Zambia Revenue Authority

A Partnership is a legal relationship between two or more persons, who carry on a business or undertaking, to which each contributes either money or labour or anything else with the object of making a profit and of sharing it between them.
The essentials of a partnership are as follows:
• Each of the partners brings something into the partnership, or binds himself to bring something into it, whether it be money, or his labour or skill;
• The business must be carried on for the joint benefit of the partners;
• The object of the partnership must be to make profits;
The agreement between the parties must be a legitimate agreement.

Whether or not a partnership exists is largely a question of fact, though the legal interpretation of documents may also be involved. Whether there is a written agreement or not, the real question to be decided is whether the persons concerned are carrying on a business in common with a view of profit.

Tax Treatment of Partnerships

The income tax Act does not recognize a Partnership as a distinct taxable person. For this reason, a partnership is not chargeable to tax as such, but each partner is assessed separately. Nevertheless, the Income Tax Act provides that persons carrying on any business in partnership are required to make a joint return as partners in respect of such business. In practice, the Commissioner General first determines the taxable income of the partnership on the basis that it is a separate taxable person. He then proceeds to apportion such income among the partners according to their rights to share in the profits of the partnership are divisible among the partners in the proportions agreed upon or in the absence of such an agreement, in proportion to the capital contributed.

The partners are then individually assessed on their respective share of Partnership income after taking into account any income received from sources outside the partnership. Each partner pays according to his total income (including his share of the partnership income) applicable to him.

Where the determination of the taxable income of a partnership results in an assessed loss, such loss is apportioned among the partners according to their rights to participate in profits and losses. Each partner is entitled to set off such loss against income of the same source.

Income from partnership businesses is exempt from Turnover Tax, instead such income is taxed normally under Income Tax as stipulated above.

Where Partnership connections extend beyond Zambia:

How is a partner to be assessed if he has a Partnership connection which extends beyond Zambia? The Income Tax Act provides that:
Where a person ordinarily resident in Zambia receives a share of the profits of a business carried on in Partnership partly within and partly outside Zambia, the whole of the person’s income is deemed to have been received from a source within Zambia.” Thus, it will sometimes be found that an accountant or a member of another profession will do most of his work in Zambia but, because he is a partner in an international firm, he is also entitled to a Partnership income in another country e.g. Angola. If he is ordinarily resident in Zambia, he will be assessed on his Angolan profits as well as on his Zambian profit which he makes in Zambia. Conversely, if the partner is entitled to a share of profits which he makes in Zambia, such a proportion would not be included in his share of profits under the Partnership agreement. Where a partner who is ordinarily resident in Zambia is assessed under the Income Tax Act on his share of Partnership profits from another country, double taxation relief will have to be allowed when the foreign part of his partnership profits is also taxed in the foreign country. Where no double taxation agreement exists, as is the case with Angola, unilateral double taxation relief will be allowed.