What is Withholding Tax?
Withholding Tax is not a tax but a means of collecting that tax. Withholding Tax is deductible from a payment by the person who is liable to make payment (the payer) at the point in time the person to whom it is due to be made (the payee) becomes legally entitled to it (date of accrual). The payer is required to pay the tax deductible to the Zambia Revenue Authority by reference to the date of accrual no matter how, when or where payment is made.
What payments will be subject to Withholding Tax under Section 81, 81A and 82A?
Dividends – Section 81
Dividend means any amount distributed or credited by a company to its shareholders, or any amount deemed to have been distributed. All companies registered in Zambia are required under this section to deduct Withholding Tax (WHT) from payments of dividends other than dividends paid to the government of the Republic of Zambia.
Dividends accrue on the day of the resolution provided that where the resolution states that the dividend is to be paid to share or stockholders registered on a day in future, then the dividend is deemed to accrue on that day. The rate of WHT on dividends is 15% and it is the final tax for residents and non - residents.
WHT on dividends for Companies carrying on mining is 0%.
Payments to Non – Resident Contractors – Section 81A
These are payments made to non - resident contractors who are engaged in construction and haulage operations.
Who is a Non – Resident Contractor?
Non – resident Contractor means;
- - An individual who is neither resident nor ordinarily resident in Zambia; Or
- - Any other person or partnership which is not resident in Zambia and does not have a permanent establishment in Zambia.
Construction Operations include: –
- 1. The erection, alteration, maintenance, repair, extension, demolition or cleaning of any building or structure, whether permanent or not;
- 2. The installation in any building or structure of heating, lighting, lift, air conditioning, ventilation, power, drainage, sanitation, water, fire protection or like supplies or services;
- 3. The painting or decoration of the internal or external face of any building or structure;
- 4. Any operations which are an integral part of or prior to or to render complete the operations described in (1) and (2).
Haulage Operations include: -
Transportation by land, water or air, of persons or produce of a like nature or ores and minerals, food stuffs and merchandise. Withholding tax rate for non-resident contractors developing or operating on a multi facility economic zone or an industrial park is at 20%.
Payments under Section 82A
Interest is not defined in the Income Tax Act, but it is to be taken as an amount calculated according to a fixed ratio on debt or money lent. Interest can be earned on savings or deposit accounts, treasury bills, government bonds or any other financial instruments, or on debt or money lent.
Persons other than individuals:
No Withholding Tax shall be paid on interest earned by individuals from savings or deposit accounts held with financial institutions such as banks and building societies.
The Withholding Tax Rate is 15%. However, this is not the final tax. At the end of the charge year, the taxpayer will be required to submit an Income Tax Return containing all sources of income, including income from interest. The final tax will be determined through an assessment. The Withholding Tax deducted is taken into account before arriving at the final tax
Charities and other Exempt organizations:
The Withholding Tax Rate for interest earned on Government Bonds and Treasury Bills by exempt organizations and charities is 15% and it is the final tax.
A Royalty is defined in Income Tax Act as meaning a payment in any form received as a consideration for the use of, or the right to use, any copy right of literary, artistic, or scientific work (including cinematograph films and tapes for radio or television broadcasting), any patent, trademark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience.
The Withholding Tax Rate for Royalties is 15% for residents and 20% for non - residents. However, in the case of non - residents, this is the final tax.
Rent means "a payment in any form including a fine, premium or any like amount, made as a consideration for the use or occupation of or the right to use or occupy any real property including personal property directly connected with the use or occupation or the right to use or occupy such real property". It is important to note that the property from whose rentals the Withholding Tax is deducted must be situated in Zambia. The rate of Withholding Tax is 10%.
The payer (tenant) is responsible for deducting Withholding Tax from gross rentals on the date of accrual of any amount due to the payee (landlord).
The tenant should remit the amount so deducted to the Zambia Revenue Authority. This is the final tax. At the end of year, the taxpayer will be required to submit an Annual Income Tax Return containing all sources of income, including rental income. The final tax will be determined through an assessment. The Withholding Tax deducted is taken into account before arriving at the final tax.
(The Income Tax Act makes provision for a landlord to account for tax on rental income at 10%, subject to approval by the Commissioner General, depending on occupancy and privileges of the tenant). (Income Tax (Amendment) Act No. 19 of 2016)
For cases where the tenant is either a diplomat, diplomatic mission or any other persons who by law is exempt from paying tax, the landlord is mandated to pay the WHT on their own.
Management Consultancy Fees
Management and Consultancy Fees means payment in any form, other than an emolument, for or in respect of any administrative, consultative, managerial, technical or any service of a like nature or any creation, design, development, installation and maintenance of any information technology solution, programme, system or a combination.
a) It should be noted that Withholding Tax is deductible from a payee who is not in business in Zambia but renders a service to a person carrying on business in Zambia. The WHT rate for management and consultancy fees for non-residents is 20% and is the final tax.
b) A management or consultant fee from a source within or deemed under section 18 to be from a source within the republic; The WHT rate for management and consultant fees for local consultants will be 15% and will not be the final tax. The consultants will be required to submit annual returns and the tax (i.e. WHT) paid will granted as credit against any tax liability that may arise. (Income Tax (Amendment) Act No. 19 of 2016)
Public Entertainment Fees
Public Entertainment Fee means "a payment in any form other than an emolument to, on behalf of, or in respect of, any person or persons in partnership, including theatre, motion picture, radio or television artists, musicians, athletes or sports persons, in respect of those persons' personal activities in any entertainment, competition or similar activity within the Republic".
The Withholding Tax is deductible from payments made to non - resident entertainers and sportsmen for performances within Zambia.
The WHT rate is 20% and is the final tax.
Commissions for Withholding Tax purposes means, any Commission other than Commission received by an individual whose income is from employment or office.
The WHT rate for residents is 15% and 20% non-residents and it is not the final tax.
a) Submission of returns & Payments.
The due dates for filing of returns and payment of Withholding tax is on the 14 day after the month of transactions. Note that both the return and payment are due on the same date.
b) Tax Point for the deduction of withholding Tax
The time at which payment shall be deemed to have been made shall be whichever is earlier of the following times:
(A) The time when income is paid
(B) The time when Income accrues to a person; and
(C) The time when income is in any way due to a person or held to that persons order or on their behalf, or it is in any way disposed of according to that persons order or in that persons favour.
The above provides guidance and clarity as to the Tax point when to deduct withholding tax and remit it to ZRA. The above must provide guidance in cases where a payment is made in advance or has not been made but only accrues to the recipient.