Zambia VAT, GST, and Sales Tax Guide

Zambia

Lusaka GMT +2

EY Street address: Mail address: Plot No. 354437 P.O. Box 35483 Alick Nkhata Road Lusaka Lusaka 10101 Zambia Zambia

Indirect tax contacts

Patrick Mawire +260 (211) 37-8300 partick.mawire@zm.ey.com

Towera Temba-Nkanza +260 (770) 70-8664 towera.temba-nkanza@zm.ey.com

Samuel Kabanga +260 (211) 37-8312 sam.kabanga@zm.ey.com

At the time of preparing this chapter, the Zambian Government passed legislation that indicated that sales tax will not come into effect and VAT will remain in place.

A. At a glance

Name of the tax Value-added tax (VAT)

Local name Value-added tax (VAT)

Date introduced 1 July 1995

Trading bloc membership Common Market for Eastern and Southern Africa (COMESA) Southern African Development Community (SADC) African Continental Free Trade Area (AfCFTA) – At the time of preparing this chapter, Zambia is a signatory to the AfCFTA and has submitted the instruments of ratification.

Administered by Zambia Revenue Authority (www.zra.org.zm)

VAT rates

Standard 16%

Other Zero-rated (0%) and exempt

VAT number format Taxable person identification number (TPIN) – 100XXXXXXX

VAT return periods

Thresholds

Monthly

Registration ZMW800,000 in any 12 consecutive months or ZMW200,000 in any three consecutive months

Recovery of VAT by non-established businesses Yes (limited to exports)

B. Scope of the tax

VAT applies to the following transactions:

• Supply of goods and services in Zambia by a taxable person

• Reverse charge on services provided by a nonresident to a taxable person in Zambia

• Importation of goods from outside Zambia, regardless of the status of the importer

Effective 1 January 2021, the VAT Act provides that goods are regarded as being supplied in Zambia if:

• The goods are exported from Zambia

• The goods are supplied within Zambia

• The supply of the goods involve entry into Zambia

• The supply involves installation or assembly of the goods at a place in Zambia

Withholding VAT. Withholding VAT is a mechanism where the responsibility to account for and pay the VAT due on the supply of goods or services is shifted to the person making the payment, i.e., the customer. Withholding VAT works very much in the same way as normal VAT. The revenue authority through the Commissioner-General appoints agents for purposes of withholding VAT on payments made to VAT-registered suppliers. Normally, large companies with a lot of suppliers are appointed as withholding VAT agents, e.g., mining and manufacturing companies. Once the agent is appointed, the legal obligation of the VAT due on all supplies shifts to the agent from the supplier. Therefore, ultimately, the responsibility to ensure that all the VAT that is due on the agents’ purchases is properly accounted for and is remitted to the revenue authority by the due date shifts to the agent.

C. Who is liable

Any person who makes supplies of taxable goods and services in Zambia in the course of a business is liable to register for VAT if the person’s turnover exceeds either of the following thresh olds:

• Turnover of ZMW800,000 in any 12 consecutive months

• Turnover of ZMW200,000 in any 3 consecutive months

Turnover tax. Turnover tax (tax charged on gross sales) rather than VAT applies to certain businesses, including those with a turnover of less than ZMW800,000. This tax is calculated at the rate 4% of the total turnover and the remittance cards for returns are to be submitted both manu ally and electronically. Manual submissions are made by the 5th of the following month to which the return relates, and electronic submissions are made on the 14th of the month following the month in which the transaction occurred. However, the remittance of turnover tax is due by the 14th of the month following the month in which the sales are made.

Exemption from registration. The VAT law in Zambia does not contain any provision for exemp tion from registration where an entity qualifies as a taxable person. However, where the Commissioner-General is satisfied that all supplies of a business are zero-rated, they may by notice waive the requirement of the business to register. However, the Commissioner-General reserves the right to rescind the decision any time they deem it necessary.

Voluntary registration and small businesses. A taxable person with an annual turnover of less than the statutory registration threshold has the option to register under a voluntary registration if it satisfies the prescribed conditions.

A business registered under voluntary registration is required to:

• Renew the registration every 12 months

• Notify the Commissioner-General in writing 30 days before the expiry of the 12-month period of its intention to renew the registration

Group registration. Group VAT registration is not allowed in Zambia.

