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In the current economic environment there are not so many people willing to part with their property despite the pressure coming from those holding RTGs or bond notes balances which they are looking to offload in case they fall prey to currency risk. It is so uncertain that sellers are only accepting to be paid in United States dollars or else there is no sale. This is notwithstanding the government’s position that the bond note is at par with the United States dollar. However in case one manages to sale his/her property, whether business or private property there are capital gains tax implications. In fact capital gains tax is chargeable on gains realized from the sale or deemed disposal of a specified asset. A specified means an immovable property, marketable securities and certain intangible assets. Only gains from a source within Zimbabwe are taxable. Thus when one sells his/her home including a residential stand he/she is liable to pay capital gains tax.

Computation of capital gains tax

Capital gains is the difference between the proceeds from sale or disposal of a specified asset and the sum of its costs. The sum of cost is the aggregate of cost of acquiring the property plus cost of improving it, allowance for inflation on acquisition cost and cost of improvement, selling costs etc. The resultant gain is then subject to tax currently at the rate of 20%. If the result is a capital loss, no capital gains tax shall arise but such a loss shall be carried forward and be deducted against future capital gains of the person. In order to allow deduction of costs, the Zimbabwe Revenue Authority (ZIMRA) would need evidence such as receipts and invoices etc. It is advisable for taxpayers to maintain such records if ever they are to entertain any hope of claiming their costs. In case the specified asset was acquired or constructed by the person prior to 1 February 2009, capital gains tax is simply 5% of the proceeds from sale. Under such circumstances record of costs becomes irrelevant.

Principal Private Residence

A home which is proved to be the person’s sole or main residence is called a Principal Private Residence (PPR).  This is a dwelling which is proved to the satisfaction of the Commissioner to have been that individual’s sole or main residence throughout the period that he/she owned it or for at least 4 years immediately before the date of its sale. A shorter holding period is accepted as long as the Commissioner considers reasonable in all the circumstances that it is the individual’s sole or main residence despite the person being prevented from residing in it in consequence of his employment or for such other justifiable cause. It includes “any land, whether or not it is a piece of land registered as a separate entity in a Deeds Registry which surrounds or is adjacent to the dwelling. Such a land must be used primarily for private or domestic purposes in association with the dwelling. A garage, storeroom or other building or structure used together with the dwelling or forming part of the dwelling also constitute a PPR.  It implies all other homes owned by a person where he/she does not stay in do not constitute PPRs. A PPR as explained below is tax favoured. 

Rollover Relief on PPR reinstated

A person who sales a PPR is entitled to a rollover of capital gains that would be chargeable if he/she expends proceeds from sale or disposal of a PPR to purchase or construct another PPR. A rollover relief implies none payment of capital gains tax immediately but this will be postponed to a future date. If the proceeds are not fully expended only capital gains applicable to the amount not expended shall be taxable.  This relief is also granted upon sale or disposal of a residential stand to purchase another residential. However the law drafters had erroneously removed the relief in respect of a PPR when they inserted a provision for a rollover relief in respect of a sale or disposal of residential stand sometime in 2006.  This error carried on since then and only to be discovered and corrected during the recent budget presentation by Minister of Finance Professor Mthuli Ncube.  Through the Finance (No.3) Bill of 2018, the Minister has reinstated the rollover relief on sale or disposal of a PPR. This means that both residential stand and PPR qualify for a rollover relief.  Capital tax shall only be chargeable if the amount received from the sale of the old PPR or old residential stand exceeds the amount expended. This is a tax benefit for those selling their homes or residential stands which they replace with another home or residential stand. They can avoid capital gains tax as long as they have used the proceeds fully to purchase or construct another home or residential stand.  Where proceeds are partially expended, only capital gains applicable to the amount not expended shall be taxed. Meanwhile, the law does not limit the number of times one can qualify for rollover relief, implying a person can successively replace his/her PPR or residential stand and still qualify for the benefit.


The amendment brings about certainty and rectifies the law which seems incorrectly drafted by making the PPR eligible for a rollover relief which has been the original intention of lawmakers. It gives people who want to upgrade or downgrade to new PPRs an opportunity to avoid capital gains tax applicable on the amount used to purchase a new PPR.  Whilst we are still here it is important to that no capital gains tax shall be payable upon transfer or sale of disposal of PPR by a person to his or/her spouse whether such transfer or sale is in the ordinary course of life or in pursuit of a divorce order. The spouse is however required to make an election. Further a sale or disposal of a PPR by person who is of or above the age of 55 as at date of sale or transfer is exempt from capital gains tax.


Some employers give their employees fringe benefits in addition to the normal pay as a way of motivating them. As postulated by Dorstein on page 568 “a benefit is something that has saved an employee from taking out of his pocket” and should be brought into gross income of an employee in accordance with the provisions set out in s8 (1) (f) of the Income Tax (Chapter 23:06). According to this section benefits or advantages include board, cash allowance, the enjoyment of corporeal or incorporeal property, the occupation of quarters or of a residence,  the use of furniture or of a motor vehicle; including payment of an employee’s private journey (known as passage benefit) etc. A “Passage benefit” covers the cost borne by an employer for any journey undertaken by an employee, his spouse or child to take up employment, on termination of employment or any other journey in so far as it is not made for the purpose of a business transaction of the employer. In short it covers relocation benefit and holidays of employees and their families whose cost are borne by the employer. 

Law and Interpretation

Section 8 (1) (f) of the Income Tax Act has stated gross income  as including “an amount equal to the value of an advantage or benefit in respect of employment, service, office or other gainful occupation or in connection with the taking up or termination of employment, service, office or other gainful occupation: Provided that— (i)  an amount equal to the value of the grant of a passage benefit as defined in subparagraph (i) of paragraph (a) of the definition of that term in this paragraph shall not be included in the gross income of an employee if no other passage benefit as defined in that subparagraph has been granted to the employee by the same employer; (ii) an amount equal to the value of the grant of a passage benefit as defined in subparagraph (ii) of paragraph (a) of the definition of that term in this paragraph shall not be included in the gross income of an employee if no other passage benefit as defined in that subparagraph has been granted to the employee by the same employer.”. Essentially the section excludes from gross income of an employee the cost of the first journey undertaken by an employee on taking up employment and upon termination of employment with each employer, if such costs are borne by the employer or its associate. These are the cost of moving an employee and his family and their goods to their new location (for example, transportation of the employee, his family and their belongings to their new location). Settling expenses such as accommodation of the employee and family in a hotel or guest lodge upon arrival, but not a prolonged stay in the hotel or lodge, falls within the ambit of a passage benefit and so are repatriation expenses. The exemption is applicable to both resident and non-resident persons.

