Zambia

Following the 2026 Budget announcements, below are some of the amendments to the tax legislations in Zambia with effect from 1 January 2026:

Corporate income tax (CIT)

Certain legislative amendments are designed to stimulate economic growth and streamline tax compliance mechanisms. The key changes and their implications for stakeholders are as follows:

Minimum Alternative Tax (MAT)  

• A 1% MAT applies on turnover even where a taxpayer reports low or nil taxable income.  

• Exclusions: persons taxed under presumptive tax or turnover tax, and railway‑sector Special Purpose Vehicles (SPVs) during the first twelve charge years. MAT paid may be credited against future income tax liabilities for up to five years. 

Interest Deduction Limitation  

• Interest expense is generally deductible up to 30% of tax Earnings Before Interest Tax Depreciation and Amortisation (EBITDA); for railway‑sector SPVs, the interest deduction is limited to 70% of tax EBITDA during the incentive period.
• Disallowed interest may be carried forward in accordance with the Act. 

• The limitation on interest applies to debts owed to both related parties and third parties. 

• The SPV may carry forward any interest expense disallowed under this provision to the subsequent chargeable year and treat such expense as incurred in that year. 

• No further thin capitalisation rules limiting interest deductibility apply. 

Loss Utilisation – Railway Sector SPV  

• An SPV operating in the railway-sector may deduct losses incurred from a particular source against up to 70% of its income from that source in the relevant tax year. 

• Where a loss exceeds the 70% utilisation limit, the SPV may carry forward the excess and deduct it against up to 70% of its income from the same source in the following tax year. 

• The SPV may not carry forward such losses beyond 12 subsequent charge years from the year in which they arose. 

Deduction for Employing Persons with Disabilities 

• The Income Tax Act (ITA) amendments increase the per-employee deduction for employing persons with disabilities from ZMW 2,000 to ZMW 2,500 when computing taxable profits. 

Accounting Records in Foreign Currency 

• Following amendments to the ITA, persons carrying out mining operations or mineral processing may now maintain their books of account in United States Dollars for all transactions related to, connected with, or incidental to their mining operations or mineral processing activities. 

• To qualify for this treatment, the person must satisfy the Commissioner-General of the Zambia Revenue Authority (ZRA) that at least seventy-five per cent (75%) of their gross income derives from foreign exchange earned outside Zambia. 

Assessments and Presumptive Tax 

The ITA has been amended to introduce the following changes to the presumptive tax regime: 

• The amendments exclude income derived from public service vehicles with a seating capacity of 50 seats or more from the presumptive tax regime. 

• The Commissioner-General may issue a standard assessment requiring persons who carry on a business with an annual turnover of ZMW 5,000,000 or less to pay turnover tax. The applicable rates are 0% for annual income up to ZMW 30,000 and 5% for annual income exceeding ZMW 30,000 but not exceeding ZMW 5,000,000. This provision does not apply to consultancy services or mining operations. 

• Holders of mining licences who engage in artisanal or small-scale mining and whose annual turnover does not exceed ZMW 5,000,000 must pay turnover tax at a rate of 4% on gross turnover, less any mineral royalty paid. 

Double Taxation Agreement – Confidentiality of Information 

• The ITA has been amended to clarify that any information obtained by Zambia under a tax treaty must be kept confidential and protected in the same manner as information obtained under the domestic law of the supplying country. 

• Such information may only be disclosed in accordance with the terms and conditions of the relevant tax agreement. 

• This amendment aligns with Zambia’s obligations under the OECD standards for the Exchange of Information on Request (EOIR) and Automatic Exchange of Information (AEOI), which require participating jurisdictions to ensure the confidentiality and proper use of tax information exchanged internationally. 

Late Payment Penalties on tax assessments 

• The ITA has been amended to introduce a penalty of 0.5% per month, or part thereof, on any unpaid tax arising from an assessment that the ZRA issues. This penalty accrues from the due date until the taxpayer settles the amount in full. The amendment clarifies the 'pay now, argue later' rule that the ZRA has applied in practice. 

 Permanent Establishment - Anti-Fragmentation Rule

• With effect from 1 January 2026, the ITA has been amended to introduce an anti-fragmentation rule. This provision establishes that a fixed place of business does not qualify as carrying out merely preparatory or auxiliary activities where the enterprise, or a related enterprise, conducts additional business activities in Zambia and the aggregate activities are substantive in nature. 

• This amendment is particularly significant for multinational enterprises with fragmented operations. 

• Practical Example: Consider a multinational company that operates both a warehousing facility and a sales office in Zambia. If the warehouse is used for storing goods (which might ordinarily be seen as an auxiliary activity), but a related enterprise maintains a sales office in Zambia that actively sells those goods, the combined activities are deemed substantive. Under the anti-fragmentation rule, the warehousing facility cannot claim exemption from permanent establishment status by arguing its activities are merely auxiliary; the overall business presence is considered significant, and the enterprise may be subject to Zambian tax on the profits attributable to the permanent establishment. 

• Interaction with Double Taxation Treaty (DTT) Override: If a relevant DTT between Zambia and another country contains wording that differs from the domestic anti-fragmentation rule—for example, if the treaty allows exemption for preparatory or auxiliary activities even where there are substantive combined activities—the treaty provision may override the domestic rule. However, Zambia’s approach is to apply the anti-fragmentation rule unless the treaty explicitly provides otherwise. In practice, where the treaty is based on the OECD Model and contains similar anti-fragmentation wording, Zambia will apply the domestic rule in harmony with treaty principles. If the treaty wording is less restrictive, taxpayers may rely on the treaty protection, but careful analysis is required to determine whether the anti-fragmentation rule or the treaty prevails. 