Non-established businesses. A “non-established business” is a business that does not have a fixed establishment in Zambia. A foreign company may not register for Zambian VAT unless it has a place of business in the country. It must also make taxable supplies of goods or services.

A foreign business that makes supplies in Zambia must appoint a representative who is respon sible for registration for and payment of VAT. If an agent is not appointed, the non-established business may not deduct input tax (see Section F).

Tax representatives. Foreign companies or persons who do business in Zambia but do not reside in Zambia can appoint resident Zambians to act as their representatives. The representatives can be held responsible for tax purposes on behalf of their principals in their representative capacities only.

Reverse charge. A reverse charge may apply for services received by a taxable person in Zambia from a non-established service provider. The Zambian VAT law requires that a taxable person must act on behalf of a non-established supplier of services with respect to matters relating to tax, in the following circumstances:

• The supplier is a company that does not have a business establishment in Zambia

• The supplier is an individual or partner in a partnership that does not have a usual place of residence in Zambia from which to appoint a person resident in Zambia as a tax agent

If a tax agent is appointed, the agent invoices the recipient of the services for the VAT payable, collects the tax and accounts for it to the tax authorities. The recipient of the services may claim input tax relief on the basis of the invoice issued by the tax agent (see Section F).

If no tax agent is appointed, the recipient of the service must self-assess for the VAT due and declare the output tax as if it were the supplier. However, in this case, no input tax relief may be claimed.

Domestic reverse charge. There are no domestic reverse charges in Zambia.

Digital economy. Effective 1 January 2020, the VAT Act has been amended to introduce the taxation of electronic services, whereby tax is payable on the provision of an electronic service in Zambia where that service is performed, undertaken or utilized in Zambia or the benefit of the supply is for a recipient in Zambia regardless of whether the provider of the service has a place of business in Zambia or the service is paid for outside Zambia.

Nonresidents providing electronically supplied services to business-to-consumer (B2C) supplies are required to appoint a tax agent resident in Zambia. The tax agent is then responsible for registration and payment of VAT on behalf of the supplier on its supplies.

Nonresidents providing electronically supplied services to business-to-business (B2B) supplies are not required to register and account for VAT in Zambia. Instead, the customer is required to self-account for the VAT via the reverse-charge mechanism (see the Reverse-charge subsection above).

As with other imported services, if the non-established business has no registered office in Zambia, the supplier will be required to appoint a tax agent resident in Zambia to account for VAT. In absence of tax agent, the customer would account for the VAT as output tax.

There are no other specific e-commerce rules for imported goods in Zambia.

Online marketplaces and platforms. No special rules exist for online marketplaces and platforms in Zambia.

Registration procedures. Businesses are required to apply for VAT registration if they make sup plies of taxable goods/services, and their turnover exceeds registration threshold of ZMW800,000 per annum.

Businesses apply by filing a prescribed ZRA application form either manually (by paper) or using e-registration. The following documents must be attached:

• Sketch of map of location

• Bank statements covering a period of three months

• Business plan

• Certificate of registration or incorporation

• Evidence records like cash book, purchase daybook, sales daybook, invoice books, a set of accounts and confirmed orders/signed contracts for existing business

• Tax clearance certificate

• VAT knowledge form

Businesses whose turnover does not meet the statutory threshold may register for VAT volun tarily.

Deregistration. A taxable person whose turnover falls below the registration threshold for VAT can deregister after the end of the relevant accounting year. The taxable person is required to notify the Commissioner-General in writing through form VAT 99. To complete any deregistra tion, the taxable person is required to ensure that there are no tax obligations on that account.

Changes to VAT registration details. Changes to VAT registration details (such as the change in the trading name of the business or the name and/or address of any partner in the business, a change in the address of the principal place at which the business is carried out) shall not require the cancellation of registration. The taxable person must notify any Domestic Taxes office for amendment of such details and update these details online.

D. Rates

The term “taxable supplies” refers to supplies of goods and services that are liable to a rate of VAT, including the zero-rate.

The VAT rates are:

• Standard rate: 16%

• Zero-rate: 0%

The standard rate of VAT applies to all supplies of goods or services, unless a specific measure provides for the zero rate or an exemption.

