Zimbabwe
1Policy, Plans and Priorities
Zimbabwe has an economic blueprint ‘Zimbabwe Agenda for Sustainable Socio-Economic Transformation (Zim Asset)’which will guide national development over the next five years. The plan will focus on the full exploitation of and value addition to the country's abundant resources. Various financing mechanisms for the programme have been proposed, among them tax and non-tax revenue, leveraging resources, Sovereign Wealth Fund, issuance of bonds, accelerated implementation of Public Private Partnerships (PPP), securitization of remittances, re-engagement with the international and multilateral finance institutions and other financing options.
2Investment Promotion
2.12.1 Institutions
ZIA
Zimbabwe Investment Authority (ZIA) was established by the Zimbabwe Investment Authority Act No. 4 of 2006 as statutory body with the mandate to promote, facilitate and coordinate investment (both national and foreign) in Zimbabwe. ZIA is a merger of the Export Processing Zones Authority (EPZA) and the Zimbabwe Investment Centre (ZIC) developed in 2006 and implemented since 2007. The intention is to provide a One-Stop-Shop for investors providing them all relevant investment information and facilitation to obtain necessary permits, licenses and authorisations required for establishing a business in Zimbabwe. One major objective of this reform process is to shorten the approval process to a few days or even a few hours from the current one month to get approval. The government has been inspired by other countries like Mauritius, Rwanda or Egypt where the investment approval process takes only some few hours to one day. Like that, it would also improve its ranking in World Bank’s “Doing Business Ranking” where it was ranked number 145 in the ease of starting a business out of 183 countries in 2010.
The functions of ZIA cover, among others, the following (article 7, ZIA Act (2006) :
- Plan and implement investment promotion strategies to encourage investment by international and domestic investors;
- Facilitate and process investment applications for approval;
- Identify sectors with the potential for investment;
- Promote the decentralisation of investment activities in accordance with the development policy of the Government;
- Promote and co-ordinate investment activities in enterprises or economic sectors that are of strategic importance to the national development;
- Recommend to the Minister the granting of additional incentives outside of the existing policy investment procedures, where necessary;
- Advise the Minister on investment policy and all matters relating to investment in Zimbabwe.
ZIMRA
The Zimbabwe Revenue Authority (ZIMRA) is the agent of the state that is in charge of assessing, collecting and reinforcing the payment of all revenues in terms of the Revenue Authority Act (chapter 23:11). Investors have to register Tax registration with ZIMRA.
Zimbabwe Stock Exchange
The Zimbabwe Stock Exchange (ZSE) is regulated under the Zimbabwe Stock Exchange Act (chapter 24.18) and plays an essential role in the raising of capital funds and as a link between the entrepreneur and the investing public. Even though the number of shares listed is small by world standards, investors have a diverse selection of shares they can choose from. For new investors it should be noted that the regulatory powers of the exchange are based on the contractual agreement each company enters into when it signs the listing agreement. The Exchange has set guidelines to keep both shareholders and the general public informed of the progress of listed companies. A policy provides public disclosure of the fullest information.
EPZA
Export Processing Zones Authority (EPZA) was in charge of investments in export Processing Zones in Zimbabwe and was responsible for all relevant processes such as project approval, administration, regulation, control and permit granting approvals. Under the ZIA Act (2006), it was agreed to merge the Zimbabwe Investment Centre (ZIC) and EPZA into one institution, ZIA.
Zimbabwe Investment Authority Act 2006
The ZIA Act was concluded in 2006 and got in effect in 2007. It repealed the Zimbabwe Investment Centre Act (ch. 24:16) and the Export Processing Zones Act (ch. 14:07), and led to a merger of the two respective institutions Zimbabwe Investment Centre (ZIC) and the Export Processing Zones Authority (EPZA) into the Zimbabwe Investment Authority (ZIA).
Lately there have been statements that government is considering to enact a revision of existing laws and regulations to further protect foreign investors and to provide a comprehensive investment policy.
2.2Investment and Export Incentives
The government provides diverse incentives for local as well as foreign investors in Zimbabwe. Incentives are dominantly fiscal incentives as well as permits facilitating both imports and exports or the entry of foreign exchange.
Mining Sector
Income tax rate from mining operations is only taxed at 15% for companies and trusts. Investors can also claim capital allowances on housing of mining staff based on actual costs. In addition, a rebate on duty on imported goods is possible, such as on goods (i) for specific mine development operations; (ii) when there is a special mining lease agreement, (iii) and for prospecting and searching for mineral deposits once entered into contract with the Government.
