Zambia

VAT Rates

Supplies for VAT purposes are classified into three categories, namely:

• exempt supplies

• standard-rated supplies taxable at 16%

• zero-rated supplies taxable at 0%.

Other than the above, there are currently no special VAT rates applicable in Zambia.

Scope

VAT accounting options

VAT registration

Compulsory registration

It is a statutory requirement for suppliers making taxable supplies with a taxable turnover exceeding ZMW 800,000 (approximately USD 38,000) in any 12 consecutive months or ZMW 200,000 (approximately USD 9,700) in any three consecutive months, or whose taxable turnover is expected to exceed either ZMW 800,000 in any 12 consecutive months or ZMW 200,000 in any consecutive three months, to make an application for VAT registration with the ZRA.

A supplier who is required to register for VAT registration and fails to do so within a month after meeting the criteria is liable to a fine not exceeding ten thousand penalty units (a penalty unit is currently ZMW 0.30), which translates to ZMW 3,000 (approximately USD 146) for each tax period the supplier remains unregistered, or imprisonment for a term not exceeding 12 months, or both.

Where a supplier who is eligible for registration fails to register, tax due on supplies made shall be assessed together with any penalties and interest on late payment. The assessment will be from the time the supplier was due to register to the date of assessment.

Voluntary registration

Suppliers whose taxable turnover does not meet the statutory requirement, but who wish to be registered for VAT, may do so voluntarily. Suppliers registered on a voluntary basis have the same obligations as statutorily registered suppliers.

The period of voluntary registration is restricted to 12 months. As such, any supplier registered voluntarily is required to renew the registration every 12 months and should notify the Commissioner-General of the intention to renew the registration at least 30 days before the expiry of the registration.

Group registration

Application for registration

Application for VAT registration is made online through the ZRA portal. A taxpayer who faces challenges with online registration may still complete and submit the prescribed manual form. The ZRA will only process a VAT application form if the supplier has applied for, and allocated, a Taxpayer Identification Number (TPIN).

Deregistration

A taxpayer may opt to deregister for VAT if:

• there is a change in the legal status of the entity

• the business ceases trading permanently

• the business is sold

• the business was registered as an intending business and the intention to make taxable supplies ceases

• the business stops making taxable supplies.

Applications for deregistration should be made in writing to the ZRA. The ZRA normally undertakes a VAT audit before deregistration.

Output tax

VAT is charged at the standard rate of 16% or 0% depending on the nature of the supply.

Exemptions and zero-rating

Exempt supplies

The First Schedule to the VAT Act provides a list of supplies that are exempted from VAT. Generally, VAT exemptions apply on the following:

• Mains water and sewage services

• Health and medical services provided by registered health professionals

• Transportation of persons by air, railway, boat and road on a licenced bus or coach

• Conveyance, sale, or lease of non-commercial property

• Certain insurance and financial services

• Supply to a bank of gold in bullion form

• Funeral services

• Domestic kerosene

• Statutory fees

• Trade union subscriptions

• Unprocessed agricultural foods and products, and certain agriculture supplies.

The above list is not exhaustive. It is generic and should be used for guidance purposes only. In each case, specific advice should be sought from a professional adviser.

Zero-rated supplies

The Second Schedule to the VAT Act provides a list of supplies that are subject to VAT at zero rate, as follows:

• Export of goods where appropriate evidence of exportation is maintained by the taxable supplier for review as and when the ZRA requests for a review

• Freight transport services from or to Zambia

• Supplies to privileged persons

• Medical supplies

• Energy saving appliances, machinery and equipment

• Certain agricultural equipment and accessories

• Wheat, flour, bread, bread rolls and buns.

The above list is not exhaustive. It is generic and should be used for guidance purposes only. In each case, specific advice should be sought from a professional adviser.

Input tax

Generally, a taxable person can claim input VAT incurred on purchases and imports of goods and services for the purposes of a business carried on or to be carried on by him. The input tax credit is claimed through the monthly VAT returns.

Input VAT incurred in respect of the following goods and services may not be deducted as input tax:

• entertainment, including business entertainment;

• motor vehicles (principally saloon cars and double cabs), except those acquired for leasing or resale purposes;

• petrol, except where it is purchased for resale; 

• 10% of the input tax incurred on diesel for business purposes. However, for mining companies effective 1 January 2021, the claim of input VAT on diesel is limited to 70%;

• telephone and internet services

• all non-business purchases, including expenses incurred for the benefit of employees.