Examples of goods and services taxable at 0%

• Exports of goods

• Books and newspapers

• Foreign aid donations

• Medical supplies and drugs

• Petrol and diesel

• Bread and wheat

The term “exempt supplies” refers to supplies of goods and services that are not liable to VAT and that does not qualify for input tax deduction.

Examples of exempt supplies of goods and services

• Health and educational services

• Supply of water and sewerage services

• Most public transport services

• Real estate transactions

• Financial services (except fee-based banking services, which are subject to VAT at standard rate)

• Insurance services (except property insurance and casualty insurance, which are subject to VAT at the standard rate)

• Basic foods

• Agricultural supplies

Option to tax for exempt supplies. Option to tax for exempt supplies is not allowed in Zambia.

E. Time of supply

The time when VAT becomes due is called the “time of supply” or “tax point.” In Zambia, the tax point is when the earliest of the following events occurs:

For the supply of goods:

• The time when they are removed from the seller or supplier’s premises

• The time when made available to the person to whom they are supplied

• Then a payment is received

• The time when a tax invoice is issued

For the supply of services:

• The time when a of supply for prepayments is the date when payment is received

• The time when a tax invoice is issued

• The time when they are actually rendered or performed

Deposits and prepayments. Most deposits serve primarily as advance payments and they there fore create tax points when received. However, certain deposits are not consideration for a supply and their receipt does not create a tax point. This latter treatment includes deposits taken as security to ensure the safe return of goods hired out, provided that form part of the consideration, the time of supply is when the deposit is refunded when the goods are returned safely.

Continuous supplies of services. If a supplier provides services on a continuous basis and receives payments regularly or from time to time, the tax point is the earliest of the conditions as stated above being met. Examples include supplies of water, gas or any form of power, heat, refrigera tion or ventilation, etc.

Goods sent on approval for sale or return. When a business supplies goods on “sale or return” terms, the goods have not been sold and the supplier still owns them until such time as the cus tomer adopts them. Adoption means the customer pays for them or otherwise indicates willingness to keep them. Until the goods are adopted, the customer has an unqualified right to return them at any time, unless there is an agreed time limit. The tax point for these consignments is the earliest of the date of adoption, payment or invoicing.

Reverse-charge services. The time of supply for the supply of reverse-charge services is the time when tax is due and payable. It is, the earliest of the following:

• The time when a payment is received

• The time when a tax invoice is issued

• The time when the services are actually rendered or performed

Leased assets. The time of supply for the supply of leased assets is whichever is the earliest of the following times:

• The time when payment of the lease rental is received from the lessee

• The time when the lessor issues a tax invoice

• The time when the leasing services are rendered, and this condition will only be satisfied at the expiry of the lease period

In practice, a lease rental will generally be received by the lessor before the conditions listed under the second and third points above can occur and this is taken to be the tax point.

Imported goods. The time of the supply for imported goods is either the date of importation or the date on which the goods leave a duty suspension regime.

F. Recovery of VAT by taxable persons

A taxable person may recover input tax, which is VAT charged on goods and services supplied to it for business purposes. Input tax is claimed by deducting it from output tax, which is VAT charged on supplies made.

The time limit for a taxable person to reclaim input tax in Zambia is three months. The claim can only be made within three months after the invoice was issued. Input tax includes VAT charged on goods and services purchased in Zambia and VAT paid on imports of goods and services.

Nondeductible input tax. VAT may not be recovered on purchases of goods and services that are not used for business purposes (for example, goods acquired for private use by an entrepreneur). In addition, input tax may not be recovered on certain business expenses, including the provision of food, beverage, entertainment, amusement, recreation or hospitality of any kind and any inci dental transportation provided to any person by a taxable supplier whether directly or indirectly, in connection with a business carried on by a taxable supplier.

The following lists provide some examples of items of expenditure for which input tax is not deductible and examples of items for which input tax is deductible if the expenditure is for pur poses of making a taxable supply.

