess of US$200, whichever is the lesser amount.

Export of Currency

The maximum amount of currency that can be taken out of Zimbabwe on the person or baggage of a person leaving Zimbabwe is a total of US$2,000 or its equivalence. Any currency in excess of the stipulated amount being exported without exchange control (RBZ) approval will be liable for seizure or detention by the Zimbabwe Revenue Authority (ZIMRA). This however does not apply to foreign currency which has been imported into Zimbabwe by a foreign resident and is being taken or sent out of Zimbabwe by that person on his person or his baggage. The non-resident person will have to show by way of the declaration they originally made of such currency when they entered Zimbabwe.  

Sale of properties by non-residents

The transfer of any funds out of Zimbabwe arising from the sale of immovable properties within Zimbabwe by a non-resident person/entity requires exchange control approval. Similarly, the transfer of funds arising out of the purchase of immovable property in Zimbabwe by a foreign resident requires exchange control approval and the application must be submitted to the RBZ through a banking institution.

Management and technical fees

The remittance of fees is allowed to the extent of up to 2 percent of the applicant’s annual turnover for the last financial year. The fees must be paid under a management, technical or administration agreement approved by the RBZ. The turnover must be confirmed by an auditor’s certificate from a reputable firm of auditors. The amount of any remittance to be done will be net of withholding taxes applicable (if any).


The remittance of royalties of up to 5% of a company’s net sales may be authorised, subject to the condition that the payer of the royalties is a business organisation; and the royalties are payable under an agreement approved by the Reserve Bank. Furthermore, the amount of the company’s net sales must be proved by an auditor’s certificate from a reputable firm of auditors.

Foreign loans

Every loan to be contracted outside Zimbabwe requires exchange control approval. The relevant provision reads in part: “… no Zimbabwean resident shall, outside Zimbabwe—(i) buy or borrow any foreign currency from any person if the transaction results in or is likely to result in a debt payable in or from Zimbabwe; or (ii) sell or lend any foreign currency to any person if the foreign currency originated from Zimbabwe or is the proceeds of any trade, business or other gainful occupation or activity carried on by him in Zimbabwe; … if— (A) the transaction results in or is likely to result in a debt payable in or from Zimbabwe…”. Upon maturity of the loan, the repayment will be done through formal banking channels subject to exchange control approval.

Dividend and capital repatriation

A company is permitted to remit dividends to foreign shareholders, up to 100 % of its net after-tax profits. An application for the remittance of a dividend must be submitted to the bank within 12 months from the end of the financial year, accompanied by a certified copy of the board resolution of the dividend declaration, audited financial statements for a final dividend and a pro-forma profit and loss account for an interim dividend, audited cash-flow statement confirming fund availability for paying dividend and an auditors’ certificate confirming that the dividend emanates from actual trading profits for the year concerned and not from retained earnings or capital profits. Capital can also be repatriated subject to payment of Capital Gains Tax (CGT) on disposal of shares. Whilst exchange controls have been in place for some time they will gain prominence going forward following the return by Zimbabwe to mono- currency in the form of Zimbabwe dollar. It is therefore advisable to examine the exchange control requirements as well as the attendant tax implications regarding any foreign currency or exchange controlled transactions in order to avoid unnecessary penalties that can arise from breaching the law.

On the 24th of June 2019 the government took a bold move of re-introducing the Zimbabwe dollar as the sole currency for domestic transactions, thereby technically banning the use of foreign currency in settling obligations within Zimbabwe, except for purposes of paying of duty and VAT upon importation of goods as well as paying airfares to airlines. This move is a culmination of a process which started in October 2018 when the government separated bank accounts for RTGS$ and Nostro FCA. In February 2019 it introduced the Zimbabwe dollar as a legal tender along with other foreign currencies and made it the functional currency for accounting and other purposes. Assets and liabilities held on 22 February 2019 were deemed converted from United States dollar to RTGS$ on 1:1 and to remain fixed thereafter. After 22 February 2019 conversion of United States to RTGS$ to be determined using the interbank rate of authorised dealers whose determination is on willing buyer willing seller basis. Enactments in United States were deemed expressed in RTGS$ on a 1:1, implying wherever there is United States dollar amount it should be read as RTGS$ amount on a 1:1 basis. These monetary developments however have not been complemented by fiscal developments which remain stuck in foreign currency as regards to payment of taxes for transactions made in foreign currency, as a result there are now tax challenges of transiting to the Zimbabwe dollar which the government needs to sort out in order to sanitize the monetary policy.

One such challenge is with regard to VAT on credit sales invoiced in foreign currency made before the 24th of June 2019, but whose settlement is made in Zimbabwe dollar thereafter. The payment of output tax is predicated on the time of supply rule, which provides that VAT is triggered when an invoice is issued, payment is made for the supply, goods are delivered, services are performed or when immovable property is registered in the deeds registry whichever occurs first. This therefore entails that output tax can be declared and remitted in foreign currency on credit sale which is settled in the Zimbabwe dollar because of changes brought about by SI142. The government will need to step in and declare how such matters should be dealt with. The credit and debit notes rules provided within the VAT Act do not seem sufficient to address this issue. The same transaction may have income tax implications because the law requires income tax to be paid in foreign currency when the sale is made in foreign currency. A taxpayer may therefore end up being required to pay income tax in foreign currency for a sale it invoiced in foreign currency, notwithstanding the fact that the debtor settled it in Zimbabwe dollar following the banning of foreign currency payments.  On the flip side, the government might lose foreign currency as a result of taxpayers claiming input tax on invoices issued in foreign currency but which after the 24th of June 2019 are settled in Zimbabwe dollar. The law allows a VAT registered operator to account for tax payable on invoice basis as long as the operator is in possession of an invoice meeting the requirements of a tax invoice and the claim is made within the tax period the operator is required to submit a tax return or 12 months whichever is the longer period. It is not necessary that the invoice should have been settled for the claim to be made.

