On the 31st December 2020, the Finance No. 2 Act 2020 (Act No. 10 of 2020) was published by The Zimbabwe Revenue Authority.
The Act bring amendments to the Finance Act, the Income Tax Act and the Value Added Tax Act (VAT Act).
It contains tax measures announced previously as part of the 2021 National Budget.
1. Personal Income Tax Threshold
With effect as from 1st January 2021, there is an increase in the taxable income threshold. The tax bands begin at ZWD 120, 001 per annum. The highest rate of 40% applies for income exceeding ZWD 3, 000, 001 per annum. The taxable income threshold tax bands and rates are as follows:
Up to ZWD 120,000 – 0%
ZWD 120,001 up to 360,000 – 20%
ZWD 360,001 up to 720,000 – 25%
ZWD 720,001 up to 1,440,000 – 30%
ZWD 1,440,001 up to 3,000,000 – 35%
Over ZWD 3,000,01 – 40%
2. Payment of Certain Taxes in Foreign Currency
Section 4A of the Finance Act (Chapter 23:04) is amended to include a new subsection (10). It provides that:
Where any person liable to pay tax on income from trade or investment—
(a) earns any part of such income in foreign currency; and
(b) has any part of such income liquidated and paid in local currency upon transfer to a nostro account, pursuant to a retention scheme operated by the Reserve Bank of Zimbabwe;
any tax due on such part that is liquidated shall be calculated on the basis that it was earned in local currency.
3. New Carbon Tax
With effect as from the 5th December 2020, a new carbon tax is chargeable. It shall be paid at the rate of 2.29 ZWD or 0.04 USD per litre of petroleum product or 5% of the cost, insurance, freight value of petroleum product, whichever is the greater amount. This tax only concerns imports by either the state oil procurement entity or any licenced person.
4. Intermediated Money Transfer Tax
With effect as from 1st January 2021, section 22G of the Finance Act was amended. It provides that if a single transaction on which the tax payable is equivalent to or exceeds –
- 40 million ZWD, a flat intermediated money transfer tax of 800, 000 ZWD shall be chargeable on such transaction; or
- 100, 000 USD, a flat intermediated money transfer tax of 2,000 USD shall be chargeable on such transaction.
5. Cannabis Levy
A new Cannabis Levy is chargeable on the value of exports at the following rates corresponding to the level of processing:
- 10% on the export sales value of finished packaged medicinal cannabis oils that are ready for resale.
- 15% on the export sales values of bulk extracted medicinal cannabis oils that require further processing and/ or packaging.
- 20% on the export sales value of dried medicinal cannabis flowers
6. Corporate Income Tax – Mining Operations
With effect as from 1st January 2021, corporate income tax rate for mining operations is reduced from 25% to 24%.
7. Real Estate Investment Trusts (REITs) Tax Incentive Schemes
REITs have been added to the Third Schedule of the Income Tax Act. The Third Schedule provides for entities or person exempt from paying income tax. For REITs to benefit from this exemption, they must satisfy the following:
- any qualifying real estate investment trust (for the purposes of qualifying for the exemption under this provision, a “qualifying real estate investment trust” (REIT) means an entity registered as such under the Collective Investment Schemes Act which has as its principal object the owning, managing and investment in real estate.
- in the case of investors in the REIT other than a pension fund, income must accrue from real estate investment projects commenced on or after 31st December 2020.
- the REIT must receive a minimum of 80% of its gross income from real estate.
- the REIT must distribute a minimum of 80% of its taxable income in the form of shareholder dividends each year.
- the REIT must have a minimum of 100 shareholders after the first year of the date when it qualifies in other respects to benefit from the exemption.
- Not more than 50% of the REIT’s shares may be held by five or fewer individuals during a taxable year, provided that one or more pension funds may hold up to 50% of the shares of a REIT in any taxable year; and
- the REIT must be listed on an exchange registered in terms of the Securities and Exchange Act of Zimbabwe.
8. Non-Resident Shareholder’s Tax
With effect as from the 1st January 2017, there is a new exemption from non-resident shareholder’s tax for income accruing from approved build–operate–transfer (BOT) or build–own–operate–transfer (BOOT) projects.
This tax has a retrospective effect.
9. New Deadline For Payment of Certain Income Deemed to Be From a Source Within Zimbabwe
With effect as from the 1st January 2021, there was a change in the payment deadline for income deemed to be from a source within Zimbabwe.
As such the tax payable shall now be paid as follows:
(a) the first quarter payment shall be paid on or before the 25th March in relevant year of assessment for income which has accrued in December, January and February; and
(b) the second quarter payment shall be paid on or before the 25th June in the relevant year of assessment, for income which has accrued in March, April and May; and
(c) the third quarter payment shall be paid on or before the 25th September in the relevant year of assessment, for income which has accrued in June, July and August; and
(d) the fourth quarter payment shall be paid on or before the 20th December in the relevant year of assessment, for income which has accrued in September, October and November.
10. New Rate of VAT For Supply of Cellular Telecommunications Service
The rate of VAT for the supply of cellular telecommunications service by a registered operator shall be 14.5%.
11. New Deadline For Collection of VAT on Imported Services
With effect as from the 1st January 2021, Section 13 of the VAT act was amended to make the deadline for collection of VAT on imported services align with the standard deadline of the 25th of the month following the month of the date of supply, instead of the current deadline of 30 days from the date of invoice or payment.
12. New Decisions of The Commissioner To Which Any Person May Object
The Eleventh Schedule of the Income Tax Act was amended to add include new decisions of the commissioner to which any person may object. They are as follows:
- whether or not a financial institution has mediated the transfer of money.
- whether or not a selected transfer pricing method is the most appropriate one.
- whether property or insurance commission tax was paid on commission accruing to a freelance agent.