The above list is not exhaustive and should only be used for guidance. In each case, specific advice should be sought from a professional adviser.

There is also a requirement for a taxpayer to account for VAT on imported services through the VAT Reverse Charge (VAT RC) mechanism. Where a taxpayer imports services that have not been subject to VAT in the country of origin, the taxpayer is required to account for VAT on the services at 16%. However, this can be mitigated where a foreign supplier does not appoint a local tax agent to account for output tax on their supplies in Zambia.

Partial exemption

A taxable person who makes both taxable and exempt supplies can claim input tax to the extent that the expenditure is attributable taxable supplies.

Input tax in this instance can be claimed using any of the following four methods:

• Calculating input tax claimable for each month by apportioning the total input tax incurred in that month based on the ratio of taxable supplies to total supplies.

• Calculating input tax claimable for each month by apportioning only the input tax that is attributable to both taxable and exempt supplies based on the ratio of total taxable supplies to total supplies made in that month. The apportioned input tax is then added to the input VAT that is directly attributable to taxable supplies.

• Determining input tax claimable for each month as per method 1 above but by using aggregate sales figures for the accounting year to date. The input tax claim for the month is then computed by deducting aggregate input claims made to date against the aggregate input tax claimable to date.

• Determining input tax claimable using a similar basis to method 2 above but by using aggregate accounting year-to-date values.

A taxpayer who only makes VAT exempt supplies will not be able to claim any input VAT suffered on their purchases, while a taxpayer making zero rated supplies is considered a taxable supplier.

Pre Registration input tax

Intending traders

An intending trader is a taxable person who is registered for VAT in anticipation of commencing trading activities. The purpose of such registration would be to claim input tax incurred before a person starts making taxable supplies.

Nevertheless, an intending trader can only claim input tax incurred in relation to a business activity approved by the Commissioner at the time of VAT registration.

There is a time limit within which an intending trader must start to make taxable supplies to continue claiming input VAT on goods and/or services purchased as follows:

• electricity generation, farming, mining and tourism (registered and licenced by the Zambia Tourism Agency) — within a period of four years after registration

• exploration — within a period of ten years after registration

• any other intending trader — within a period of two years after registration.

Time limit to claim input tax

International trade

Imports

Goods

Imported goods that are classified as standard-rated supplies are subject to import VAT at the standard rate of 16% on importation. Importation of certain types of capital goods may qualify for VAT deferment. Although such goods may be classified as standard-rated supplies, the importer will not be required to pay the import VAT where the importer has applied for and qualified for the VAT deferment scheme.

Services

Services provided by a foreign supplier

The procurement of services from a foreign supplier by a local taxable person is liable to a VAT RC  unless such services have been subject to a similar tax in the country of export or where a foreign supplier has appointed a local tax agent in Zambia.

The recipient of imported services is required to self-account for VAT RC on the value of services procured each month and declare the same in the VAT returns.

The input VAT resulting from accounting for VAT RC is not eligible for an input tax credit.

The adverse impact of the VAT RC can be mitigated by the foreign supplier appointing a local tax agent in Zambia who will account for output VAT on their behalf.

The appointed local tax agent, subject to Commissioner- General's approval, will issue a local tax invoice under their VAT registration and account for output VAT on behalf of the foreign supplier. The Zambian recipient of services may claim input VAT charged on the tax invoice issued by the local tax agent, subject to normal rules.

Electronic services

Effective 1 January 2020, electronic services performed, undertaken or utilised in Zambia or whose benefit is for a recipient in Zambia, are subject to VAT regardless of whether the service is paid for outside of Zambia.

Where the electronic service provider has a permanent address of the business or a registered office in Zambia, the service provider will be required to register and account for VAT in accordance with normal rules.

In the case that the non-resident service provider does not have a permanent address of the business or a registered office in Zambia, there is a requirement to appoint a person resident in Zambia to act as a tax agent on their behalf.

Notwithstanding the above, the Commissioner- General may appoint a tax agent to account for VAT on electronic services/commerce.

There are no registration thresholds for an electronic service provider.

Exports

Goods

The export of goods from Zambia by, or on behalf of, a taxable supplier is subject to VAT at zero rate, subject to meeting certain ‘Proof of Export’ requirements.

The documentary requirements are as follows:

• Copies of export documents for the goods, bearing a certificate of shipment provided by the authority.