The Minister of Finance would also need to review values of tax credits, certain capital expenditure for capital allowances purposes, prescribed donations etc when presenting his mid- term budget later this month. These values were eroded by inflation following conversion from United States dollar to RTGS$ on 1:1 basis and therefore no longer retain their status tax incentives to the taxpayers. Statutory instrument 33 provides that: “… every enactment in which an amount is expressed in United States dollars shall, on the and after effective date, be construed as reference to the RTGS dollar, at parity with the United States dollar, that is to say, at a one-to-one rate”. The same applies for employment tax tables which have resulted to most employees being pushed into high tax brackets.

Capital gains tax rules also need revision. This is because Statutory Instrument 33 which provides that opening balances of assets are valued and denominated in RTGS dollars at a rate of 1:1 with the United States dollar has created an onerous tax burden on taxpayers for assets acquired before 22 February 2019 and sold after this date. The cost base of those assets remains stuck in RTGS at 1:1 with USD whilst the selling price will be inflated as it accords with the interbank rate of exchange. The result is the creation of artificial RTGS$ capital gain when in terms of real value one would not have made any gain. A move to a flat tax rate for such assets would save taxpayers of heavy tax burden, whilst at the same time simplifying tax computation.

Finally the laws for payment of taxes in foreign currency in an economy where the Zimbabwe dollar is the sole legal tender for domestic transaction militates against certainty, simplicity and stability of a tax system. These tents constitute cornerstones of a good tax system which policy makers should always consider whenever introducing any tax policy. They are also the benchmarks by which taxpayers can assess the effectiveness of government in maintaining and improving tax systems. Complicated tax laws alienates investors as well as adding to the cost of doing business. Whereas, effective tax systems are a critical building block for increased domestic resources in developing countries such as Zimbabwe, essential for sustainable development and for promoting self-reliance, good governance, growth and stability. Tax transitionary rules which recognise Zimbabwe dollar as the sole currency for purposes of paying taxes are therefore necessary for purposes for migrating to the new currency and bringing confidence in the Zimbabwe dollar, short of which the business community will continue to have a high regard of foreign currency particularly the United States dollar which may derail the government’s move towards monetary sovereignty. This will also assist in resolving the administrative complexities and tax arbitrages associated with multicurrency system.

In my last week article, I mentioned that the paying taxes in foreign currency has been part of our law since the introduction of multi-currency in 2009 and that the ZIMRA as the administrator of the law is reaffirming this position. Now with the re-introduction of the Zimbabwean dollar through Statutory Instrument 142 and the abolition of the use of foreign currency in domestic transactions, it appears there is an end to this era. Before we quickly jump to this conclusion, we should put things into perspective. Firstly there are taxes on transactions in foreign currency arising before the 24th June 2019. Secondly there will be transactions in foreign currency because someone has disobeyed the law and thirdly transactions in foreign transaction because these will be international transactions. The ZIMRA has through its public notice issued on Friday the 28th of June 2019 gave guidance regarding the first part. It provided that “All taxes that were collected, received or accrued prior to SI 142 of 2019 are paid in terms of the provisions of the prevailing legislation. Tax returns and payments shall be prepared and submitted in the manner provided in the legislation and as guided by the Commissioner General of ZIMRA. The taxes should be paid in local currency and in foreign currency as provided in the legislation. This requirement applies to all tax heads without exception”. This article fully discusses these three scenarios, but should not be construed to be a legal opinion.    

Regarding transactions happening before 24th of June 2019 in foreign currency, SI 142 of 2019 which reads in part as follows is relevant: (1) Subject to section 3, with effect from the 24th June, 2019, the British pound, United States dollar, South African rand, Botswana pula and any other foreign currency whatsoever shall no longer be legal tender alongside the Zimbabwe dollar in any transactions in Zimbabwe..” (Underlined words own emphasis). The Cambridge dictionary defines transaction as “an occasion when someone buys or sells something, or when money is exchanged (underlining own emphasis) or the activity of buying or selling something; or the process of doing business”. The term exchange is defined in turn as “the act of giving or taking one thing in return for another” (Merriam-Webster online dictionary). It appears from these definitions the remitting of taxes to a tax authority is not a transaction.  The relevant transaction therefore is that between the taxpayer and its customer, employee etc. If such transaction was denominated in foreign currency before 24th of June 2019 tax, it appears liability for taxes arises in foreign currency. To buttress this point, taxes such VAT, PAYE and withholding taxes are “trust taxes”. They are collected and remitted to ZIMRA by the person who is not the ultimate payer but as an agent of the government. The agent has no transaction with the ZIMRA but duty bound to hand over the money he has collected. The doctrine of unjust enrichment refrain him from pocketing what is not his. It is also a common law principle that he cannot make any profit or acquire any benefit in the course and in the matter of his agency without the knowledge and consent of his principal. Where he uses property entrusted to him by the principal to make a profit for himself and without the principal’s consent is in breach of his duty not to make secret profit. Some people could still argue there is no unjust enrichment where the person has paid the equivalent of foreign currency in RTGS dollar using the interbank rate. This argument is difficult to sustain in light of the explicit tax laws which states payment of taxes on in foreign currency where transactions are in foreign currency and these laws are still in force.