If the cost is borne by an employee and reimbursed to him, the exemption would still apply. Our view is that moving expenses are limited to the costs of moving the employee and his family, household goods and personal effects to the new residence (including in transit or foreign-move storage expenses) and travel and lodging costs during the move. Although this may be debatable in other forums, our view is that it does not include meal expenses, expenses incurred while searching for a new home after obtaining employment; costs of selling the old residence (or settling a lease) or purchasing (or acquiring a lease on) a new home and temporary lodging at the new location after obtaining employment. Where these are borne by the employer, they present taxable income in the hands of the employee. All private trips of an employee and his family member(s) when sponsored by his/her employer are taxed to him/her, but business related trips are non-taxable. If the employee is accompanied by his or her spouse on business trip, and the employers reimburse their travel expenses, that payment is a taxable benefit to the employee unless the spouse was engaged primarily in business activities on behalf of the employers during that trip. A business trip appears not to cover cases where an employee is required because of the nature of his work to stay in a place or a site for a prolonged period such that that place becomes his usual place of work for instance cases where buyers of tobacco are required to be at a certain place for a prolonged period. It is also trite at law that, where an employer pays or reimburses the personal expenses for an employee, the amount paid or reimbursed is to be treated as part of the employee’s remuneration and taxed accordingly.


Companies that wish to have passage benefit as part of an incentive that they give to employees must ensure that they have a passage benefit policy that is clearly defined in such a way that it does not constitute a taxable benefit to which the company must include on the payroll. They must ensure that the first trip in consideration of employment or upon termination of employment and not any other trip thereafter are clearly defined in its passage benefit policy manual. Any further benefit other than a passage benefit and business trips will be taxable in the hands of the employee and as the employer it has the mandate of ensuring that those amounts are included in the payroll. Care must be taken not to exempt trips where employees are required in terms of their contractual terms to be in certain places for a prolonged period such that such place can be regarded as the employee’s usual place of work.


Some companies in Zimbabwe have reduced the rate of employing people on a permanent basis opting to employ on contract basis. This is because of the nature of some businesses, the certainty of going concern and at times the availability of constant income. This means that a person works for a certain period of time for example one week or a year and their contract is renewed after that or terminated. This also applies to non- governmental organisations that do projects with a specific time period and after that embark on another. At times they employ the sufficient human resource for that period and after that start all over. Income for the services rendered is derived from the place services are performed regardless of where the contract is made, the place of payment or the residence of the payer. Where the services are rendered is the source which should be in Zimbabwe as the “source based system is used in this country”. The question that some employers ask is employee’s tax deducted on earnings of contract or casual workers.  The law addresses the issue otherwise.

Employee tax

Employees’ tax is computed on remuneration paid or payable in any year of assessment to an individual who is an employee in Zimbabwe. Whether it’s a written contract or a word of mouth what is important is there being an employer, employee and remuneration for tax to be charged. An employee is a person who performs services for an entity under the direction and control of that entity. The relationship of employee/employer exists when the person for whom services are performed controls remuneration and terms of employment. An employee may perform services on a temporary or less than full-time basis. The law does not exclude services from employment that are commonly referred to as day labour ,part-time help, short term fixed contract, casual labour ,temporary help or probationary. The Income Tax Act sets the environment for application of employees’ tax as that which contains or predicated by a relationship between an employer and employee.There is a stipulated threshold for taxable income in the Finance Act and this means that any person who does not earn that stipulated income is not an employee for the purpose of the Act. The type of contract is therefore irrelevant.

Services rendered at source

As long as a person renders a service that is part of gross income therefore will be subject to tax as long as it is within the stipulated threshold .Income from services rendered is derived from the place the services are performed regardless of where the contract is made or residence of the payer. The definition of gross income as stated in the Income Tax Act also includes: “any amount so received or accrued in respect of services rendered or to be rendered, whether due and payable under any contract of employment or service or not, and any amount so received or accrued by reason of the cessation of the employment or service of a person other than a benefit (not being a pension or gratuity) received or accrued by reason of contributions made to the Consolidated Revenue Fund, and any amount so received or accrued in commutation of amounts due under a contract of employment or service”. The service should be rendered in Zimbabwe for it to be taxed in Zimbabwe which is supported by a certain case whereby the taxpayer was employed to manage, on a salaried basis, a store in Bechuanaland. He sub-contracted, at own expense, a storekeeper to run the store on a day to day basis, while he lived in Bulawayo. He was personally to discharge the other duties as required by the contract. He spent the first four days of each month at the store and about ½ a day whilst in Bulawayo on store business. The Commissioner wanted to tax the ½ day’s remuneration but this was regarded as irrelevant as the taxpayer‘s source of income was mainly in Bechuanaland where he was employed and the greater part of his work was carried out there. An employee’s principal place of work is usually the place where he spends most of his/her working time.  


The employer is responsible for deducting and remitting PAYE to ZIMRA for all the employees who earn the minimum taxable income stipulated by law and above, every month regardless of the period worked. Failure to do so the employer will be guilty of an offence and  liable to a fine. It is also the duty of the employer to inform his/her workers about PAYE deduction so that those who do not have the adequate knowledge can be enlightened and understand why their remuneration will be lesser than the gross income. The employer should be able to differentiate between a contract worker and an independent contractor so as to deduct the correct amounts. In some instances a casual worker may supply their own tools but as long as the hirer provides the substantial investment in or assumes the substantial risk of undertaking he/she still remains an employee subject to payee. In the case that the employer fails to distinguish the employee relationship he/she can consult legal advisors .The source of the services rendered determines whether employee tax should be deducted or not. Hence if the source is in Zimbabwe i.e. where the services are carried out, PAYE should be deducted but if the service is rendered outside Zimbabwe that does not apply. This also applies to employees who work in Zimbabwe but are paid from abroad for example working for international firms or are donor funded; PAYE will be deducted from their incomes in Zimbabwe.


