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Zambia Katrina Mabika Director BDO Zambia. GDP growth in 20107% Main import partners – South Africa 40,2% DRC 12,9% Main export partners – Switzerland.

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Presentation on theme: "Zambia Katrina Mabika Director BDO Zambia. GDP growth in 20107% Main import partners – South Africa 40,2% DRC 12,9% Main export partners – Switzerland."— Presentation transcript:

1 Zambia Katrina Mabika Director BDO Zambia

2 GDP growth in 20107% Main import partners – South Africa 40,2% DRC 12,9% Main export partners – Switzerland 47,1% China 11,2% Inflation rate ,4% % Kwacha lending rates < 22,06% Volatile exchange rates US Dollar 2010 K4, K3,601.5 THE ZAMBIAN ECONOMY Facing the Challenges of Doing Business in Africa Page 2

3 Mining – record copper prices in 2010 Tourism – New brand name ‘Let’s Explore Zambia’ Agriculture – bumper maize crops in 2010 Retail and distribution - Lake Kariba Waterfront Development Others – manufacturing, property development – shopping malls THE ECONOMY – KEY SECTORS Facing the Challenges of Doing Business in Africa Page 3

4 Sole proprietorships Partnerships Companies limited by shares Companies limited by guarantee Branches of foreign companies BUSINESS ENTITIES Facing the Challenges of Doing Business in Africa Page 4

5 Public or private companies Incorporation procedure Minimum of two shareholders and directors Minimum issued share capital Capital structuring Legal status and statutory administration Empowerment legislation LIMITED LIABILITY COMPANY Facing the Challenges of Doing Business in Africa Page 5

6 PRIVATE COMPANY The private company is the most common vehicle Maximum number of members is 50 and minimum number is 2 A minimum of ZMK 2,000,000 (ZAR 3,051) 1 in paid up share capital A minimum of two members and two directors More than half of the directors, including the managing director and at least one executive director must be resident in Zambia 1 1 ZMK = ZAR Facing the Challenges of Doing Business in Africa Page 6

7 BRANCH OF A FOREIGN COMPANY A branch of a foreign company is regarded as a foreign company if it establishes a place of business or owns immovable property in Zambia A branch must nominate at least one locally resident director or branch manager to take statutory responsibility for branch affairs Both a Zambian company and a branch are subject to the provisions of the Companies Act Both are treated as separate taxable entities and required to submit annual audited financial statements and tax returns and pay corporate income tax Facing the Challenges of Doing Business in Africa Page 7

8 Simple formation procedure No local shareholders but encourages greenfield investments One director or branch manager Employment obligations Tax obligations Annual filing requirements BRANCH OF A FOREIGN COMPANY Facing the Challenges of Doing Business in Africa Page 8

9 BRANCH OR COMPANY? Key advantage of a limited liability company is that risks are limited to the paid up share capital of the local Zambian entity; in a branch, liabilities would also be the responsibility of the foreign parent company Formation procedures and financial statement and corporate tax obligations are similar Branch option may be advantageous in certain operating environments. Repatriation of profits – no foreign exchange Facing the Challenges of Doing Business in Africa Page 9

10 BRANCH OR COMPANY? Under branch arrangement operating profits recognized in books of parent company whereas a limited company would be required to declare a dividend. There would be a 15% withholding tax implication which may be recovered in terms of the DTA (participation exemption) Winding up procedures simplified for a branch. Long term presence in Zambia, limited company may be most beneficial. Facing the Challenges of Doing Business in Africa Page 10

11 Zambia Revenue Authority (ZRA) 35% income tax on adjusted company profits, 40% Value Added Tax at 16% Pay as You Earn on salaries at 0%- 35% OUR TAX REGIME Facing the Challenges of Doing Business in Africa Page 11

12 No capital gains tax Property transfer tax of 5% on transfers of shares or property 3% presumptive tax on turnover for small businesses OUR TAX REGIME Facing the Challenges of Doing Business in Africa Page 12

13 Fiscal year end of 31 March Provisional returns at 30 June and quarterly payments Standard rate of 35% on adjusted profits Capital allowances INCOME TAX Facing the Challenges of Doing Business in Africa Page 13

14 16% on standard rated supplies Zero rated and exempt supplies Returns filed by 21 st of following month Refunds following control inspections VALUE ADDED TAX Facing the Challenges of Doing Business in Africa Page 14

15 Dividends Management fees Withholding taxes at 15% VAT reverse charge at 16% DISTRIBUTION OF PROFITS Facing the Challenges of Doing Business in Africa Page 15

16 Deductible at a rate of 15% from Foreign management / consultants fees Royalties Interest Rents Commissions WITHHOLDING TAXES Facing the Challenges of Doing Business in Africa Page 16

17 Reduced rate of WHT in some countries Kenya, Tanzania, Uganda – exempt South Africa – refer to domestic rate. DTA does not deal with reduced rates Latest DTA’s signed with China & Seychelles SAICA INTERNATIONAL TAX CONFERENCE 2006 DOUBLE TAXATION RELIEF Facing the Challenges of Doing Business in Africa Page 17

18 Agriculture Mining Investment Act 1993 Zambia development agency SAICA INTERNATIONAL TAX CONFERENCE 2006 INVESTMENT INCENTIVES Facing the Challenges of Doing Business in Africa Page 18

19 ZAMBIAN INCENTIVES An investor who invests at least USD 250,000 and employs at least 10 people will be entitles to a residence permit and work permits for up to 5 expatriate employees. In the Mining Sector: Guaranteed input tax claim for five years on pre-production expenditure for exploration companies in the mining sector Mining companies holding a large scale mining license carrying on mining of base metals taxed at 30% and dividends paid by such company taxed at 0% Facing the Challenges of Doing Business in Africa Page 19

20 ZAMBIAN INCENTIVES In the Mining Sector: 100% mining deduction on capital expenditure on buildings, railway lines, equipment, shaft sinking or any similar works. The debt/equity ratio has been reduced from 2:1 to 3:1 to encourage further investment in the Mining Sector. Facing the Challenges of Doing Business in Africa Page 20


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