Incentives in the Mining Sector are the following:
Royalties & Rental Incentives
Royalties not deductible for income tax purposes shall be calculated as a percentage of the gross fair market value of minerals produced and sold as follows:
Precious stones 10%
Precious metals 3%
Base metals 2%
Industrial minerals 2%
Coal bed methane gas 2%
Coal 1%
Surface rentals not deductible for income tax purposes, are charged at different rates/levels during the prospecting/exploration phase and the development/mining phase of mining project. They will be levied according to a published table of the rates of surface rents. A 10% withholding tax on dividends for both residents and non-residents apply for companies listed on the Zimbabwe Stock Exchange (ZSE). All other companies are levied at a rate of 20%. In addition, the taxable income of holder of a special mining lease is 25%.
Allowable deductions
Mines operating under separate mining titles shall, as a general rule, be ring fenced. Upon application to the appropriate authorities, however, combinations could be entertained for exploration that has been relinquished by a mining company. In exceptional situations where a combination of mining operations of a similar nature and for a limited period will avert a mine closure, accounts could be combined for tax purposes. General and administrative costs as incurred at a Head office or by a Parent Company shall be limited to a maximum of 0.75% of allowable deductions (as it is defined in the Income Tax legislation) during the pre-production phase of the project, as well as a maximum of 1% of gross income for that year in the production phase of the project.
In addition, interest paid on borrowing of a debt to equity ratio of up to a maximum of 3 to 1 is allowed as deduction, and any payments in excess of this figure shall be treated and taxed as a dividend. All capital expenditure (for exploration, development and operating) incurred wholly and exclusively for mining operations will be allowed as a deduction at the rate of 100%. Mining companies may claim capital redemption allowance on capital expenditure incurred. Tax losses occurred by Mining companies shall enjoy indefinite carry forward.
Customs Duties
Companies in the Mining sector enjoy exemption from Customs Duty, Value Added Tax and Surtax. They are granted the right to market their minerals directly, in accordance with the provisions of the Minerals Marketing Corporation of Zimbabwe Act. However, they have to follow adequate monitoring arrangements and reporting obligations.
Tourism Sector Incentives
Government wants to encourage investments in the tourism sector as it is a rapidly growing sector and provides a large proportion of the country’s foreign exchange earnings. Investors in the tourism investors receive incentives in a form that they are recognized as exporters and can therefore enjoy all incentives or facilities offered to exporters by the Government and the Reserve Bank of Zimbabwe. Government has also identified designated Tourism Development Zones to be exploited by new investors. There are currently 9 areas declared TDZs:
- Beitbridge/ Shashe/ Limpopo and surroundings
- Gonarezhou (GLTP)/ Chiredzi and surroundings
- Great Zimbabwe National Monument/ Lake Mutirikwi and surroundings.
Special incentives apply to TDZs. Taxation of income of an operator in the TDZ:
First five years of operation 0%
Second five years of operation 15%
Third five years of operation 20%
Thereafter normal rates of corporate tax apply
Duty exemption on specified capital equipment imported for use in the TDZs.
BOT and BOOT
Investors are encouraged to engaging in Build Operate and Transfer (BOT) and Build Own Operate and Transfer (BOOT) investments. BOT and BOOT structures qualify for tax concessions under the incentives scheme. The incentives for approved BOT activities are:
First 5 years0%
Second 5 years15%
Third 5 years20%
Thereafter25%
Export market search Incentive
To promote exporting activity among new investors, a fiscal incentive was created that allows the double deduction for non-capital expenditure which incurred in seeking new opportunities and markets for the export of goods or which are creating or increasing demand for such goods.
2.3EPZs, Freeports and other Special Economic Zones
The system of an Export Processing Zone was not confined to a specific area or region, but an individual enterprise could acquire EPZ status. In 2008, there have been about 183 companies operating under EPZ status in Zimbabwe.
EPZA
Until 2007, the Zimbabwe Export Processing Zone Authority (ZEPZA) was in charge of investments in Export Processing Zones in Zimbabwe. It was regulated under the Export Processing Zones Act (chapter 14:07), 2002, as a corporate body and was controlled and managed by the Zimbabwe Export Processing Zones Board.
ZIA Act (2006)
With the amendment of the ZIA Act (2006), the Export Processing Zones Act (2002) was repealed. EPZA was merged with ZIC from 2007 and now operates as one institution, the ZIA. There is conversion of provisions under Section 37 of the ZIA Act (2006) providing that every holder of an EPZ license issued under the old Act shall apply at ZIA for an investment license in terms of the new ZIA Act. ZIA shall grant the investment license to every such applicant on the same terms as those granted to the applicant under the previous license or certificate, except if the Authority is feeling that the applicant has not complied with the terms of its previous license or certificate. Incentives and permits granted according to the old Act are therefore still valid for those companies that had already received EPZ licenses or permits.