Globalization has made it easier for people to work and live in any country of their choice.  It is therefore common for employers to send employees on short-term assignments or for training and development. Some employees, known as frontier workers cross the border every day to go and work in another country. Additionally, others may migrate to live and work permanently in a foreign land, thereby terminating their fiscal link with their country of residence. This is the category in which a majority of Zimbabweans who are in diaspora fall into. There are tax and immigration implications of moving abroad which employees and employers should acquit themselves with. Each host country may have its own tax laws, rates and treaties which will influence the employee’s particular situation. This article provides an overview of the employment tax rules from the Zimbabwean perspective, focusing on Zimbabweans that have moved abroad and nonresident persons coming to work and live in Zimbabwe.

The general rule on taxation of employment income

Countries assert their right to tax on income and capital either on source or residence basis. Zimbabwe applies the source based tax system. The celebrated tax case of CIR v Lever Brothers and Unilever Ltd 14 SATC 1, explains the term source is in two parts, namely, determining the originating cause of the income and the location of the originating cause. In other words, it looks into the activities that give rise to the income in question and the country where those activities took place. In Commissioner of Taxes vs. Shein 22 SATC 12 it was held that the source of income for services rendered is the place where the services were rendered or performed. It ruled that services can be rendered merely by accepting responsibility, and that responsibility is undertaken at the place where the business is situated.  Facts such as the residence status of the person, where the contract is made or the place of payment or the residence of the payer are all immaterial. The recent South Africa court case no 14218 (Mr X v the Commissioner for the South African Revenue Service) which appears to be challenging the status quo by declaring that the source of employment income is “the place the contract is concluded” cannot be ignored. The brief facts were that Mr X who was employed by a South African branch of a company incorporated in the United States of America earned part of his income for services rendered in United States, whereupon the court ruled that that the originating cause of such income was South Africa, the place the contract of employment was entered into and not the place the services were rendered by Mr X. The judgment creates tax loopholes whereby people could avoid tax by choosing the place of contract outside the place where services are actually rendered. Zimbabwe is however not bound by the decisions of a South African court on a particular aspect but the cases may be of persuasive value to our courts.

Zimbabwean working abroad

A resident who renders services outside Zimbabwe during a period(s) of temporary absence in Zimbabwe is assumed working in the country during that period. A period of temporary absence is a period whose aggregation duration does not exceed 183 days in any tax year. This means that income earned by directors and employees for services rendered outside Zimbabwe for a period or periods not exceeding 183 days in aggregate in a year of assessment must be declared and tax paid to the Zimbabwean Revenue Authority. Employers must therefore retain employees on short term assignment on their payrolls for purposes of remitting tax on the foreign income earned to the ZIMRA. Beyond the 183 days, the person shall be assumed to have cut the fiscal link with the country of Zimbabwe.

Civil servants (government employee)working abroad

A person in civil service and working abroad is deemed at any time working in Zimbabwe no matter the duration of the assignment. This however does not apply to a non-resident person rendering services for the Zimbabwean government in his home country e.g. a South African resident who renders services for a Zimbabwean Embassy in South Africa. In other words, the person must be an ordinary resident of Zimbabwe for him/her to be subject to the Zimbabwean tax rules.

Non-resident persons or expatriates working in Zimbabwe

Non-residents or expatriates must first obtain work permits for them to legally render services in Zimbabwe. An application for a work permit is lodged with the department of immigration in Zimbabwe and takes about 14 working days to process. An expatriate or a non-resident person who renders services in Zimbabwe should declare employees’ tax in Zimbabwe on his/her income earned in Zimbabwe, but not in respect of services performed by him/her wholly outside Zimbabwe. Critical to any expatriate or nonresident person’s circumstances is the existence of a Double Taxation Agreement (“DTA”) between his/her home country and Zimbabwe, as such the DTA overrides the provisions of the Act. Where such double taxation agreement exists and the duration of the person’s contract in Zimbabwe does not exceed 183 days, no tax liability would arise in Zimbabwe as long as the remuneration of the person is not paid by or on behalf of an employer who is in Zimbabwe or borne by a permanent establishment (fixed place of business) of the employer (nonresident person) situated in Zimbabwe. In other words, where all salary payments are made to the expatriates through an employer’s foreign payroll system, and the expatriates’ remuneration was not paid from the profits of a Zimbabwean base or branch, any remuneration paid to any expatriates who perform services in Zimbabwe for less than 183 days per year in aggregate will not be taxed in Zimbabwe. However the specific terms as per double taxation agreements must be consulted. Among the countries Zimbabwe has concluded double taxation agreements (tax treaties) include Botswana, Bulgaria, Canada, China, France, Germany, Malaysia, Mauritius, Netherlands, Norway, Poland, South Africa, Sweden and United Kingdom,

Employees of foreign governments

Foreign diplomats or consular mission staff is exempt from employee’s tax in Zimbabwe as long as they are stationed in Zimbabwe for the sole purpose of holding office in Zimbabwe as an official of foreign government.  The exemption falls away when the person obtains a permit for permanent residence in Zimbabwe. There are also specific agreements between Zimbabwe and foreign government agencies or world organisations, which must be consulted for purposes of exemption of employees of those bodies. 

Other considerations

Permanent establishment

Zimbabwe recently enacted permanent establishment rules which create an income tax nexus for a nonresident company which actively engaged in trading activities in country despite not incorporated in Zimbabwe. According to the rules, a nonresident company is actively trading in Zimbabwe if it has a fixed place of business or identifiable activities of a continuous nature in Zimbabwe or when it has an agent who habitually concludes contracts, or habitually plays the principal role leading to the conclusion of contracts that are routinely concluded without material modification by the company. Hence besides PAYE issues, expatriates and nonresidents have the potential to create a business of a nonresident company in Zimbabwe if they have powers of concluding business contract for the nonresident in Zimbabwe.

Double Taxation relief

Migration may expose a person to tax and immigration of laws of more than one jurisdiction. By extension this may result in him being taxed by both the home and the host country, which could give rise to double taxation. In order to eliminate such double taxation countries often enter into tax treaties and where a tax treaty is not in place have unilateral provisions in their domestic legislation to deal with the matter. In line with this, Zimbabwe has a handful tax treaties and section 93 of the Income Tax Act (unilateral provisions) to resolve the matter of double taxation of its residents using the foreign credit method. Under the foreign credit method, the tax paid in the foreign country is deducted from the tax due in Zimbabwe on the applicable foreign income but such tax shall not exceed the tax due in Zimbabwe on the said foreign income. 