Addressing the second category transactions i.e. transaction in foreign currency transactions against the spirit of SI142, it is a trite at law that tax follows a transaction regardless of its legal status. It was held in MP Finance Group CC v Commissioner, SARS, 69 SATC 141 that income “received by” a taxpayer from illegal gains will be taxable in the hands of the taxpayer. The English case of Commissioners of Inland Revenue v Aken 63 TC 395, [1990] STC 497 is also in support of this view. It held that; “…. if the activity is a trade, it is irrelevant for taxation purposes that it is illegal …I do not think that the word ‘‘trade’’ in itself has any connotation of unlawfulness. There may be lawful trade; there may be unlawful trade. But it is still trade”. The case of CIR v Delagoa Bay Cigarette Co Ltd 1918 TPD 39, also held that “the taxability of a receipt is not affected by the legality or illegality of the business through which it was derived.” Therefore it appears where a person has traded in foreign currency liabilities for taxes will arise in foreign currency, regardless of the fact he has breached the law.

In respect of sectors such tourism, mining etc where foreign transactions (international transactions) will be prevalent the laws for payment of taxes in foreign currency will continue to apply. Statutory Instrument 142 of 2019 is about banning foreign currency on domestic transactions by making the Zimbabwe dollar the sole legal tender. In conclusion, taxes with regard to transactions in foreign currency whether or not they arise legally or not appears required in foreign currency because the laws which requires taxes to be paid in foreign (section 4A of the Finance Act and s38 (4) (a) of the VAT Act) continues in existence. The ZIMRA has also confirmed this position regarding transactions occurring before 24th June 2019, which appears correct interpretation of the SI142. Taxpayers are therefore urged to comply with the ZIMRA directive in order to avoid penalties which may arise from not complying with the law.

Recently the Zimbabwe Revenue Authority (ZIMRA) through a public notice commanded taxpayers to pay provisional income tax (Quarterly Payment Dates; QPDs) in foreign currency when taxable income is earned, received or accrued in whole or partly in foreign currency. This is not news but an enforcement of the existing laws because the requirement to pay tax in foreign currency has been part of our fiscal statutes since February 2009 when the country adopted the multi-currency system. It has not been an issue until October 2018 when the Reserve Bank of Zimbabwe directed banks to separate bank accounts into RTGS FCA and Nostro FCA. ZIMRA followed suit in November 2018 by issuing a public notice requiring all taxpayers to account for tax in foreign currency in respect of income earned in foreign currency. In February 2019, the government abandoned the one to one (1:1) exchange rate between the United States Dollar and the RTGS/ Bond for the interbank exchange rate system. All assets and liabilities prior to 22 February 2019 were to be converted to RTGS dollars at the rate of 1:1. This article is not seeking to criticize the ZIMRA public notice but to highlight issues raised, the policies and their impact on businesses.   

The current systems promotes double dipping. As an example, when RTGS dollar is used as the functional currency for accounting and other purposes as contemplated under SI33 foreign currency exchange differences are bound to occur. These arise when monetary items are settled or when monetary items are translated at rates different from those obtaining when initially recognised or in previous financial statements. A gain is recognised as gross income in the tax return whilst foreign exchange loss is treated as a deductible expenditure. However only foreign exchange gain or loss of a revenue nature and realised are dealt with in this way, whilst capital nature or unrealised gains or loss have no tax implications. It is however my view that when the income tax is paid in foreign currency as contemplated, exchange differences should not exist for tax purposes because tax payment is in the currency of tax reporting, but the fact that the provisions which provides for the treatment of foreign exchange difference have not been outlawed there is no basis for excluding them in the tax return. Double dipping may therefore occur e.g. double taxation where foreign exchange gains are realised and double deduction where exchange losses are realised, when taxes have been accounted for in foreign currency.

Another problem with the current income tax regime is that it taxes capital or productive assets contrary to the spirit of the income tax system. It is the role of a capital gains tax system to levy tax on wealth on fixed properties not an income tax system. As it stands there is juridical double taxation because of application of these two regimes on the amounts. For instance when assets that ranked for capital allowances prior to 2019 are sold after 22nd of February 2019 in RTGS dollars at the prevailing interbank rate of exchange and to be set off against the cost of the asset in RTGS dollars at 1:1 with the United States dollars there may be a taxable recoupment notwithstanding the asset may have been sold at below income tax value in real terms. Another situation is in respect of capital allowances that are at lesser value in real terms for assets brought forward from 2018 because the cost base of the assets will be expressed in RTGS$ at 1:1 with USD. Not to mention also the assessed losses brought forward from 2018 which will be written off at an accelerated pace because they will be set off against sales in RTGS$ at the interbank rate of exchange. Taxing capital impairs the value of the business and reduces its potential to recapitalise as a result reducing the future supply of goods or services or may send companies out of business.

One of the key tents of a good tax system is that it must achieve tax neutrality, that is a good a tax system should not create incentives for firms or individuals to change their behavior—to invest more or less, to work more or less, to locate in one place rather than another, to employ more or less labor or more or less capital. This at the moment is questionable. For example the apportionment of tax into RTGS dollar and foreign currency components using the turnover figures as contemplated in the ZIMRA public notice indirectly attack this principle as it disregards the proportion of deductions where they can be disproportionate or be in a different pattern from that of turnover. One taxpayer may incur expenses predominantly in foreign currency while their turnover is received largely in RTGS$. This presents a distortion on the tax payable in RTGS and foreign currency.  The formula further complicates tax administration as taxpayer will have to bear the burden of converting amounts into foreign currency for purposes of complying with the laws.  A country’s income tax regime is a barometer of the business environment and may negatively or positively influence investment. For instance, where the rules and their application are nontransparent, overly complex or unpredictable this will add to the cost of the project, creates uncertainty and thereby discouraging investment. Furthermore, a system that leaves excessive administrative discretion in the hands of tax officials invites corruption and brings uncertainty to the business. Policy makers are therefore encouraged to ensure that their tax system imposes an acceptable tax burden that can be accurately determined, and which keeps tax compliance and tax administration costs in check. The current income tax regime falls short of these requirements as it contains a number of flaws when measured against Adam Smith’s good principles of tax system such as certainty, administrative efficiency, tax neutrality, simplicity etc. Simplifying the tax regime should be the priority when the Minister of Finance and Economic Development presents his midterm fiscal policy soon.