Examples of items for which input tax is nondeductible

• Purchase and hire of passenger cars

• Business gifts valued at more than ZMW100

• Office, home and mobile telephone service

• Domestic refrigeration equipment, air conditioners, mobile phones, motor vehicle parts, digital satellites, television sets, decoders, video players, curtains and construction of dwelling houses for staff

• Business entertainment

• Fuel for passenger vehicles

• Petrol

• Diesel (recovery restricted to 90%)

Examples of items for which input tax is deductible (if related to a taxable business use)

• Purchase, hire and maintenance of commercial motor vehicles

• Business gifts valued at less than ZMW100

• Mobile telephone handsets

• Hotel accommodations

• Utilities

• Educational material

Partial exemption. Where a taxable person incurs input tax that relates to both taxable and exempt supplies, the input tax that is wholly attributable to the taxable supplies can be recovered in full (subject to the partial exemption rules). Input tax that is fully attributable to exempt supplies cannot be recovered. This situation is referred to as “partial exemption.” In Zambia, if a taxable person supplies both taxable and exempt goods and services, the amount of input tax recoverable is calculated using a simple pro rata method based on the value of taxable and exempt supplies made.

The tax authorities have prescribed four partial exemption methods in practice. Approval from the tax authorities is not required to use any of the four prescribed partial exemption methods in Zambia.

Capital goods. No special input tax rules apply to VAT incurred upon capital goods. As such, normal input tax recovery rules (as outlined above) apply.

It is worth noting, however, that capital goods are subject to VAT at the standard rate except where expressly exempted. Thus, input tax would be claimable by a taxable supplier subject to the normal recovery rules. However, when goods are imported into Zambia (which includes removing from an approved bonded warehouse), VAT, together with any import duties, is payable at

importation except for exempt goods. There may be some exceptions for goods import pursuant to the Customs and Excise (General) Regulations.

Refunds. If the amount of input tax in a period exceeds the amount of output tax due, a taxable person may request a VAT refund. VAT refunds are generally paid within three months, subject to the audit of the respective period and approval of the refund by the tax authorities. However, no interest is payable if the refund is paid late.

Pre-registration costs. Businesses registered within one month after becoming liable to register are eligible to claim input tax incurred three months prior to registration.

However, special provisions for intending traders allow for registration and for VAT incurred prior to trading to be claimed for a period up to four years. This four-year period suspends the threemonth validity period for claiming input tax. Intending traders are suppliers who are registered for VAT before they commence trading activities. Such registration is normally for the sole pur pose of claiming input tax, which relief is granted as follows:

• Up to 10 years for traders engaged in exploration

• Up to four years for traders engaged in electricity generation, farming and mining

• Up to two years for all others

Bad debts. VAT paid to the authority but not received from a customer may, subject to the rules below, be claimed back:

• The debt has been outstanding for 18 months or more

• The debtor has been declared insolvent by a court of law, i.e., If the defaulting customer is a person, sole trader or partnership who has been declared bankrupt by the courts Or

If the debtor is a limited company, the court has ordered it’s winding up and an appointed liquidator or receiver has issued a certificate to the effect that in its opinion the company would not meet the debts of unsecured non-preferential debts

To satisfy the revenue authority that claims to bad debt relief are valid, VAT-registered suppliers claiming bad debt relief should retain the following documentary evidence:

• A copy of the tax invoice issued to the debtor in connection with the supply that later became a bad debt

• Evidence that the VAT being claimed as bad debt relief was remitted to the authorities

• Copies of correspondence referred to in the bullet points above on the status of the debt and debtor

Noneconomic activities. Input tax incurred on purchases that are used for noneconomic activities is not recoverable in Zambia.

G. Recovery of VAT by non-established businesses

Input tax incurred by non-established businesses in Zambia is not recoverable. However, a refund scheme allows a VAT refund to be paid to a non-established business that purchases goods from a Zambian VAT-registered supplier for onward export.

The refund scheme applies to foreign passport holders that are on a business visit to Zambia. The scheme applies only to commercial export consignments that do not otherwise qualify for VAT zero rating. The refund is restricted to VAT paid on goods supplied by a participating supplier. VAT incurred on other expenditure in Zambia is not recoverable using this scheme.

The foreign exporter pays the full VAT amount on the export consignment to a participating supplier at the time of purchase. The first time that the scheme is used, the participating supplier must issue a commercial export tax invoice (Form VAT 283) and a commercial export

authorization (Form VAT 284). For subsequent exports, the supplier need only issue Form VAT 283. The exporter must declare the goods to Customs at the port of exit from Zambia, and at the same time submit Forms VAT 283 and VAT 284 for verification and certification.