Exchange controls

Zimbabwe has no exchange-control implications regarding services rendered by an individual in the diaspora and physically present in the diaspora. However, if an individual renders service to a non-resident whilst in Zimbabwe, then upon remittance of the funds by the non-resident to the individual for the service rendered, the individual must complete a JD form with his bank in order to receive the funds. Regarding an expatriate working in Zimbabwe, the Exchange Control General Order, 1996 (Chapter 22:05) authorises him to remit up to one-third of his gross monthly salary, allowances and bonus  subject to approval by the Reserve Bank. The significance of these rules is that a non-resident person should be paid in country for services rendered in Zimbabwe.


Employment tax rules are dynamic and complex so much that employers and their employees should critically evaluate the rules in order to avoid tax traps. It is important to understand that the source concept constitutes the corner stone of the Zimbabwean tax system and the residence concept is only used in exceptional circumstances or as a secondary matter. Such exceptional cases relate to cases where a resident of Zimbabwe has rendered services outside Zimbabwe under a short term assignment or where a resident of Zimbabwe renders services for the government, wherever rendered. Further, where a nonresident person provides services for a period less than 183 days in terms of a tax treaty between Zimbabwe and his country of residence, the taxing rights shall be assigned to his country of residence. Understanding the employee’s status is therefore critical in knowing whether a person has a tax nexus with the Zimbabwe, but tax is not the only matter. There are exchange controls and immigrations issues of cross border services which employers and employees ought to deal with.


The tough economic environment is taking a toll on most businesses albeit revelations that at least one company liquidates each day. Some are warming up for closure whilst others continuously post losses. Losses are not bad for tax purposes but what is key is for a business to stay afloat and hoping that one day fortunes will turn. The tax law recognises that loss represents an expenditure that can be used to reduce one’s future taxable income and consequently the tax bill. In the taxman’s language such loss is referred to as assessed loss and refers to a situation where one’s deductible expenditure exceeds income. It can be carried forward to be deducted against taxable income in any subsequent year of assessment. Hence creating a tax holiday for the business until the assessed loss is fully utilised. It is this turn of fortune that many struggling are hoping for. A loss making business is often a target for acquisition by a prospering business. Getting to utilise assessed loss is however not easy, there are conditions stipulated within the law that must be met.

Limitation on carry forward of assessed loss

Our law provides for separate taxation of “persons” namely a “person” with a separate legal entity is separately taxed. That is, assessed loss is ring fenced to a taxpayer. It permits assessed loss to be carried forward and deductible against future taxable income of the same taxpayer for a maximum period of six years from end of year of assessment in which the assessed loss first occurred. Assessed loss incurred first is claimed first, i.e. on first in first out basis. A much better olive branch is extended to taxpayers engaged in mining operations as these are allowed to carry forward their assessed losses indefinitely. However there no provisions for carry back of an assessed loss; namely assessed loss cannot be used to reduce taxable income of earlier years.

Buying companies with assessed loss

Assessed loss is taxpayer specific but in rare circumstances the tax code has allowed assessed loss to be shared within a group of companies if it is as a result of a scheme of reconstruction. It provides that where there is a change in the shareholding of a company with assessed loss or which directly or indirectly controls any company with an assessed loss and the Commissioner is of the opinion that such change has been effected solely or mainly in pursuance of or in connection with any scheme for taking advantage of such assessed loss, no assessed loss incurred prior to that change shall be deductible.  In other words, the taxman can sanction inheritance of assessed loss of one company by another as long as they are in the same group unless the takeover or scheme’s main objective was to take advantage of assessed loss (see: CIR v Ocean Manufacturing Ltd 1990 (3) SA 610 (A), 52 SATC 15). A taxpayer must prove that the change in shareholding was not influenced by existence of assessed loss. In ITC 983, 25 SATC 55, a company engaged in clothing manufacture bought shares in a company also engaged in clothing manufacture got its inheritance of assessed loss approved after it was proved that the main purpose of buying the shares was to enable the purchasing company to obtain a productive manufacturing unit for purposes of supplementing its productive capacity. The story was different in New Urban Properties Ltd v SIR, 27 SATC 175 where shareholders in successful land dealing companies bought the shares of another land dealing company but which was hopelessly insolvent but with an enormous deficit and assessed loss. It was held that the obvious intention was to channel profits of the successful companies to the unsuccessful one and, thereby, take advantage of the assessed loss.

Assessed loss of a localised foreign company

Companies often set up a branch or permanent establishment (PE) when entering foreign markets. A branch or a PE is considered to be a taxpayer in Zimbabwe. A PE is an international term that refers to a fixed place of business or dependent agent of a foreign business situated in the host country. If such a business decides to incorporate under the Zimbabwean laws i.e. to become a Zimbabwean company it is permitted to inherit assessed loss of such a branch or PE.  Thus the law sanctions inheritance of assessed loss where a company formally incorporated outside Zimbabwe (non-resident company) and was carrying on its principal business within Zimbabwe is about to be wound up voluntarily in its country of incorporation for the purpose of the transfer of the whole of its business and property wherever situate to its successor, a Zimbabwean incorporated company. The new company should however have the same shareholders in the same proportion as the old company if the inheritance is to be sanctioned by the taxman.

A company converting into public business corporation or vice versa

A company incorporated under the Companies Act (Chapter 24:03) which is converted into a Private Business Corporation (PBC) or vice versa is permitted to carry forward assessed loss into the new entity unless the conversion has been motivated solely or mainly by the existence of an assessed loss.

Insolvent and assigned estates

A rehabilitated person and his/her insolvent estate are two different persons in the eyes of tax law. Therefore a person that has been declared insolvent or had his property or estate assigned for the benefit of creditors cannot carry forward his/her assessed loss. 

Ring fencing of assessed loss 

Our law operates separate capital gains tax and income tax systems .In other words capital loss is ring fenced to capital gains tax, meaning it cannot be set off against other tax heads. The same applies to assessed loss emanating from business, it can be offset against income from business of the taxpayer subject to the limitations stated above. Similarly a person in employment is prohibited from setting off his/her employment against business income or vice versa.


Your assessed loss today represents a tax treasure to be used in days of plenty. It’s important however to have in place plans for harvesting assessed loss such as new businesses initiatives that brings in income, deferring deductible expenditure, avoiding tax yields investment etc, bearing in mind that your assessed loss has 6 year life span. However, perpetual losses often get the taxman talking “why should a taxpayer remain in business when he continues making losses”. This often invites a tax audit for purposes of scrutinizing whether the assessed loss is genuine and not a result a tax avoidance scheme or operation. Judge Kudya in  CRS (PVT) LTD v the ZIMRA HH-728-17, FA 20/2014 said that the main objective of a private company is to make profit and when  content with the untenable situation and continues to make losses with no prospects of profit this an indication the company is engaged tax avoidance scheme or operation.