The 2019 Monetary Policy and its accompanying legislation abandoned the 1:1 parity rate of exchange between the bond note and the United States Dollar. Real Time Gross Settlement (RTGS) system balances expressed in the United States dollar immediately before the effective date, 22 February 2019 were taken to be opening balances in RTGS dollars at par with the United States dollar. At the same time, a new currency, the RTGS dollar was introduced. In addition, every amount expressed in United States dollars (USD) in any piece of legislation was deemed to be in RTGS on a rate of 1:1. And the conversion and translation of USD balances to RTGS has created foreign exchange gains and losses which have tax implications for taxpayers as more fully explained in this article.

Law and Interpretation

The Income Tax Act brings into tax, foreign exchange gains realized from trading, that is, from income of a revenue nature. Revenue nature exchange gains are those which arise from the sale of goods or services in the course of a taxpayer’s trade or on working capital items such as debtors, settlement of trade creditors, on bank deposits used in the day to day business activities of the taxpayer or on inventory (stock). If the receipts and accruals occur in different years of assessment, effect shall be given to the increase or reduction in the gross income in the year of assessment in which the amount was received. The foreign exchange gains taxed will be on translation of assets and not on conversion as conversion of assets is a transaction of a capital nature. Furthermore, the Income Tax Act provides that: “When, owing to a variation in the rate of exchange of currency between Zimbabwe and any other country, the amount actually paid in Zimbabwean currency differs from the amount of the liability that had been incurred prior to the variation in the rate of exchange— (i)  the amount to be deducted shall be the said amount actually paid in Zimbabwean currency (ii)  if the incurring of the liability and the payment therefor occur in different years of assessment, effect shall be given to the increase or reduction in the amount in the year of assessment in which the amount was paid.” The amount to be deducted is the amount actually paid in Zimbabwean currency to the extent that it differs from the amount of the liability that had been incurred prior to the variation in the rate of exchange. It is important to note that, whilst foreign exchange losses of a revenue nature are deductible, capital nature foreign exchange losses are capitalised.

The new monetary laws led to both conversion and translation of assets and liabilities. Conversion and Translation of assets and liabilities are intricately interwoven, yet distinct concepts. The conversion of an asset is when the asset is actually changed from one currency to another. The asset itself actually changes in that it actually changes in form. A conversion mimics the transaction that happens when one exchanges currency for another in a bureau de change. With translation of assets, on the other hand, the asset remains unchanged and it is only the basis of measurement that changes. For example, United States dollars kept in a safe can be translated to another currency for the purposes of reporting. This does not in essence change the value of the United States dollars kept in the safe as they remain the same in terms of their nature. In other words, the dollar bill itself remains the same, and does not change into a bill of another currency as with a conversion. Conversion does not create taxable profits, whilst translation does. Conversion does not give rise to trading activity and therefore should be presumed to be of a capital nature. On the other hand translation results from variation in exchange rate which is a consequence of trading activity.

The government through SI32 of 2019 introduced a new currency now known as the RTGS dollars. SI33 of 2019 further provides guidelines for the conversion of balances from the United States dollar to the RTGS$. To that end, companies are required to convert their US dollar valued assets and liabilities to RTGS dollars. The rate of conversion however, depends on when the assets were held by the company and at what point the liabilities were incurred. The provisions entails that the conversion of the monetary values of assets and liabilities denominated in US dollars to RTGS dollars will be done at a conversion rate of 1:1 with the United States dollars for assets and liabilities held before the 22nd of February 2019. This in general means that there are no foreign exchange gains or losses to be realized by the company if the conversion of the assets and liabilities is to be done at a rate of 1:1. There are exceptions to the 1:1 exchange rule namely (a) funds held in foreign currency designated accounts, otherwise known as “Nostro FCA accounts”, which shall continue to be designated in such foreign currencies; and (b) foreign loans and obligations denominated in any foreign currency, which shall continue to be payable in such foreign currency.


In conclusion, the realization of gains or losses depends on when the assets or liabilities were held by the company. If the assets and liabilities that were held before the 22nd of February 2019 valued and expressed in US dollars were to be converted to RTGS dollars, the rate of conversion would be at 1:1. Such conversion if done in excess of 1:1 USD to the RTGS will nevertheless remain capital in nature. For assets and liabilities valued and expressed in US dollars held after the 22nd of February 2019, contemplated for translation by the company, then the translation rate would be at a rate in excess of 1:1 with the US dollar. These will create taxable or deductible foreign exchange gain or loss, if they arise from working capital items and the settlement is done prior to year-end and non-taxable or nondeductible unrealised foreign exchange gain or loss, respectively if the assets and liabilities are still held at year end.  The same applies to amounts in Nostro accounts or short term denominated foreign currency loans. For long term loans and property, plant and equipment whether realised or unrealised the foreign exchange gain or loss does not give rise to taxable income or assessed loss.


