The Act tax base for CIT is taxable income rather than profits. The source and nature of the income determines whether the amount is taxable or not. In addition to amounts received or accrued from actual Zimbabwean sources, there are deeming provisions that bring income from foreign sources into Zimbabwean taxable income.
In general, all receipts from a Zimbabwe source are taxed, excluding amounts that are proven by the taxpayer as being capital receipts. Most expenditure items and some specified exemptions are deductible against income. Capital expenditure is generally not deductible, with amounts on specific items being deductible by way of annual allowances spread over a period.
The legislation permits three methods of inventory valuation: historic cost, cost of replacement, or net realisable value. Standard cost based on first in first out (FIFO) is normally used for accounts valuations and is an accepted basis for tax purposes. Last in first out (LIFO) is not permitted for tax or for accounting purposes. The tax valuation may differ from the accounting valuation; this is a rare occurrence in Zimbabwe but is acceptable.
See Capital gains tax in the Other taxes section.
Dividends received from Zimbabwe incorporated companies are tax exempt. When received from non-Zimbabwe companies, they are taxed at a flat rate of 20%; however, relief is granted by allowing any foreign tax suffered as a tax credit (up to a maximum of the 20% local rate of tax).
Interest accruing to Zimbabwe resident companies from ‘financial institutions’ is subject to a 15% WHT and thereafter is exempt from CIT (the WHT becomes a final tax). Interest from other local or foreign sources is included in gross income and is taxed at the normal CIT rate. Relief will be granted for any foreign tax paid, up to the maximum Zimbabwe tax rate.
The partnership itself is not taxed directly; however, the taxable income of the partnership is calculated in the same way as corporate income and is then allocated amongst the partners in accordance to their agreed profit sharing ratios. This income is taxed in their hands at the basic CIT rate.
Rents and royalties are generally treated as normal taxable income and are taxed at the basic CIT rate. Rent arising in respect of land and buildings situated outside of Zimbabwe, however, is exempt from local tax.
Where income (including business profits) is deemed to be from a Zimbabwe source, it will form a part of the local company’s taxable income and will be subject to tax at the basic CIT rate. Relief in respect of foreign taxes suffered will be granted unless it is clear that the true source of the income is, in fact, Zimbabwe.