The law defines a benefit or advantage in relation to employment as the value of an advantage or benefit in respect of employment, service, office or other gainful occupation or in connection with the taking up or termination of employment, service, office or other gainful occupation. It implies anything that has saved an employee from taking out of his or her own pocket. Common employment benefits in Zimbabwe include housing, use of furniture, motor vehicle, loan, telephone or cellphone, domestic worker or gardener, security services, fuel coupons, school fees, passage benefit, medical cover, pension cover, holiday, airtime and entertainment allowance. A benefit does not however includes any such amount consumed, occupied, used or enjoyed for the benefit of employer business. Fringe benefits reduce expenses of employees and at times they are an agent for motivation. However some employers are not aware that they are supposed to be taxed if they are for the benefit of the employee or his/her family. Sometimes the reason for not declaring them is often due to conflict of interest. This is because personnel who are tasked with implementing the remuneration strategy are also employees who seek to maximize their earnings.  This article considers how some of these benefits are treated for tax purposes below:

Right of use of company car

Motor car benefit arises when an employee is granted the right of private use of an employer’s vehicle. Private usage includes travelling between home and place of work, the use of the vehicle during weekends and holidays. It does not matter that the vehicle is parked at the employee’s residence for the convenience of the employer. The benefit to the employee depends on the engine capacity of the vehicle granted to the employee. The practical consideration is that people such as sale representatives who take employer’s motor vehicles home would still be liable to tax on the motoring benefit notwithstanding the motor vehicle may be viewed a tool of trade.

Purchase of a car from employer

Where an employee acquires a motor vehicle from the employer or an associate of the employer, a taxable benefit arises if the market value of the vehicle at the point of acquisition by an employee exceeds the amount which the employee paid to the employer to acquire the vehicle. The market value of the car should be verifiable. The practical consideration is that the ZIMRA will require as evidence at least three quotations of the market value from reputable motor dealers. The benefit is exempt if the acquisition is by an employee who has attained an age of 55 years on the date of sale of the car to him/her.

Use of personal car at work

A taxable benefit arises when an employee receives an allowance in the form of repairs and maintenance, fuel or other cash allowance for using his/her car etc. Where the employee uses his/her car to deliver employer’s duties that part of the business mileage should be claimed using Automobile Association of Zimbabwe rates (AA rates). If the employee claims mileage allowance in respect of private errands this constitute taxable benefit. When instead an employer repairs or maintains an employee‘s personal vehicle as compensation for use on company business, cost of such repairs or maintenance must not exceed the mileage claim computed on the basis of AA rates. If it does exceeds the extra represents a taxable benefit.  

Occupation of an employer’s house

An employee who occupies quarters or a house belonging to or sponsored by an employer enjoys a taxable benefit.  The benefit is the open market rent reduced by any rent which the employee pays to the employer.   The practical consideration is that any person who occupies a company house including caretakers, because they have been saved from taking money out of their pockets the rentals, are subject to tax on the housing benefit.

Airtime or data use

Airtime or data paid to staff for private usage constitute a taxable benefit to the employee, but excluding that portion of data or airtime expended on employer’s business.  The practical consideration is that the employer must make an analysis of the airtime usage by the employee to have a clear picture of what proportion is taxable. The employer can thus utilise that analysis to bail out an employee from bearing high employment tax by creating an airtime policy document which clearly specifies the proportion of the airtime utilised for business purposes and that which is utilised for personal purposes by the employee. The business usage of the airtime or data should be proved or justified. In practice it is difficult to prove business usage unless the company has a system that ensures that cellphone usage is analysed for private and business usage and the private usage accounted through employees’ payroll.


Entertainment allowance in money or in kind given to an employee by an employer constitutes a taxable benefit to the employee, unless the benefit has been expended on the business of the employer. Entertainment is expended on business of employer when expended on or enjoyed with business clients. Entertainment means hospitality or amusement of any form and includes a banquet, a meal, refreshments of any kind and hospitable provisions.

Canteen meals or refreshments

Meals, refreshments or vouchers entitling an employee to a meal or refreshment provided by an employer at a subsidized price or for free, gives rise to a taxable benefit. No taxable benefit arise when an employee is required to work extended working hours or travelled out of town on employer’s business.

Concessionary loans

Where an employer or associated employer grants an employee a loan or credit, a taxable benefit arises if the interest rate so charged to the employee is below the statutory interest rate. The statutory rate is London Inter-Bank Offer Rate (LIBOR) plus 5%. Interest on loans for the purpose of the education or technical training or medical treatment of an employee, spouse or child is tax exempt. 


Omitting benefits from the payroll is disastrous. Should the Zimbabwe Revenue Authority pick up this omission they will penalize the employer. However the employer is empowered to recover the principal tax from the employee, but not penalty and interest. Managing fringe benefits therefore requires that an employer understands the intricacies of fringe benefits and establishes a fringe benefit policy which requires approval by ZIMRA.


When running a business it is a requirement to keep certain records that document and explain all the transactions of the business. Records constitute the basis of financial and tax reporting. Not only is financial information important to the businessman but also to a bank that may have advanced funds to the business. The government needs financial information for taxes and statistical purposes.  Other stakeholders who have interest in the financial information of the business include employees, customers, creditors, the community, potential investors among others.  The records that should be kept should enable the business person to determine his income and expenditure. Some of them include receipts for supplies, deposit books, bank statements, invoices books, credit and debits notes, purchase orders, logbooks for car expenses wages records, including worker payment records, employment declarations etc. The tax law has prescribed that records must be kept for at least a period of 6 years from the date of its origination and must be in English language and should easily be accessible.  Records must be kept for tax purposes because the taxman uses them as proof that financial transactions really occurred and apparently the law imposes the burden of proof on the part of the taxpayer to prove that entries in tax returns submitted by the taxpayer are correct. 