With the shrinking economy, the big businesses have become overladen with taxes. It is opined that if the SMEs contributed their fair share of taxes there could be a lot of revenue that may well have been collected for the benefit of the fiscus and ultimately for the benefit of the country. Fiscal exclusion has also been a factor influencing the lack of formalization of the SMEs. Depending on the type of registration undertaken by SME’s there are tax obligations that must be fulfilled by every business that is registered for tax purposes and this includes the SMEs. These include income tax, withholding tax, PAYE, VAT and Presumptive tax. These obligations may be greater or lesser depending on the structuring of the business. This piece of writing aims to indicate the tax issues that may affect the SMEs.

The Tax Benefits

In Zimbabwe 10% withholding tax is deducted on local businesses to business sales (B2B) upon payment to a supplier without a valid tax clearance certificate. By virtue of formalising tax affairs, SMEs can enjoy exemption of the 10% withholding tax on contracts with other businesses. In addition, it is now a prerequisite for most business transactions. SMEs relationships with big businesses is unavoidable sometimes. A valid tax clearance is one of the documentation required in order to participate in most tenders, including government tenders. Therefore if you do not have a valid tax clearance you will not only suffer withholding tax on payments from customers but you could also lose business opportunities. Further qualification for duty rebates and other import incentives are also linked to possession of a valid tax clearance. By regularizing your tax affairs, you will be entitled to claim expenses that you incur in your business.

Special Initial Allowance

SMEs even have a better capital allowance regime compared to big companies which write off capital assets against their income to reduce tax payable over three years at 50% in the first year then 25% wear and tear in the second and third year compared to 4 years of 25% per annum. SMEs do not enjoy assessed losses which can be carried forward for six years. When making losses the law allows you to use such losses to reduce taxable income, until the losses are used up or expires the company will not pay taxes to the fiscus. The reporting of such losses can be only done by a person or company who is formally registered for taxes.

Monthly payment of provisional tax

The income Tax Act provides for payment of provisional income tax in advance on a quarterly basis. And the quarterly payments are done in instalments of 10%; 25% 30% and 35% of the provisional income tax for each of the quarters of the year. The Income Tax Act provides that the Commissioner-General may, “on application by a taxpayer who qualifies as a “small or medium enterprise”, permit such taxpayer to pay provisional income tax on a monthly basis, that is, one month at a time in advance.” This facility is quite favourable and can allow for working capital management flexibility on the part of SMEs given that for most of them, their business models are quite different from those of large enterprises.

Lower rate of mining royalties

The sale of specified minerals by miners to the buying agents attract a deduction of tax at rates that vary depending on the mineral being sold. Payments to small scale gold miners, popularly known as “gold panners” or “makorokoza” for gold deliveries are deducted mining royalties at a lower rate of 3% as compared to the general rate of 5% applicable to other enterprises. The small scale gold miner should be classifiable as a “micro-enterprise” in terms of the mining and quarrying sector of the economy per the SMEs Act.

Access to funding

For SMEs to enjoy funding and fiscal inclusion, they must formalise their businesses. Formalisation of the SMEs opens up the access to funding and the protection of the law. Banks and financial institutions are more likely to fund formal businesses as opposed to informal businesses. For this they would proper books of accounts to be kept and the business to be compliant with the tax laws. Therefore a formalized SME that shows good organisation and a good business track record is more likely to get the much needed funding to expand the business as opposed to an informal one. A brilliant business idea may fail to grow because of lack of funding. Formalisation can bridge this gap.


The recent revision of Intermediated Money Transfer Tax (IMTT) from 5 cents to 2 cents on the dollar value of transactions soar and takes a big knock on persons. The tax is however less burden for formally registered persons with formal books of accounts since transactions such as transfer of money for purposes of paying remuneration are exempt from the 2% IMTT.  This tax is broad based and unavoidable by informal business. The Minister of Finance in his preamble to the introduction of this tax he stressed the target for this tax was largely those trading in the informal.


Formal SME’s that keep proper books of accounts, furnish tax returns and pay taxes are not subject to presumptive tax subject to them being in possession of a valid tax clearance. Informal SME’s on the other hand are liable to pay presumptive tax. It is a misconception that to be registered for tax is expensive. The reverse is actually true. Withholding tax applies on turnover for lack of tax clearance, the business losses on tax opportunities such as claiming business losses when they occur and above all when the taxpayer is eventually caught the law provides for back dating of tax registration and payment of taxes from the date the person was supposed to be tax registered. This comes along with stiff penalties and interest on late paid taxes and returns. It is wise as a business owner or company executive to gain more understanding on how to go about being tax compliant to avoid missing out on business opportunities and being on the right position for growth.


A disposal of a business or part of a business capable of separate operations by a registered operator as a going concern is deemed to be a supply made in the furtherance or course of the operator’s trade. The seller should account for output tax on the disposal, but with proper planning no VAT is payable, the disposal can be zero rated. The purchaser would not need to finance the VAT between making the VAT payment to the supplier and receiving a VAT refund from ZIMRA. We discuss the law on zero rating and the conditions that must be satisfied for the VAT to be avoided.