Customs officials at the port of exit retain copies of Forms VAT 283 and VAT 284 for first exports and subsequently dispatch them to the Zambia Revenue Authority for processing. The exporter may retain a certified copy of the forms for its records.

After the refund has been processed, the amount is sent to the exporter’s destination address or an authorized representative may collect the refund in Lusaka. The exporter must indicate an authorized representative on Form VAT 284.

To qualify for this scheme, the export should be sent through the following designated exit points from Zambia:

• Lusaka International Airport

• Mpulungu Border Post

• Kasumbalesa Border Post

• Mwami Border Post

• Nakonde Border Post

• Chirundu Border Post

• Kazungula Border Post

• Victoria Falls Border Post

To participate in the scheme, a foreign business must apply in writing to the Commissioner of VAT. An application form (Form VAT 282) may be obtained by writing to the following address:

The Assistant Commissioner – VAT Credibility

Zambia Revenue Authority

1st Floor, Eastern Wing Revenue House

Private Bag W136 Lusaka Zambia

H. Invoicing

VAT invoices. A supplier of taxable goods and services must issue a tax invoice to the purchaser. A valid tax invoice is required to accompany all claims for input tax deduction. The period for which tax invoices can be used to support input tax recovery is three months.

All tax invoices must be issued from a ZRA approved software package. Taxable persons can apply for approval from the tax authority of their accounting packages prior to the issuance of invoices.

Credit notes. A credit note may be used to reduce the VAT charged on a supply of goods or services. Credit notes should show the same information as tax invoices.

Electronic invoicing. Electronic invoicing is allowed in Zambia but not mandatory. From 1 January 2020 taxable persons are also required to use electronic fiscalized devices (EFDs). The use of EFDs are considered to be real-time reporting/live invoicing in Zambia.

Taxable persons must have the EFD in place at the time of registering for VAT. The application for EFDs can be done electronically (via the tax online system) or physically (by paper in person). The statutory provision allows for the Commissioner-General to apply their discretion in approving the use of a document, device or equipment other than an EFD for a certain category

of taxable persons. It is mandatory to capture and electronically transmit to the ZRA the taxable person identification number (TPIN) and names of both the buyer and seller of goods and ser vices in all business-to-business and business-to-government transactions.

While the use of EFDs was implemented from 1 January 2020, compliance levels have been low. Effective 1 January 2021, the VAT Act was amended to clarify that an electronic payment machine must be available at a point of sale for use as a mode of payment for the customer.

Eligible accounting packages must have the capacity to:

• Print tax invoices, credit notes and debit notes bearing all the mandatory features of a tax invoice

• Generate automatic and consecutive document numbering with inbuilt safeguards against real location or resetting of the numbers in any circumstance; transactions, once posted and a tax invoice has been printed, must become read-only to all users

• Or, where editing is possible, a read-only audit trail showing the original details is built into the program

• Produce periodic transaction reports showing the invoice number, invoice date, customer’s name, description of goods or services supplied, value before VAT and VAT amount

Simplified VAT invoices. Simplified VAT invoicing is not allowed in Zambia. As such, full VAT invoices are required.

Self-billing. Self-billing is not allowed in Zambia.

Proof of exports. Goods exported from Zambia are zero-rated. However, to qualify for a zero rating, exports must be supported by customs evidence (for example, copies of export docu ments, copies of documents showing importation in the receiving country and proof of payment by the customer) that proves the goods have left the country.

Foreign currency invoices. Invoices issued using a foreign currency must indicate the equivalent in the domestic currency, which is the Zambian kwacha (ZMW) using the exchange rate for the date of the transaction.

Supplies to nontaxable persons. There are no special invoicing rules for supplies to nontaxable persons. As such, full VAT invoices are required.

Records. The VAT Act is silent on whether records need to be kept locally or can be kept outside the country. The only requirement is for information to be provided upon request from the Commissioner-General. In practice, taxable persons tend to keep records locally, as it is easier to retrieve the documents once requested for by the tax authorities.

Record retention period. All records and accounts, including tax invoices and credit notes, proof of importation and exportation of goods, must be preserved in English for a minimum of six years and made available for inspection to authorized officers of the ZRA on demand.