Burden of proof in civil cases

The burden of proof refers to the degree of probability that must exist in order for a circumstance to form the basis of a tax assessment decision or a judgment. Unlike in criminal cases where the burden of proof is on the accuser, in civil cases the onus is on the accused. Tax, being a claim on the taxpayer’s property, constitutes a civil claim on the taxpayer’s property and the taxpayer must prove that on a balance of probabilities, the claim by the taxman is false. Thus in an appeal or objection a taxpayer who wishes to claim a deduction, exemption or rebate may be called upon by the Commissioner to support his/her claim. The court has no power to reverse or alter any decision of the Commissioner unless it is shown by the taxpayer that the decision is wrong. This position is in terms of s63 of the Income Tax Act (ITA), Chapter 23:06  which reads: “Burden of proof as to exemptions, deductions or abatements In any objection or appeal under this Act, the burden of proof that any amount is exempt from or not liable to the tax or is subject to any deduction in terms of this Act or credit, shall be upon the person claiming such exemption, non-liability, deduction or credit and upon the hearing of any appeal the court shall not reverse or alter any decision of the Commissioner unless it is shown by the appellant that the decision is wrong”. Similar provisions are contained in s 15 of the Fiscal Appeal Court Act [Chapter 23:05] and s 37 of the Value Added Tax Act [Chapter 23:12] for purposes of VAT liabilities.These provisions apply to both the courts and the tax authorities. Thus any decision should be based on the facts that seem more likely to have occurred. It is primarily the taxpayer who bears the responsibility of providing documentation, and one must base any decision on an entirely free evaluation of evidence. He must be able to substantiate certain elements of expenses to deduct them, prove entries, deductions and statements made in his tax returns.  If the taxpayer is unable to provide sufficient evidence for a tax matter imposed against him/her, the Commissioner cannot waive the case. The burden is on the taxpayer because it is the taxpayer who is burdened with the responsibility of keeping accounting records. Section 37B of the ITA and s57 of the VAT Act, Chapter 23:12 requires him to keep records and these have to be kept for a period of six years in English Language.

Discharging the burden of proof

Taxpayers must discharge the burden of proof by having the information and receipts (where needed). They should keep adequate records and have documentary evidence such as receipts, cancelled checks, or bills to support certain expenses. This means that it is the taxpayer who bears the duty to provide relevant information which he will use as proof of the actual transactions which took place. If the tax authorities find that there is no proper documentation during a tax assessment, it uses its own discretion even if it is above the real transactions that took place. The records should be adequate to support entries in the tax returns submitted to the ZIMRA.

Estimated assessments

Where records have not been kept or in the absence of documentary proof the Commissioner is entitled in terms of the law to raise an estimated assessment. Thus persons upon whom estimated assessments are raised are those who would have failed to submit returns, made false declarations, those about to leave the country without submitting returns as required by the law or those unable from any source to submit returns. The Commissioner is not however permitted to revise an assessment if it was made in accordance with the “practice generally prevailing at the date of assessment (Weare v the Commissioner for SARS (2005 (4) 488 SCA)). Estimated assessments are very punitive because they are often overstated. In addition they may also carry a 100% penalty and more often than not the Commissioner does not accept a revision of an estimated assessment to reduce tax liability. An estimated assessment does not relieve a taxpayer of his duty to settle tax liabilities in accordance with dates stipulated in the Act. Therefore interest on estimated tax liabilities is due from the establishment date not from the date an estimated assessment is raised. The establishment date is the date the tax was supposed to be paid.


In conclusion as a businessman you are advised to keep records of your transactions in order to avoid the wrath of the taxman. Estimated assessments which the taxman may raise on you if you have not kept records and have not been paying taxes may destroy your business which you have toiled for in order to be what it is today. The records must be stored in original form even if you keep electronic records. You will be committing an offence if you have not kept these records or to wilfully damage or destroy them. Whatever records you keep, it makes sense to organise and keep them in an orderly fashion. They should be easily accessible in order to respond promptly to the ZIMRA demands. Final such records must span a period of years to prove ZIMRA allegations. If an accounting entry cannot be supported ZIMRA will deem it not to have occurred and will seek to attribute tax and also charge penalty on the amount.



There is so much talk in both informal and formal forums of Zimbabwe being a multi- billion dollar economy through the small to medium enterprises. It is believed that not much has been done to formalise the informal sector to allow the collection of revenue from the SME’s, yet SMEs are strongly competing against the big companies for business. In the IMF working paper titled Shadow Economies Around the World: What Did We Learn Over the Last 20 Years? prepared by Leandro Medina and Friedrich Schneiderit was reported that Zimbabwe is number two in the world in size of the informal economy after Bolivia. 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 our country. Fiscal exclusion has also been a factor influencing the lack of formalization of the SMEs. 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. Poor tax planning may be costly on compliance, administration and ultimately the general success of the business. This piece of writing aims to indicate the tax issues that may affect the SMEs and give recommendations on what can be done to improve compliance of SMEs.

There is compelling evidence on the ground on why the SMEs should heed the call to register and save their businesses. Firstly, free markets have been eradicated as evidenced by the rigorous clean up exercises to remove the vendors, the money changers amongst many other informal traders. Recently, Statutory Instrument 246 of 2018 was published in the extraordinary gazette which criminalises the informal trading of foreign currency, a move targeted at removal of informal trading in forex. In addition to the forgoing, the Minister in delivering his speech on the Monetary Policy intimated that: “… due to the increase in informalisation of the economy and huge increase in electronic and mobile phone-based financial transactions and RTGS transactions, there is need to expand the tax collection base and ensure that the tax collection points are aligned with electronic mobile payment transactions and RTGS system” This speech culminated into the recent revision of IMTT from 5 cents to 2 cents on the dollar value of transactions. This takes a big knock on the informal sole traders. The tax is however a lesser 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. A sole trader without proper books of accounts may not benefit from this exemption.  This tax is broad based and unavoidable by informal businesses. In my view, all these exercises are being undertaken to formalize the economy. SMEs have two choices, to either shape up or shape out!!

Furthermore, the existing laws are crafted in such a manner that they favour formalised institutions as opposed to informal institutions. In Zimbabwe all businesses are supposed to withhold 10% on payments made to other businesses without tax clearance certificates. Additionally, there is 10% withholding tax on importation of goods in the absence of a tax clearance. The taxes are payable by the seller and importer of goods respectively. For SMEs that have not formalised, they lose out on revenue that is withheld on contracts that they enter with other formal businesses in the absence of a tax clearance. The 10% withholding tax applies on turnover for lack of tax clearance. By virtue of formalising tax affairs, SMEs can enjoy exemption of the 10% withholding tax on contracts with other businesses. Even the laws governing the banks are crafted against the informal institutions. For bankable projects to be approved, these rely on proper books of accounts, cash flow projections and other formalities. The lack of books of accounts is a deterrent towards the approval of such loans. For bankable projects the banks would need proper books of accounts to be kept and the business to be compliant with the tax laws. Informal institutions do not qualify for these loans. To a great extent informal institutions do not enjoy the benefit and protection of the law by lack of formalisation. Incentives such as assessed losses, capital allowances and tax holidays and rebates cannot be enjoyed by informal institutions because of the lack of the relevant registrations. Informal institutions 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 expired in which case 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.

