Emoluments regarded as arising from a Zambian source in respect of an employment are subject to income tax. Emoluments are deemed to be from a Zambian source if it is a remuneration from employment exercised or office held in Zambia, or if it is received by virtue of any service rendered or work or labour done by a person or partnership in the carrying on in Zambia of any business, irrespective of whether payment is made outside Zambia, or by a person resident outside Zambia.
The employer is responsible for paying the income tax arising on the emoluments under the PAYE regulations.
The definition of emoluments is wide and includes any salary, wage, overtime, leave pay, commission, fee, bonus, gratuity, benefit, advantage (whether or not capable of being turned into money or money’s worth), allowance (including inducement allowance), pension, or annuity, paid, given, or granted in respect of any employment or office, wherever engaged in or held.
Benefits provided to employees that are capable of being turned into money or money’s worth are regarded as income of the employee and are subject to PAYE. However, benefits provided that are incapable of being turned into money or money’s worth (e.g. the use of cars and accommodation provided by the employer) will be taxed on the employer rather than on the employee.
In addition to the above, the employer is required to pay a skills development levy of 0.5% of a company's total emoluments on a monthly basis.
The allotment or acquisition of shares under a share option scheme that is approved by the Zambian Revenue Authority (ZRA) is exempt from income tax.
Specific rules for other share option schemes apply from 1 January 2014.
Business income is generally calculated on the same basis for individuals as companies (see the Corporate summary for more information).
Business income is generally determined in line with applicable accounting standards (excluding receipts of a capital nature). Expenses wholly and exclusively incurred for the purposes of the business are generally deductible, provided they are of a revenue nature rather than capital in nature.
Capital expenditure is disallowed, but capital allowances are available on qualifying capital items.
Zambia does not have a capital gains tax, and, except where provided otherwise in the Income Tax Act, capital gains are not subject to tax.
Zambian resident individuals are taxed on dividend income from both Zambian and non-Zambian sources.
In the case of dividend income received from a Zambian resident company, the WHT deducted on the payment of the dividend should represent the ‘final tax’, and the Zambian resident individual receiving the dividend should not be subject to additional income tax.
Zambian resident individuals are generally taxed on interest income from both Zambian and non-Zambian sources.
From 1 January 2013, interest earned by individuals from savings and deposit accounts is exempt from tax.
In the case of other Zambian-source interest income, the WHT deducted on the payment of interest should represent the ‘final tax’, and the Zambian resident individual receiving the interest is not subject to additional income tax.
Zambian-source rental income of a Zambian resident is subject to tax as a separate source.
From 1 January 2014, a landlord suffers WHT at the rate of 10%. This is now the final tax for the landlord.
As noted above, capital gains and non-Zambian source income (with the exception of dividends and interest) are outside the scope of income tax.
Exempt categories of income include:
- Lump sum payments withdrawn from an approved fund at retirement age, death, or permanent incapacity.
- Approved payments for injury or sickness.
- A scholarship, bursary, or maintenance for education.
- Alimony, maintenance, or matrimonial allowance.
- A pension received from an approved fund.
- A dividend declared from farming income for the first five years the distributing company commences farming.
- Ex-gratia payments to a spouse, child, or dependant on the death of an employee.
- Lump sum payments paid to an employee on loss of office on medical grounds.
- A dividend declared by a company listed on the Lusaka Stock Exchange to an individual.
- Dividends declared by a company engaged in the assembly of motor vehicles, motor cycles, and bicycles for five years from the declaration of the first dividend.
- Dividends declared by a company approved under the Zambia Development Agency Act (ZDA Act) for five years from the date operations commence.
- Certain payments to government employees, members of the armed forces, etc.
From 5 January 2016, pension benefit is exempt from tax. A pension benefit is defined in the Zambian Constitution to include: ‘pension, compensation, gratuity or similar allowance in respect of a person’s service’.