VAT registered taxpayers to brace up for new tax


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.  

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