• Copies of import documents for the goods, bearing a certificate of importation into the country of destination provided by the customs authority of that country or copies of transit documents for goods in transit bearing a certificate of transit provided by the customs authority of the country of transit or a copy of the air waybill or road manifest or goods train manifest or bill of lading.

• Tax invoices for the goods exported.

• Documentary evidence, proving that payment for the goods has been made by the customer into the exporter’s bank account in Zambia.

• Such other documentary evidence as the authorised officer may reasonably require.

Services

Only services that are physically rendered outside Zambia are eligible to charge VAT at zero rate.

Place, time and value of supply

Place of supply

The place of supply is the location of the goods when supplied to a customer. Goods are regarded to be supplied in Zambia in the following instances:

• where goods are exported from Zambia or if their supply does not involve their removal from or to Zambia

• where the supply involves their installation or assembly at a place in Zambia to which they are removed.

On the other hand,goods will be deemed to be supplied outside Zambia if their supply involves their installation or assembly at a place outside Zambia to which they are removed.

Services will be deemed to be supplied in Zambia if the supplier of the services:

• has a place of business in Zambia and no place of business elsewhere

• does not have a place of business in Zambia and elsewhere but their usual place of residence is in Zambia

• if the supplier of the services has a place of business in Zambia and elsewhere but the place of business most directly concerned with the supply of the services in question is the one in Zambia.

Services will also be considered to be supplied in Zambia if they are imported into Zambia.

Special rules apply for the place of supply of radio, television, telephone, or other communication services, where the signal or service originates outside Zambia. The place of supply of these services is taken to be the place where the recipient receives the signal or service, provided that consideration is payable for receiving the service or signal.

Time of supply

The time of supply or tax point is the time when tax is due and payable.

For goods, the time of supply or the tax point for VAT purposes is at the earliest of the time when:

• the goods are removed from the supplier’s premises     

• the goods are made available to the buyer     

• the supplier receives payment

• the supplier issues a tax invoice to the buyer.

The time of supply of services for VAT purposes is the earliest of the time when:

• the supplier receives payment;     

• the supplier issues the tax invoice; or

• the supplier renders or performs the services.

VAT should also be accounted for on a part or advance payment made, or interim invoice raised for services or goods not rendered or delivered.

Value of supply

Where goods are supplied for monetary consideration, the taxable value is the amount by which the consideration exceeds the tax payable in respect of that supply.

In case goods or services are supplied:

• other than for a monetary consideration

• for a consideration that consists only partly of money

• for a consideration that is less than the open-market value of the goods or services, the taxable value shall be the amount by which their open market value exceeds the tax payable on that supply.

The open-market value is defined as the price at which the goods or services being supplied would have been supplied in the ordinary course of business to a person independent of the supplier.

VAT compliance

Returns and payment of VAT

VAT returns are submitted monthly. However, upon application to and approval by the ZRA, some businesses may submit VAT returns every quarter.

VAT returns must be lodged electronically with the ZRA within 18 days following the end of the prescribed accounting period (calendar month). This is mandatory for taxable suppliers with ten or more transactions.

However, taxable suppliers with less than ten transactions to be reported in the return have the option to file manual returns. The manual VAT returns should be submitted to the ZRA within five days following the end of the prescribed accounting period.

VAT may be paid in cash, by cheque or by bank transfer. Payments must be in Zambian currency (Zambian kwacha).

Interest and penalties

Businesses that do not lodge a return or make payment by the filing/payment deadlines set out are liable to penalties and interest as noted below:

• For late submission of a return the penalty is ZMW 300, or 0.5% of the tax payable, whichever is greater, for each day that the return is not submitted.

• For late payment of VAT, the penalty is 0.5% of the tax due for each day the VAT is unpaid.

• Interest is chargeable at the Bank of Zambia discount rate plus 2% for each month or part of a month that a payment is overdue.

VAT withholding tax agents

The ZRA appointed VAT withholding agents are required to withhold, account for, and pay the VAT charged on invoices from their suppliers directly to the ZRA.The suppliers (whose VAT has been withheld) are still required to charge output VAT on their invoices to the VAT withholding agents and declare it in their VAT returns.

The deadline for VAT withholding agents to account for the VAT withheld is on the 16th of the month following the end of the month in which the invoice is received. 

Once the withheld VAT is paid, ZRA will issue a withholding VAT certificate to the supplier. The supplier can access the certificate in the ZRA online portal and use it to support the offsetting of withheld VAT against the output VAT for the period, or claim a refund.

