Zambia

Corporate - Deductions

Last reviewed - 17 May 2024

Deductible expenses must be non-capital in nature and incurred wholly and exclusively for business purposes. Specific provisions, such as for bad debts, are deductible subject to the Commissioner - General's approval.

Depreciation and Amortisation 

While accounting depreciation and amortisation are not deductible, a 'capital allowance' is available for qualifying capital assets used in business operations.

Zambia has a system of capital allowances that provides for wear and tear deductions in ascertaining business income. These are calculated at annual rates on qualifying capital expenditure, which currently apply as follows:

Category of qualifying expenditure

Rate of allowance (calculated on a straight-line basis)

Industrial buildings

Investment allowance of 10% *

Initial allowance of 10% *

Annual wear and tear allowance of 5% *

Other commercial buildings

Annual wear and tear allowance of 2%

Implements, machinery, and plant - farming and agro-processing

Annual wear and tear allowance of 100%

Implements, machinery, and plant - for persons operating in priority sector and a developer in a special economic zone

Annual wear and tear allowance of 100%

Implements, machinery, and plant - manufacturing, tourism, generation of electricity, and leasing

Annual wear and tear allowance of 50%

Implements, machinery and plant - other

Annual wear and tear allowance of 25%

Commercial vehicles

Annual wear and tear allowance of 25%

Non-commercial vehicles

Annual wear and tear allowance of 20%

Patents, designs, trademarks, and copyrights

Premium allowance on straight-line basis over the life of period for which the right is granted

Mining expenditure (only available for assets brought into use)

Mining deductions of 20%

Farm improvements

Farm improvement allowance of 100%

* For industrial buildings, the investment allowance and the initial allowance can both be claimed in the year in which the building is put into use, together with the wear and tear allowance for that year.

Zambian Tax Deductions and Non-Deductible Expenses

Capital Nature Expenses

Goodwill is non-deductible due to its capital nature.

Start-up Expenses

Deductible if incurred within 18 months prior to business commencement and would have been deductible post-commencement.

Prospecting Expenditure for Mining

Deductible for shareholders if specific conditions are met.

Interest Expenses

  • Deductibility capped at 30% of tax EBITDA, with exceptions for turnover tax system businesses and those under the Banking and Financial Services Act.
  • Unrelieved interest can be carried forward for five years, or ten years for electricity generation and mining entities, subject to conditions.
  • Deductibility contingent on the loan being for business purposes and compliance with the arm's-length principle.

Incidental Costs of Raising Finance

Non-deductible, including commitment and guarantee fees.

Bad Debt

  • Specific bad debts are deductible upon meeting certain criteria.
  • Provisions for general bad debts are not deductible unless actual loss occurs.
  • Banks and financial institutions face limitations on deductions for bad debt provisions.

Charitable Contributions

Deductible payments to approved public benefit organisations, capped at 15% of assessable income.

Pension Expenses

  • Deductible for contributions to approved funds, with special rules for lump sum and arrears payments.
  • Payments to non-approved funds are non-deductible.
  • Pensions approved under the Pension Scheme Regulations Act are tax-exempt from 1 January 2023.

Payments to Directors

Deductible if incurred wholly for business purposes, barring domestic or personal expenses.

Research and Development (R&D)

  • Revenue expenditure on business-related experiments or research is deductible.
  • Contributions to certain societies or institutions for industrial research or scientific work connected with the business are deductible.
  • Capital expenditure on research is non-deductible but may qualify for capital allowances.

Non-Deductible Expenses

  • Bribes, kickbacks, and illegal payments are non-deductible.
  • Fines and penalties, including those under the Income Tax Act, are non-deductible unless incurred wholly for business purposes.

Taxes

Zambian CIT is not deductible. Other tax liabilities suffered may be deductible, provided they are revenue expenses and wholly and exclusively incurred for the purposes of the business (or other source of income). See the Tax credits and incentives section regarding credits for non-Zambian tax suffered on non-Zambian source income.

Allowable Deductions:

  • Costs for establishing and administering approved share option schemes.
  • Technical education expenses.
  • Skills Development Levy (SDL) payments.
  • A ZMW 2,000 fixed deduction for employing individuals with disabilities.
  • Profits from local cassava, mango, and pineapple cultivation.

Non-Allowable Deductions:

  • Recoverable losses or expenses from insurance or indemnity.
  • Expenditure on entertainment, hospitality, or gifts.
  • Provisions for contingent employee costs not paid within the charge year.
  • Benefits in kind, such as car use and accommodation, are taxable on the employer. If accommodation is provided at below-market rates without a housing allowance, 30% of the employee's total taxable emoluments is disallowed in the employer's tax computation. However, if an independent valuation of the accommodation is obtained, the disallowed amount is the rental valuation figure. For employer-leased housing provided to employees, the rental value is taxed under Pay-As-You-Earn (PAYE). If multiple employees occupy the housing, the benefit is taxed on the employer by disallowing the rental expense.

Insurance Business Taxation

Special rules determine insurance business gains or profits.

Net Operating Losses

  • Losses can be carried forward for five years, or ten years for mining and certain power generation operations.
  • Loss carry forward for mining operations is capped at 50% of taxable income.
  • Losses cannot be carried back or set against income from different sources.

Payments to Foreign Affiliates

  • Loans to effective shareholders may trigger tax liabilities under General Anti-Avoidance Rules (GAAR).
  • Transfer pricing rules require arm's-length transaction terms between associated persons.