The Law and interpretation

A sale or transfer of a going concern is zero rated under s 10(1) (e) of the VAT Act as read with s12 of the VAT General Regulations, 2003 (SI 273 of 2003) which provides that “subject to proviso (ii) of paragraph (e) of subsection (1) of section 10 of the Act where the trade or part of a trade, as the case may be, is disposed of as a going concern and has been carried disposed of as a going concern (underlined words appearing to be drafting error) and has been carried on in, on or in relation to goods or services applied mainly for purposes of such trade or as simple  of a trade, as the case may be, and partly for other purposes, such goods or services shall,  where disposed of, be taxed at zero % if the sale represents the disposal of at least 51% of the trade or part of a trade”.  We analyse the key conditions as follows:

Seller and purchaser to be both registered

The sale should be effected by a registered transferor to a buyer who is also a registered operator. In order to safeguard himself from incorrectly applying the zero rate, the seller must obtain and retain a copy of the purchaser’s registration certificate. If the purchaser is not yet a registered operator at the time of the conclusion of the agreement, it is advisable that the agreement provide for the application of the zero rate being subject to the purchaser being a registered operator on the date the supply takes place, and to furnish a copy of the VAT certificate to the seller as soon as it is available.

Agreement must be in writing

The parties must agree in writing that (i) the trade is disposed off as a going concern and (ii) that it will be an income earning activity on date of transfer. Where an agreement for the sale of a trade as a going concern was concluded before, on or after commencement date, but the parties did not agree in writing that the trade is disposed off as a going concern they may enter into a separate agreement – based on the original contract – regarding this aspect. The written agreement(s) must, together with any other written agreements or documents relating to the sale, be retained. The agreement need not necessarily form part of the arrangement under which the ‘supply of a going concern’ is made. Below is an analysis of the conditions that must be agreed in writing by the parties:

The trade must be a going concern

A business transferred must be a going concern before and immediately after the transfer. This disqualifies any business which has actually ceased operation before the transfer. It was held in Belton v. CIR (1997) 18 NZTC 13,403 that there can be no going concern’ where, on the day of the supply, the activity carried on by the enterprise has ceased.  A short period of break or temporary closure immediately after the transfer to facilitate the smooth transfer or for purposes of cleaning and maintenance etc. does not however disqualify the sale as a transfer of a going concern. The activities must be capable of continuing after the transfer to new ownership. The transferee must use the transferred assets to continue with the same kind of business of the transferor, if the nature of business changes it ceases to be a sale of a going concern.  

Supply of an income-earning activity

There must exist an income earning activity on the date the ownership of the trade is transferred. As transfer of the trade might take place only in the future, there can be no certainty at the time of signing the agreement and fixing the VAT inclusive price whether the trade will in fact be as an income-earning activity when transfer takes place. The parties’ intention to transfer an income-earning activity is thus sufficient. The agreement must provide for the sale of an income-earning activity and not merely a trade structure. The new owner must be placed in possession of a trade which can be operated in that same form, without any further action on his part. For this reason an agreement to dispose off a business yet to commence or a dormant business is not a going concern.

Assets necessary for carrying on the trade must also be disposed

Assets which are necessary for carrying on a trade must be disposed off by the supplier to the recipient for zero rating to apply. Where all the assets used by the registered operator in a trade, except the premises from which the enterprise is conducted, are disposed of, it must be determined whether the premises are necessary for carrying on the trade disposed of. The assets or things which are necessary for the continued operation may vary according to the nature of the trade and the thing supplied and each case must be treated based on its facts.


Due to several rules needed to satisfy the requirements of a going concern you will almost certainly need an advisor to guide you through the process. There are serious tax ramifications if the attempt to zero rate the transaction fails. The VAT will become due, penalty and interest certainly apply for failing to pay the VAT due on time. Meanwhile Matrix Tax School will be hosting its Cross Border Taxes Seminar on the 17th of July 2019. Marvellous Tapera is the Founder of Tax Matrix (Pvt) Ltd and the CEO of Matrix Tax School (Pvt) Ltd. He writes in his personal capacity.


The government introduced transfer pricing legislation with effect from 1 January 2016. The transfer pricing legislation made a number of provisions regarding transactions between associates. The key requirement of transfer pricing laws and rules is that transactions between associates or related parties should be at arm’s length. The arm’s length principle entails that the amount charged by one related party to another for a given product should be the same as if the parties were not related. What had remained a grey area, not clarified by the legislation is the documentation requirements to be maintained by associated persons. The government has through SI 109 of 2019 gazetted the Income Tax (Transfer Pricing Documentation) Regulations, 2019 which require every taxpayer to maintain documentation that verifies that the conditions in its transactions with related parties for the relevant tax year are consistent with the arm’s length principle. The regulations took effect from May 10, 2019, the date of their publication and are the focus of this article.

Law and Interpretation

Contemporaneous documentation is a requirement of transfer pricing laws in many jurisdictions. Documentation is considered to be contemporaneous if it is in place at the statutory tax return’s filing date. Each taxpayer should endeavour to determine transfer prices for tax purposes in accordance with the arm’s length principle, based upon information reasonably available at the time of the transaction. Thus, a taxpayer ordinarily should give consideration to whether its transfer pricing is appropriate for tax purposes before the pricing is established and should confirm the arm’s length nature of its financial results at the time of filing its tax return. However since this law was introduced in year 2016, there had not been any documentation prescriptions provided. The new regulations make detailed documentation requirements as will be discussed in this article. Documentation must include an overview of the taxpayer’s business operations (history, recent evolution and general overview of the relevant markets of reference) and organisational chart (details of business units or departments and organisational structure) together with a description of the corporate organisational structure of the group that the taxpayer is a member (including details of all group members, their legal form, and their shareholding percentages) and the group’s operational structure (including a general description of the role that each of the group members carries out with respect to the group’s activities, as relevant to the controlled transactions). Furthermore, the regulations require a description of the controlled transaction(s), including analysis of the comparability factors as well as an explanation of the selection of most appropriate transfer pricing methods, and, where relevant, the selection of the tested party and the financial indicator. Additionally, the documentation must provide detail of any industry analysis, economic analysis, budgets or projections relied on; details of any advance pricing agreements or similar arrangements in other countries that are applicable to the controlled transactions; as well as a conclusion as to consistency of the conditions of the controlled transactions with the arm’s length principle, including details of any adjustment made to ensure compliance.

