The Income Tax Act [Chapter 23:06] (the “Tax Act”) imposes taxes on certain payments made to non-residents. Withholding tax, known as non-resident shareholders tax, is levied on the payment of dividends from a Zimbabwean source to non-resident shareholders of a company.
Non-shareholders tax or withholding tax on dividends is currently at 10% (in the case of listed securities) and 15% (in the case of un-listed securities) of the total dividend payment to the non-resident. Whilst the Tax Act stipulates the percentage of the total payment which must be withheld before payment is made to a non-resident, the Exchange Control Regulations (Statutory Instrument 110 of 1996) (the “Regulations”) stipulate how much of the payment can actually be made to a non-resident. The dividend payment allowable in terms of the Regulations is limited to 100% of the payer’s net after tax profits. It follows, therefore, that in addition to the requirement of withholding 10% or 15% of the dividend payment imposed by the Tax Act, there is an additional requirement that the total dividend payment may not exceed 100% of the payer’s net after-tax profits.
A similar scenario prevails with respect to withholding taxes on royalty payments. Presently the Tax Act provides that withholding tax of 15% of the total royalty payment from a source in Zimbabwe to a non-resident must be withheld by the payer. The Regulations, however, limit the amount that may actually be paid as a royalty payment to a non-resident. The Regulations provide that royalty payments can only be made up to a maximum of 5% of the payer’s net sales. It follows that royalty payments made to a non-resident are capped at 5% of the payer’s net sales and audited confirmation of the net sales will be required upon making application for exchange control approval. Similar provisions can also be found between the Tax Act and the Regulations with respect to fees payments to non-resident recipients.
In the structuring of off-shore payments, consideration must be had not only to the provisions of the Tax Act and the tax requirements thereof, but also to the Exchange Control Regulations which can serve as a moderator of tax expectations.