 Voluntary Disclosure 

• The ITA has been amended to introduce penalty waiver provisions for voluntary disclosures. Under this amendment, the Commissioner-General of the ZRA shall not impose a penalty where a person or partnership voluntarily discloses an omission, error, or mistake in relation to an assessment. To benefit from this waiver, the taxpayer must make the disclosure before the Commissioner-General identifies the issue through an audit or other means.  

Value Added Tax (VAT)

Broader Scope of Remission  

• The VAT Act has been amended to empower the Minister of Finance to remit principal VAT liabilities deemed irrecoverable, upon recommendation by the Commissioner-General. Previously, the VAT Act only allowed remission of penalties and interest, leaving no relief mechanism for irrecoverable principal tax.
  

Amendment to VAT Zero Rating Order 

• Donor Funding Definition  

• • The definition of donor funding has been expanded. Previously limited to grants only, it now includes both grants and loans provided to the Government of Zambia, aligning the VAT treatment with current financing arrangements. 

• VAT Treatment of Water Supply Services
  

• • Water supply services were previously exempt from VAT under Item 17 of the Exemption Order.  

• • Under the amended Zero-Rating Order, water supply services defined as the supply of mains water and sewerage services (excluding pump-out services) are now zero-rated.
  • This amendment transitions the treatment from exemption to zero-rating, allowing suppliers to claim input VAT and ensuring VAT cost neutrality for consumers. 

Rental income

Effective January 2022, rental income was taxed by way of turnover tax at the rate of 0% for gross rental income below ZMW 12,000, 4% for gross rental income between ZMW 12,000 and ZMW 800,000, and 12.5% for gross rental income exceeding ZMW 800,000.

Effective 1 January 2026, the charging schedule has been amended to revise the turnover rates applicable to a person or partnership deriving income from the letting of property as follows: 

• 0% per annum on turnover that does not exceed ZMW 30,000; 
• 4% per annum on turnover between ZMW 30,000 and ZMW 800,000; and 
• 16% per annum on turnover that exceeds ZMW 800,000. 

Customs and excise duties

The government has implemented a series of strategic amendments to customs duty aimed at fostering sustainable development. These amendments are as follows:

Insertion of new definitions 

• New statutory definitions have been inserted in the Customs and Excise Duty Act (Customs Act), including;
  

• Minerals Regulation Commission 

• State institution 

• Tax clearance certificate 

• Used high performance motorcycle
  

• The amendment provides greater legal certainty by clarifying enforcement, particularly in relation to mineral exports and incentive eligibility and enhances compliance through strengthened alignment and coordination between the Income Tax Act and the Minerals Regulation Commission Act. 

Enhanced Enforcement Powers of Customs Officers 

The Customs Act has been amended to empower Customs officers who are dissatisfied with a person's explanation regarding goods in that person's possession, and who reasonably suspect an offence has been committed, to: 

• report the suspect to the police; or 

• where police are unavailable, bring the suspect before a magistrate to obtain an arrest warrant. 

Stricter Licensing Conditions 

The Customs Act has been amended to introduce the following provisions: 

• Customs Carriers 

The Commissioner-General may now impose conditions on the issuance, continuation or renewal of a customs carrier licence. These conditions may require the licensee to provide a bond, guarantee or similar security covering all duties, levies and charges payable to any State institution. 

• Bonded Warehouses 

The Commissioner-General may impose similar security requirements on bonded warehouse licences. Any bond or guarantee provided must remain in force until the licensee pays all amounts due in full. 

Revised Valuation method for Mineral Exports  

• To ensure consistency between customs valuation and mineral regulation, the amended Customs Act requires mineral exporters to base the FOB value on the value the Minerals Regulation Commission certifies through a mineral analysis and valuation certificate. 

Formalisation of the Appeals Process  

The Act now introduces a structured appeals framework, including: 

• A 30-day period to appeal assessments to the Commissioner-General; 

• A 60-day timeline for determination; and 

• Confirmation that assessments remain payable despite the appeal. 

Valid Tax Clearance Certificates  

• A new subsection has been introduced in the Customs Act stipulating that a valid tax clearance certificate is required to qualify for or continue beneficiary status for suspensions, drawbacks, refunds, rebates, or remissions of duty. 

Power to Suspend or Withhold Refunds  

• The Customs Act has been amended to empower the Commissioner-General to suspend or withhold tax refunds for up to nine months (extendable on reasonable grounds) where a taxpayer is under investigation. 

Disposal of Perishable or Dangerous Goods  

• The Customs Act has been amended to allow for the disposal of perishable or dangerous seized goods prior to resolution of appeals, and entitles persons successful on appeal to refunds corresponding to the value of such goods. 

Property Transfer Tax (PTT)

Group Reorganisation Relief  

• The PTT Act has been amended to extend group reorganisation relief to transactions resulting in a change of shareholding in a Zambian-incorporated company, provided the companies involved have been members of the group for at least three years prior to the transfer. 

• Previously, group reorganisation relief applied only where there was no change in shareholding and the companies had maintained group membership for at least three years. The amendment now permits relief even where shareholding changes, provided the companies satisfy the three-year group membership requirement. This affords greater flexibility for internal corporate restructurings. 

Surrender or Forfeiture of Shares  

• The surrender or forfeiture of shares for no consideration will not attract PTT, provided the Commissioner-General is satisfied that the transaction is not intended to avoid tax. 

• Accordingly, the amendment narrows the scope of the exemption, such that only qualifying surrenders or forfeitures will benefit from PTT relief, rather than all such transactions automatically being exempt.