From a commercial point of view, it is argued that big businesses do not trade with unstructured businesses without tax clearances. To participate in lucrative government tenders and other big tenders, it is a pre-requisite to have a tax clearance. A tax clearance implies formalisation, which entails that informal businesses cannot participate and are not considered at all. Also, foreign lucrative markets are also difficult to tap into without being formally structured. The export incentives do not apply to informal businesses. Big businesses are reluctant to trade with unstructured businesses on a strategic point of view. The perception is that unstructured businesses lack continuity therefore it may be difficult to establish long lasting business relationships with a business without a succession plan. If the owner dies, the business dies with the owner, a situation that most big businesses who create mutually beneficial strategic partnerships with other businesses consider before engaging in business ventures.

The dye towards formalisation has been cast. The technology to enforce this process is already in place. Electronic transactions are now being closely monitored through the Financial Intelligence Unit created by the amendment to the Money Laundering and Proceeds of Crime Act. Ecocash, telecash, one-money and other mobile money transfer services can easily be traced as they leave a paper trail. None compliance can easily be detected through the mobile transfers and other payment platforms. When non-compliance has been detected, the ramifications are very difficult to swallow. The law provides for backdating of tax registration and payment of taxes from the date the person was supposed to be tax registered. This comes along with 100% penalties and interest on late paid taxes not to mention the penalty that is attached on non-submission of returns. Section 56 and 77 of the Income Tax Act provide for the drastic measures of recovery of taxes. Section 56 provides for the personal liability of a representative taxpayer. This entails that the principals of informal institutions will be personally liable for taxes after the non-compliance is discovered. Additionally, section 77 provides for the legal action for the recovery of taxes, and also penalises a person who disposes property to avoid payment of tax. By implication, this entails that non-compliance will result in loss of property.  

With all this said, there is still time for informal institutions to formalise before being rejected by the system. The ZIMRA has the ongoing voluntary disclosure program which ends on the 31st of December 2018. Informal institutions should take advantage of this program and avert the inevitable day of reckoning when the ZIMRA finds out the tax non-compliance issues. Voluntary disclosure results in the automatic waiver on penalties which effectively mitigates the tax liability.


It is a misconception that to be registered for tax is translates to expenses. The reverse is actually true 10% 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. In addition to the forgoing, there is 100% penalty and interest on late paid taxes not to mention the penalty that is attached for non-submission of 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.     


Signing contracts is not just a matter of appending your signature on paper but a matter of life and death. Caveat subscriptor is a trite principle at law which is roughly translated as “signatory beware”. It entails that the signatory is bound by his signature and cannot deny existence of obligation included in the document he has signed.  The parties involved in a contract, the risk involved and the rights and responsibilities to be carried out under the contract, including dispute resolution mechanism, remedy clauses among others must be known before appending one’s signature. Besides the commercial disputes that can arise between the contracting parties, contracts are instruments which may invite unwanted taxes if poorly drafted. To the extent that contracts and reality or conduct are at variance the later prevails for tax purposes. Therefore contracts will only become worthless papers in the eyes of the taxman. It is important to be more diligent when signing contracts and engaging tax persons to analyse your contract before you sign. In addition, the contracts should be at arm’s length i.e. the agreement should be at fair market value especially for contracts between related parties. Arm’s length implies the contract terms are fairly reflective of the market conditions and are not constraint due to the relationship between the parties.

Non-arm’s length or abnormal contracts

Section 23 (1) of the Income Tax Act (ITA) Chapter 23:06 provides that ‘where any person carrying on a trade in Zimbabwe purchases any property from any other person at a price in excess of the fair market price, or where he sells any property at a price less than the fair market price the Commissioner may, determine the fair market price at which such purchase or sale shall be taken into his accounts or returns for assessment”. This was the subject of debate in Elite Wholesale (Rhodesia) (Pvt) Ltd v COT (1955) 20 SATC 33, a case that involved a low marked up sale transactions between associates. The Commissioner alleged that markup was low and increased it to 15% on cost. However he lost his case after failing to prove the basis for adjustment. The court held that “If the transaction is a perfectly innocent one, the mere fact that a reduction in income has resulted is not a sufficient justification for the exercise of the power. An occasion for its exercise arises when there is something about the transaction which indicates an intention to evade assessment or tax, something which shows a lack of good faith or the presence of ‘moral dishonesty in the taxpayer’s mind’”. Contracts entered with the sole or main purpose of avoiding or postponing can also be stripped of the value and reconstituted by the Commissioner in terms of s 98 of the ITA. The section allows him or her to make adjustment raising additional tax, plus penalty and interest. Literally section 98 is invoked where the Commissioner is of the view that transaction, operation or scheme entered into or carried out by the taxpayer has the effect of avoiding, reducing or postponing tax liability, and having regard to the circumstances under which it was entered into or carried out it was by means or manner which would not normally be employed in the entering into or carrying out of such a transaction etc. and as resulted created non-arm length rights or obligations.

Contracts between related parties

The prices exchanged by related parties are often not reflective of the market conditions. Some of  the transactions between related parties can be offering technical support services within group set ups; financial assistance in terms of  loans, guarantees and extended credit terms; intangible transactions for example the use of brand, know how, IP, royalties; making available equipment either for rental payments or no consideration. Transactions like these need careful consideration of tax issues involved in terms of transfer pricing. For accounting purposes there will not be any problem in terms of pricing as financial statements are prepared based on figures. When it comes to the taxman it will be a different issue. Some companies find themselves in a scenario whereby they trade with a company in which the controlling shareholding of the company is also part of the board of the company with which that company is transacting with and enter into abnormal contracts that are predicated at tax avoidance or evasion. Upon whiff of this sort of arrangement, the taxman immediately invokes the provisions of section 2A(1)of the ITA which provide that “where a person, other than an employee, acts in accordance with the requests of another person, whether or not the persons are in a business relationship and whether or not those requests are communicated to the first-mentioned person, both persons shall be treated as associates of each other for the purposes of this Act”. The effect of this is that taxpayers will be deemed associates and this triggers application of section 98B which deals with transactions of associates. The ramifications of this kind of arrangement is well captured in subsections (1) and (2) of section 98B which provide that: “(1)Where a person engages directly or indirectly in any transaction, with an associated person, the amount of taxable income derived by a person that engages in that transaction shall be consistent with the arm’s length principle,….(2) Any amount of income that would have accrued to either of the associated persons in a controlled transaction and been taxable in Zimbabwe, shall, in the absence of the arm’s length principle be included in the taxable income of either or both of them and be liable to be taxed accordingly”. In summary associated parties transactions must satisfy the arm’s length test as provided in section 98B as read with the 35th Schedule to the ITA. The Minister in his last week National Budget Speech emphasized transfer pricing policy document for associated enterprises.