Electronic archiving. The VAT Act does not specifically provide for electronic archiving. However, it is recommended to archive records electronically in addition to manual archiving (i.e., by paper).

I. Returns and payment

Periodic returns. The tax period for VAT is one month. Returns must be filed by the 16th day for withholding VAT and the 18th day for normal VAT after the end of the tax period. Electronic filing of VAT returns is mandatory if there are 10 or more transactions.

Periodic payments. Full payment is due by the same date as the filing deadline of the VAT return (see above). A payment registration number (PRN) is generated online, and this number will be used to make payment via online banking.

Electronic filing. Electronic filing is mandatory in Zambia for all taxable persons. These returns are filed on the tax online system of the Zambia Revenue Authority (TaxOnline 2). However, the law provides for submission of manual returns for taxable businesses with less than 10 transac tions in a tax period.

Payments on account. Payments on account are not required in Zambia.

Special schemes. Cash accounting. All VAT registered businesses are required by law to account for tax based on the invoices issued, except where the law has given relief for cash accounting. The businesses, which are permitted to use the payment or cash accounting basis, are required to account for VAT to the extent that payment has been made or received. Therefore, output tax is accounted for on payments received and input tax is recovered only on those invoices where pay ment has been made for taxable supplies received.

The cash accounting concession is restricted to businesses that carry on mining activities and are licensed under the Mines and Mineral Development Act and to members of the Association of Building and Civil Engineering Contractors (ABCEC). Intending traders are automatically required to adopt cash accounting if an application has been made and approved by the tax authority. These include businesses that carry on exploration, electricity generation, farming, etc.

Annual returns. Annual returns are not required to be submitted for VAT in Zambia.

Supplementary filings. No supplementary filings are required in Zambia.

Correcting errors in previous returns. The new online system, TaxOnline 2, does not allow for amendments to be made online. Therefore, all amendments for returns should be made in writing to the Commissioner-General stating the reasons for need of amendment to the return.

Digital tax administration. Electronic fiscalized devices. Effective 1 January 2020 taxable persons are required to use electronic fiscalized devices (EFDs). The use of EFDs are considered to be real-time reporting/live invoicing in Zambia. For further detail, see the Electronic invoicing subsection above.

J. Penalties

Penalties for late registration. ZMW3,000 (10,000 penalty units) for each tax period that the tax able person is eligible to register but remains unregistered. The taxable person is also liable to an assessment on the sales made in the same period; input tax deduction is not allowed.

Penalties for late payment and filings. Penalties for late payment is 0.5% of the tax payable in respect of the period covered by the return for each day the payment is late. Interest is charged at the Bank of Zambia Discounted Rate plus 2%.

Penalties for late filings is ZMW300 (1,000 penalty units) per day or 0.5% of the tax due, which ever is the greater, for each day the return is late.

Effective 1 January 2021, penalty for failure to comply with use of an electronic payment machine at a point of sale as a mode of payment is ZMW27,000 (90,000 penalty units).

Penalties for errors. Interest is chargeable at the Bank of Zambia discount rate plus 2% on amounts underdeclared on VAT returns, e.g., under-declarations discovered and assessed following a VAT inspection visit.

Failure to issue a tax invoice from an approved computer package, preprinted tax invoice book or a fiscalized cash register can result in penalty of ZMW90,000 (300,000 penalty units).

Penalties for fraud. Penalties for the issuance of false returns and statements attract a fine of up to ZMW6,000 (20,000 penalty units) or imprisonment for a term not exceeding two years, or

both. Penalties for fraudulent evasion of tax attracts a fine of up to ZMW90,000 (300,000 pen alty units) or six times the amount of the tax sought to be evaded or recovered, whichever is greater, or imprisonment for a term not exceeding three years, or both.

Effective 1 January 2021, an escalatory fine is also chargeable on false returns and statements.

Personal liability for company officers. The VAT Act provides that where an offense under the Act is committed by a company, with the knowledge of its director, manager, partner or shareholder, the individual will be liable for the offense and may be convicted to the penalty or term of impris onment specified for that offense.

Statute of limitations. The statute of limitations is Zambia is six years. The tax authority can go back six years to review any returns that were previously submitted.