Transfer Pricing for Domestic Transactions?

Meanwhile our TP rules are out of sync with the rest of the world because it also focusses on domestic transactions. The imposition of transfer pricing legislation on domestic transactions is administrate expense and presents complications. Firstly, there is anti-tax avoidance legislation that already existed prior to transfer pricing legislation and this legislation provides sweeping powers to the Commissioner General to adjust prices or income where the transactions, arrangements or operations between the parties are found not to be compliant with the arm’s length principle or not reflective of market prices. The second issue is that domestic transactions are being conducted in a jurisdiction with the same tax rate and conditions such that issues of profit or income shifting will not give rise to a permanent tax advantage to taxpayers. Rather, it will simply be a zero-sum game. Thirdly, transfer pricing documentation is very expensive to produce particularly for small to medium enterprises (SMEs) who form the bulk of taxpayers in Zimbabwe. In terms of the OECD Transfer Pricing Guidelines as well as the United Nations (UN) Practical Manual on Transfer Pricingfor Developing Countries (from which the Zimbabwean legislation largely borrow), taxpayers are not expected to incur disproportionately high costs and burdens in producing documentation and therefore require tax administrations to balance requests for documentation against the expected cost and administrative burden to the taxpayer of creating it. In addition, the OECD transfer pricing guidelines do not cover domestic issues as they focus on the international aspects of transfer pricing only. Where a taxpayer reasonably demonstrates, having regard to the principles of the OECD Guidelines, that either no comparable data exists or that the cost of locating the comparable data would be disproportionately high relative to the amounts at issue, the taxpayer should not be required to incur costs in searching for such data. That expensive documentation will be required of SMEs who may not afford it will rock at the core of the principles of taxation, chiefly the principle of Economy which requires costs of compliance to be at the lowest minimum and reasonable level. This problem is compounded by the fact that the new transfer pricing regulations did not specify thresholds in terms of revenue or values of transactions or taxpayers revenues above which transfer pricing documentation would be required. It therefore means that all taxpayers who engage in transactions with associates are obliged to keep contemporaneous transfer pricing documentation.

Decision Impact

The documentation can at any time be requested by the Commissioner and if so requested, it must be submitted within seven (7) days from the date the request is issued in the English Language. Taxpayers with related transactions should therefore prepare and submit transfer pricing documentation in order to avoid penalties. However, the authorities may need to re-examine the need for transfer pricing documentation in respect of domestic transactions as it may be too expensive to have transfer pricing documentation by SMEs. Meanwhile if the authorities maintain transfer pricing regulations on domestic transactions then thresholds for maintenance of documentation should be set.

The tax law requires records to be kept for 6 years. This is simple for income tax purposes because income tax returns have to be filed each year. Besides this, the records are dealt within a business set up. Under the Capital Gains Tax Act, record keeping is more problematic due to the fact that the disposals are infrequent and also because there could be a significant delay between the date the expenditure was incurred and the date of sale of the property. Another problem is that proprieties may also be held by individuals who hardly maintain records of their expenditure. It is rare for individuals to keep records of costs on labour, materials, amounts paid to contractors, any architect’s fees, building permit charges and legal fees directly connected with building their homes. The downside is that Capital Gains Tax will be levied on gross capital amount, against the spirit of the law which provides that capital gains tax should be levied on the net wealth i.e. proceeds less costs.   

In Zimbabwe, Capital Gains Tax is levied on specified assets, namely immovable properties which include homes, marketable securities and certain intangible assets. The tax is levied on capital gain which is the amount by which a specified asset’s selling price exceeds its base cost (cost of acquisition/construction, improvement, inflation allowance, selling costs etc). Capital Gains Tax is then charged at the rate of 20% of the capital gain for a specified asset acquired after the 1st of February 2009 and at 5% of proceeds if the specified asset was acquired prior to 1 February 2009. Marketable securities listed on Zimbabwe Stock Exchange stock are exempt from Capital Gains Tax, but are subject 1% Withholding Tax.

Deductible expenditure includes the cost of acquiring or constructing the specified asset. If you acquired the asset by way of inheritance your expenditure is amount declared for estate duty purposes of the deceased and in the case of a donation your acquisition cost is the amount used for Capital Gains Tax or Income Tax purposes of the donor. Expenditure on improvement, additions or alterations to the specified asset is also deductible, but does not include expenses deductible for Income Tax purposes such as repairs. Inflation allowance is 2.5% of acquisition or construction cost and cost of improvements, alterations or additions. It is granted per year or part of the year thereof from the date of incurring the expenditure until the date of selling the specified asset. Other expenditure that is deductible is that which is directly incurred or in connection with the sale of the asset.

Only provable expenditure is deducted, implying records should be kept of specified asset’s purchase price or construction cost, cost of improvements, additions, and other items that affect the basis of your specified asset. The records are required to prove or justify costs to ZIMRA. The exact information required depends on the type of asset sold, when it was acquired, how it was acquired, whether a valuation was used and how it was sold. On acquisition, documents to retain will include acquisition details, legal costs, stamp duty, valuation fees etc. An estate valuation report is required for an asset acquired by way of an inheritance. If expenditure was incurred in improving the property and this is reflected in the value of the asset on sale, then these costs are usually allowed and the invoices should be retained.

