Zambia

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:

* 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.

Goodwill is non-deductible due to its capital nature.

Start-up expenses

Start-up expenses are deductible if incurred within 18 months prior to business commencement and would have been deductible post-commencement.

Interest expenses

• Deductibility of interest is capped at 30% of tax earnings before interest, tax, depreciation, and amortisation (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 of interest is contingent on the loan being for business purposes and compliance with the arm's-length principle.

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 are capped at 15% of assessable income.

Pension expenses

• Contributions to approved funds are deductible, 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

Payments to directors are deductible if incurred wholly for business purposes, barring domestic or personal expenses.

Research and development (R&D) expenses

• 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.

Bribes, kickbacks, and illegal payments

Bribes, kickbacks, and illegal payments are non-deductible.

Fines and penalties

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.

Other significant items

Allowable deductions

• Costs for establishing and administering approved share option schemes.
• Technical education expenses.
• 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 PAYE. If multiple employees occupy the housing, the benefit is taxed on the employer by disallowing the rental expense.

Net operating losses

• Losses can be carried forward for five years, or ten years for mining and certain power generation operations.
• Loss carryforward 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.