Carrying forward VAT credits 

Refunds

When accounting for VAT a business can deduct the input VAT incurred on qualifying business expenditure from the output VAT that it is liable to pay on its supplies. Where the input incurred in the accounting period exceeds the output VAT charged in the same period, the taxable supplier will be in a refundable position.

To obtain a refund from the ZRA, a formal request must be made. Before granting any refunds, the ZRA will generally conduct a credibility check (bespoke audit) to verify the authenticity of the refund.

Tax invoices

Tax invoices should normally be issued in the same month that the goods or services are supplied. Tax invoices must be retained for a minimum period of six years. Only one tax invoice may be issued for any taxable supply.

A customer is, however, entitled to request a duplicate tax invoice in case of loss of the original invoice. The duplicate invoice must be prominently marked ‘duplicate’.

A valid tax invoice must include the following details:

• the words ‘tax invoice’ in a prominent place

• name, address, and taxpayer identification number of the supplier

• name or business name and address of the recipient

• In case of business to business transaction, the taxpayer identification number of the recipient

• serial number of the invoice and date of issue

• quantity or volume of the goods or services supplied

• description of the goods or services supplied

• the selling price, excluding VAT and any discount

• the total amount of the VAT charged

• the selling price including VAT, or the total charge on the invoice inclusive of VAT, any discount, and the rate of VAT.

The law requires all VAT registered suppliers to issue invoices using Electronic Fiscal Devices (EFDs). Alternatively, the supplier can apply for approval to issue invoices from:

• an approved computer generating invoice system

• a manual pre-printed invoice.

The approvals are subject to the Commissioner’s discretion.

In respect of manual invoicing, the ZRA requires that the invoices be issued from a pre-printed sequentially numbered invoice book that should be obtained from an authorised supplier. If the supplier wishes to issue a computer-generated invoice, then the ZRA may request that virtual EFD software be installed on the system. In addition, the accounting package used by the supplier must be audited and approved by the ZRA.

Invoicing Currency 

Where an invoice is issued in a foreign currency, it must indicate the kwacha exchange rate or the kwacha equivalent of the amounts due on the invoice at the date of the transaction. The date of transaction is normally the date on which the tax invoice is raised.

Penalty for failure to issue a valid tax invoice

Failure to issue a tax invoice in the form and manner prescribed by the Commissioner is an offence and is liable, on conviction, to a penalty as stated below:

• First offence ≤ ZMW 30,000

• Second offence ≤ ZMW 60,000

• Third offence ≤ ZMW 90,000 or imprisonment for a term not exceeding three years, or both.

Additionally, each sale or transaction should be recorded using the EFD, an approved computer system or a pre-printed tax invoice. Non-compliance with this requirement is an offence and will result in penalties as stated below. 

• First offence ≤ ZMW 30,000

• Second offence ≤ ZMW 60,000

• Third offence ≤ ZMW 90,000 or imprisonment for a term not exceeding three years, or both.

Credit notes

Credit notes may be issued where:

• the supply has been cancelled,

• the supply or total purchase price has been varied or altered

• the goods have been returned to the supplier.

The details required on the credit notes are the same as those required on a tax invoice. The credit note must include the words ‘credit note’ in a prominent place.

Further, the following details should be included:

• details of the person or business receiving the credit

• quantity and amount credited for each item

• number and date of the original tax invoice

• statement of the reason for issuing a credit note.

The supplier must also maintain a clear audit trail to show that VAT was accounted for on the original supply.

The supplier who issues a credit note may deduct the credit due for VAT previously paid on the original invoice from the total output VAT due as per the monthly VAT return.

A business in receipt of credit notes for goods or services that have been subsequently cancelled or returned should not claim input VAT incurred on such supplies. In the case that the input tax was previously claimed, then the same should be credited and refunded to the ZRA through the monthly VAT return. Output VAT paid on an initial invoice may only be reversed or recovered if a credit note is issued within three months of issuance of the invoice that is being reversed.

Record-keeping

Unless the ZRA advises otherwise, all tax and relevant accounting records and documents must be kept for a minimum period of six years from the tax period to which the information relates. Furthermore, the documents should be maintained in Zambia and be available for inspection by the ZRA upon request.

Records may be kept in electronic form, but hard original copies must be made available for inspection purposes.

Other indirect taxes

Customs duties

Table 1

Export duties

Excise duties on local sales