A formal valuation from reputable valuation firms (3 quotations) is required whenever a specified asset is sold. The Commissioner General can set aside the selling price if it has not been established at fair market price. The valuation report is required to justify selling price and should be retained. Any sale agreement giving details of the sale proceeds will be required as well. Where an asset is gifted, the sale proceeds may be the market value and evidence of this is a valuation report and this should be kept. Where the asset is destroyed correspondence relating to an insurance claim including details of any compensation received for a damaged asset should be retained.

Without paper work it is difficult to justify costs and you may be assessed on proceeds or a higher gain. The paper work should be written in the name of the owner of the property. The invoices or receipts should specify details of materials acquired (quantity and prices must be contained). Your file must also contain delivery notes. Quotations are not acceptable to ZIMRA. Where the materials have been bought unfortunately in the name of the contractor or third parties you may need an affidavit to confirm this. Also keep a contract between yourself and the builder or contractor to justify labour cost. The contract must be signed by both parties. Cash purchases tend to be the major area where audit trail often lacks. It is encouraged to transact through a bank account especially for large transactions. Where this is not possible insist on receiving receipts with full details of your purchases. When you are forced to buy from informal traders still insist on receipts and invoices. If these documents are not available consider making one yourself which the person must sign. Include his name, address and I.D. number in addition to the general contents of an invoice. If records of costs of acquiring/constructing or improving a specified asset are not kept you also stand to lose inflation allowance. For safe keeping of title deeds, receipts/invoices of expenditure and other related correspondences you may consider lodging copy files with your banker or lawyer. This way you may also be able to salvage these files if your original file is lost or was destroyed for instance in a house fire.


In terms of the company law, limited companies are legal personas separate from the natural persons who create them. This means they can be owed or owe, sue or be sued in their personal capacities. In so far as the claim is made against a company the shareholder or director’s loss is limited to his /her capital contribution. Creditors cannot therefore attach personal assets of the director or shareholder unless the creditor has suffered the loss through fraud or act of misrepresentation of the shareholder or director. The law therefore allows the piercing of the corporate veil thereby empowering the creditor to attach personal property of the shareholder or director. The Income Tax Act recently upheld this principle so as to protect the fiscus from prejudice by unscrupulous business people. The new law provides that if a company or entity (the old company) is wound up voluntarily, and in circumstances that give rise to a reasonable suspicion that it was deliberately put into liquidation to avoid any tax liability, the directors of the old company shall be jointly and severally liable for the amount of any tax due and payable by the old company.

Law and Interpretation

The Income Tax Act [Chapter 23:06] has been amended by the insertion of a new provision which reads: “If, in Zimbabwe or in its country of formation, incorporation or registration, a company or entity (“the old company or entity”) is wound up voluntarily, and in circumstances that give rise to a reasonable suspicion that it was deliberately put into liquidation to avoid any tax liability, and— (a) the directors (or other persons acting in a similar capacity) of the old company or entity (or any of them)— (i) incorporate or register another company or other entity (hereinafter called the “new company or entity”) that carries out substantially the same business as the old company; or (ii) operate as sole traders, whether individually or collectively, carrying on substantially the same business as the old company or entity; or (b) the whole or a substantial part of its business and property wherever situated is transferred to another company or entity which will be or has been formed, incorporated or registered under any law; the directors of the old company or entity (whether or not any of them become directors of or act in a similar capacity in relation to the new company or entity) shall be jointly and severally liable for the amount of any tax due and payable by the old company or entity.”. This piece of legislation came on the backdrop of a realisation by the authorities that some directors would, as a way of ‘walking out’ of their stinking tax debts resolve to voluntarily liquidate a company and form a new one and get off the hook. It is this cheap escape route that the authorities sought to close and protect the fiscus. The directors’ personal bank accounts can be garnished or personal assets attached to settle the company’s debts.

The Company Law perspective

There had been mixed reactions amongst taxpayers as to the interpretation of this new law, with some suggesting that this law is out of sync with corporate law principles of separate legal persona and therefore this law should be a nullity. It is important to note that the Companies Act (Chapter 24:03) provides for prosecution of directors of a company under liquidation of judicial management where it can be established that they have engaged in acts bordering on criminality. Section 319 of the Companies Act reads: “Prosecution of delinquent directors and others: If it appears in the course of the winding up or judicial management of a company that any past or present officer or member of the company has been guilty of an offence for which he is criminally responsible under this Act or, in relation to the company or the creditors of the company, under the common law, the liquidator or judicial manager shall cause all the facts known to him which appear to constitute the offence to be laid before the Prosecutor-General.” Thus directors can be personally prosecuted if they engage in activities of a criminal nature leading to the demise of a company. Hence the tax law has borrowed the concept of piercing the corporate veil and hold directors personally liable for defunct companies’ taxes.

Decision Impact

Directors of a defunct company are warned that they can now be held personally liable for the taxes of the company if the company is wound up voluntarily, and in circumstances that give rise to a reasonable suspicion that it was deliberately done to avoid any tax liability. They cannot form new companies with the hope of running away from tax debts of their old companies. Meanwhile the government through the new monetary policy as pronounced through SI33 of 2019 has provided for the conversion of United States Dollars balances of assets and liabilities as at 22 February 2019 to RTGS$ on a 1:1 basis implies the government has involuntary given tax amnesty to those with outstanding tax liabilities as at that date. Directors or taxpayers with outstanding tax debts can therefore order their affairs and pay their tax debts or enter into tax payment plan with the ZIMRA to settle such debts because they have been devalued.