As noted below, Zambian CIT rules set out a number of sources of income that are subject to CIT. Income from each source is ring fenced and taxed separately, and a CIT liability arises on each source with no ability to offset a loss arising from one source against income from another source.
Business gains or profits from a Zambian source are taxable by reference to a charge year. A charge year runs from 1 January to 31 December; however, entities can apply to the Zambia Revenue Authority 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 as such capital gains are not subject to tax. However, if the transferred property is subject to Property Transfer Tax, tax will be paid on the property's realised value.
Dividend income earned by a Zambian resident business from non-Zambian sources is subject to CIT and will be taxed separately from other sources of income. However, relief may be available if the source and resident jurisdictions have an active tax treaty. Additionally, in the absence of a tax treaty, unilateral relief from double taxation may be granted.
When a Zambian resident company receives dividend income from another Zambian resident company, the WHT deducted at source on the dividend payment should be regarded as the "final tax," and the Zambian resident company receiving the dividend does not have to pay any additional CIT.
However, if the Zambian resident company onward distributes the dividend received to a resident or non-resident shareholder and the dividend was already subject to deduction of WHT at source, a tax credit not exceeding the WHT deductible and payable on the distribution to the non-resident shareholder may be granted credit relief to avoid double taxation of the same dividend income up the ownership ladder.
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 paid at source is available as a credit for offset against the final CIT liability of the recipient Zambian resident company.
Effective 1 January 2023, interest income earned on green bonds listed on the Lusaka Stock Exchange (“LuSE”) Zambia with maturity of at least three years shall be at the rate of zero percent per annum.
From 1 January 2022, rental income is taxed by way of turnover tax at the rate of 0% for gross rental income below K 12,000, 4% for gross rental income between K 12,000 and K 800,000 and 12.5% for gross rental income above K800,000 per annum. The tax is payable by the property owner.
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 right to 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.
Effective 1 January 2023, the term royalty has been expanded to include rent of software for income tax purposes.
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 not of a nature, and will be taxed when they are realised. Foreign exchange losses are only deductible to the extent that they are not of a capital nature and have been 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 sources include income from hedging and investing 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 foreign sourced dividend and interest income, as well as income from transportation services supplied by Zambian resident transporters for goods and people embarking from outside Zambia and being delivered to destinations outside Zambia.
It should be noted that Zambia has general anti-avoidance rules (GAAR) that apply if income that should have been taxed in Zambia is understated or expenses that should not be deducted are overstated in a charge year.