As noted below, Zambian CIT rules set out a number of sources of income that are subject to CIT. Income from each source is calculated separately, and a CIT liability arises on each source with no ability to offset a loss from one source against income from another source.
Business gains or profits from a Zambian source are taxable by reference to a charge year. This charge year runs from 1 January to 31 December; however, entities can apply to the Zambia Revenue Authority (ZRA) to have their accounts prepared for a different year end.
In calculating business income, IFRS should be followed for CIT purposes, including the determination of stock valuation.
Zambia does not have a capital gains tax regime, and, except where provided otherwise in the Income Tax Act or other legislation, capital gains are not subject to tax.
All dividend income from non-Zambian sources of a Zambian resident company is subject to CIT as a separate source.
In the case of dividend income received from another Zambian resident company, the WHT deducted on the payment of the dividend should represent the ‘final tax’, and the Zambian resident company receiving the dividend is not subject to an additional CIT liability.
All interest income (from both Zambian and non-Zambian sources) of a Zambian resident company is subject to CIT as a separate source.
In the case of interest income from a Zambian source, the taxable amount for the recipient company is inclusive of the WHT deducted at source on the payment of the interest. The WHT is available as a credit for offset against the final CIT liability of the recipient Zambian resident company.
WHT applies at 10% on rental payments. This is the final tax for a landlord, which will not be subject to a further CIT liability.
Zambian-source royalty income (which is very widely defined for these tax purposes) of a Zambian resident company is subject to CIT as a separate source, together with premiums or any like consideration for the use of any Zambian property.
The taxable amount for the recipient company is inclusive of the WHT deducted at source on the payment of the royalty. The WHT is available as a credit for offset against the CIT liability of the Zambian resident recipient company.
Where a business is carried on in partnership, the income to which each partner is entitled in a period is ascertained under the Zambian income tax rules, and each partner is assessed and charged separately. Accordingly, a partnership is broadly transparent for Zambian income tax purposes.
Unrealised gains are not taxable, and, similarly, unrealised losses are not tax deductible.
Foreign currency exchange gains/losses
Foreign exchange gains are only taxable to the extent that they are revenue rather than capital in nature, in which case they are not taxed until they are realised. Foreign exchange losses are only deductible to the extent that they are revenue in nature and realised. By exception, foreign exchange losses of a capital nature incurred on borrowings used for the building and construction of an industrial or commercial building are deductible.
Other significant items
Other sources of income that are taxed under separate source include income from hedging activities.
As noted above, Zambia operates a source-based system of income tax. However, where an individual/corporate entity is resident in Zambia, then they will also be subject to income tax on non-Zambian source dividends and interest income.
There are no specific anti-avoidance rules preventing deferral of non-Zambian source income, although it should be noted that Zambia has a general anti-avoidance rule.