Contracts with non-residents

Nonresidents often bargain for tax reduction incurred by them on the foreign lands and often bring about the clause all taxes of the country to be borne by the payee. The effect is that any underlying taxes thereof will be borne by the recipient contrary to the provisions of the 17th , 18th ,19th Schedule and s 15(2)(a) of the ITA. These taxes must be borne by the non-resident person, but because local payees hardly pay attention to these clauses or bargain for them they end up bearing the taxes. Taxes paid on behalf of the non-resident are deemed donations and disallowed for Income Tax for Income Tax purposes in terms of s15 (2) (a) of the ITA.


Although taxpayers have freedom of contract, they should give careful consideration to every little detail to avoid disputes with the taxman especially when drafting the terms that govern their contracts. Contracts are just not a signature on paper, they must be carefully read, understood and unfavorable clauses corrected.


Last week on Thursday, the 13th of December 2018, the government published a revised Finance (No.3) Act, 2018  (“the Bill”) which adds a few tax measures whilst refining some of the proposals of the first draft and the National Budget Speech published on the 22nd of November 2018. But what is fascinating is the revised definition of imported services which is not good news for VAT registered taxpayers. If you are a VAT registered taxpayer brace up of a new tax, additional to the 2% IMTT. It is all about austerity for prosperity this season!

The new definition

The new term imported services means “a supply of services that is made by a supplier who is not resident in Zimbabwe or carries on business outside Zimbabwe to a recipient who is a resident of Zimbabwe to the extent that such services are utilised or consumed in Zimbabwe;”. It implies that any person who utilises or consumes in Zimbabwe imported services, whether not for private or business purposes, or whether or not a registered VAT operator, is deemed to be a recipient of such services.  The old law restricted the definition to such services imported and “utilized or consumed in Zimbabwe otherwise than for the purpose of making taxable supplies”. Therefore if one was to utilise or consume the imported services for use, consumption or supply for purposes of making taxable supplies (standard or zero rated supplies), which was usually the case with VAT registered taxpayers, these would not be deemed imported services. The revised bill changes all that and intends to widen the tax base to include services imported by registered operators. Although it is apparently difficult to enforce, individuals not in business are also liable to pay VAT upon importation of services by them.

Resident person

The recipient of the services must be a resident of Zimbabwe who acquires services from a foreign supplier or a supplier carrying on a business outside Zimbabwe. The term resident person is in terms of the law any “person, other than a company, who is ordinarily resident in Zimbabwe or a company which is incorporated in Zimbabwe. Any other person or company is deemed to be a resident of Zimbabwe to the extent that such person or company carries on in Zimbabwe any trade or other activity and has a fixed or permanent place in Zimbabwe relating to such trade or other activity.

VAT on imported services

VAT on imported services is paid by the resident person importer of services in terms of the law at the rate of 15% of the open market value of such services.  As stated above the the supplier of services must be a non-resident person or carrying on business outside Zimbabwe. It does not apply in cases where a non- resident person (including a company) operates a business in Zimbabwe or is VAT registered in Zimbabwe.  In Tax Court case (VAT 144 [2006] JOL 17138 (TC)) it was held that if a foreign supplier regularly and continuously renders services in a country, the foreign supplier is carrying on a trade in the country. It will be required to register and account for VAT itself and in such a case the recipient of the services is not liable for VAT on imported services.

Accounting for VAT

The recipient of the service must account for the VAT on imported services and pay the VAT to the ZIMRA within 30 days from the date of the foreign supplier’s invoice, or when payment is made, whichever is earlier. The importer should at the same time furnish the ZIMRA with a declaration, namely VAT return. The value on which the VAT is payable is the greater of the value of the consideration for the supply, or the open market value of the service.  


The law specifically exempt imported services which if they were being supplied in Zimbabwe would be either zero rated or exempted. An example is where one imports actuary services, medical services, financial guarantee, suretyship, educational service etc. These services are ordinarily exempt in terms of the law. To the extent that the services are utilised or consumed outside Zimbabwe by a resident, VAT charge shall not apply.   In other words, VAT on imported services apply to services which would ordinarily be subject to VAT at 15% had they been supplied by a supplier dealing in taxable supplies.

Other taxes on imported service

Imported services may also be subject to non-resident tax on fees (NRST) in terms of the Income Tax Act, Chapter 23:06. The law defines fees as any amount paid in respect of services of a managerial, consultative, administrative or technical in nature. Fees paid by a resident payer regardless of where the payment is effected from or the place the services are rendered, are therefore subject to NRST. The rate of tax is 15% of gross fees subject to any provision of tax treaty in existence between the resident person’s country of residence and Zimbabwe. A tax treaty may either reduce or eliminate the withholding tax liability and you are advised to consult the relevant tax treaty for details. The tax must be remitted to the ZIMRA within 10 days of date of invoices of services or actual payment of fees to a non-resident whichever occurs first, or within some other period approved by the Commissioner.  


In conclusion all services rendered by foreign suppliers to Zimbabwean recipients comprise imported services. It does not matter anymore whether the recipient uses or consumes the service in the course of making taxable supplies, but if the services are consumed outside Zimbabwe they are not considered to be imported services. Similarly, if the foreign supplier is required to register and account for VAT in Zimbabwe, the service is not an imported service. Thus the new law imposes an extra tax burden on VAT registered taxpayers. They must be geared up for the tax come 1 January 2019. It becomes important for them to evaluate the need of such services or where they are unavoidable evaluate the costing model. Note that local services procured from VAT registered taxpayer may be attractive in this instance because the operator will be entitled to reclaim input tax incurred if such services were acquired for use, consumption or supply for purposes of making taxable supplies.