There are no special CIT rules for groups of companies. Accordingly, CIT returns cannot be prepared on a consolidated basis for group purposes. Losses arising in one group company cannot be set against profits of another group company.
Transfer pricing rules apply to transactions between associated persons and require that transactions are undertaken on an arm’s-length basis. Otherwise, the associated person benefiting from a reduction in income as a consequence of any non-arm’s-length terms will have its CIT computation adjusted as if the transactions had been undertaken on an arm’s-length basis.
OECD transfer pricing guidelines are generally accepted as the appropriate basis to determine arm’s-length terms.
In addition to maintaining up-to-date transfer pricing documentation, companies should ensure that there is a good audit trail and sufficient documentary evidence to demonstrate that related-party transactions were undertaken in line with the arm’s-length principle. Failure to provide transfer pricing documentation is an offence, with defaulters liable to various penalties.
The document retention period in respect of transfer pricing has been increased from 6 years to 10 years.
The penalty for non-compliance with transfer pricing regulations has been increased from 10,000 penalty units to up to 80 million penalty units (i.e. from ZMW 3,000 to up to ZMW 24 million).
Deductibility of interest is limited to 30% of a company’s EBITDA. This limit excludes businesses on the turnover tax system and taxpayers engaged under the Banking and Financial Services Act.
The acceptable debt-to-equity ratio for mining companies is 3:1.
Controlled foreign companies (CFCs)
Zambia does not have a CFC regime.