EPZ Incentives
For EPZs granted under the old Act, there is a comprehensive set of incentives:
- 5 year tax holiday;
- After the tax holiday , the corporate tax rate is 15%;
- Duty free importation of raw materials and capital goods;
- Exemption from liability to pay Non Resident Shareholders’ Tax (NRST) on dividends distributed to non- residents;
- No liability for branch profits tax on a branch of a foreign registered company in an EPZ;
- No liability for withholding tax with regard to dividends distributed locally by a company licensed to operate in an EPZ;
- Exemption from withholding taxes on management & technical fees, remittances and royalties for a person operating in an EPZ;
- No liability for tax on any capital gains arising from the sale of property forming part of an investment in an EPZ;
- Exemption from income tax on fringe benefits for persons employed by a licensed EPZ investor to the extent of 50% of the employee’s other taxable income from the investor;
- Refund of VAT paid on procurement from customs.
Article 40 of the Export Processing Zones Act (2002) covered import and export licensing in EPZs:
(1)“Licensed investors shall not be required to obtain a licence or permit under the Control of Goods Act [Chapter 14:05] for
(a)The import of any goods into an export processing zone from a country outside Zimbabwe; or
(b)The export of any goods from an export processing zone to a country outside Zimbabwe.
(2)The export of goods from an export processing zone to the customs territory shall, save as otherwise provided by this Act, be subject to the same requirements in regard to the obtaining of licenses or permits under the Control of Goods Act [Chapter 14:05] as apply to goods imported from other countries outside Zimbabwe.”
Review of the Investment Act
As stated, a revision of existing investment laws and regulations is in discussion. Laws and regulations on EPZs which were scrapped when the Export Processing Zone Authority was merged with ZICare expected to be reinstatedunder Special Economic Zones.
Growth Point Areas
Growth Point Areas were established to encourage commercial and industrial development in selected parts of the country and which the Minister of Finance may prescribe as such. Commercial and industrial operations carried out in such growth point areas are granted additional allowances and qualify for more favourable incentives, as follows:
Allowances
For non-recoupable investment, the investor can claim an allowance of 15% of the cost of all buildings constructed additions or alterations thereto, as well as on the cost of new articles, machinery, implements and utensils.
Rates of Tax
For the first five years of operations the tax rates will be:
New Manufacturing Projects10%
New Infrastructure Projects15%
For the first 5 years thereafter20%
2.4Tax Incentives
Aside of the already described incentives in section 2.2, the following tax incentives are provided for investors.
Income Tax Incentives
Companies investing in the manufacturing or processing industry have to pay 20% income tax. Holders of a special mining lease are only required to pay 20% income tax.
2.5International Trade & Export Promotion
Manufacturing Exports
Companies operating in the manufacturing sector and exporting at least 50% of their manufacturing output are taxed at 20%.
Guidelines on Import and Export
Imports and exports for Commercial purposes and in general have to follow the processes as described below.
1. Present the Bill of Entry Import (Form 21) supported by:
- Invoices for goods
- Freight and insurance statements where applicable
- Bills of lading
- Airway bills, rail advice notes, road consignment notes depending on mode of transport
- Import permits for controlled/restricted goods
- Certificates of origin where goods are imported in terms of certain bilateral agreements.
2. Pay the clearance fee at the prescribed rate in addition to Customs Duty, Value Added Tax (VAT) and Surtax.
Importers can take advantage of the pre-clearance facility where the importer or his agent may lodge documents with ZIMRA on or before the arrival in Zimbabwe of goods dispatched by railway train, road or air transport.
For exporting, all commercial exports need an Exchange control approval with the CD1 Form that can be obtained from any commercial bank. It applies to goods exported for the purpose of repair and return. In addition a Bill of Entry Export (Form 21) is needed supported by invoices and consignment notes as determined by the mode of transport:
- Export permits for controlled/restricted goods
- A clearance fee is also payable at the prescribed rate
- Certificates of origin should be submitted where goods are exported under bilateral or any agreements e.g. SADC, COMESA agreements.
Recently, licensing requirements were revised and new procedures will be introduced in the near future.
Customs and Excise Duty
The Customs and Excise Act (chapter 23:02) regulates all customs and excise duties on imported and locally manufactured goods. Specific rates are set out in the Customs Tariff and vary according to the category of goods.
Surtax is payable on goods attracting at least 40% as Customs Duty and in case of application of a specific or combination of duty rates. It is normally charged at a rate of 15% of ad valorem. Exemptions are light motor vehicles of tariff heading 8703 with more than 5 years of age as they attract 25% ad valorem rate.
It is possible to get duty reduced or waived under the circumstances of suspension, rebates, bilateral and multilateral agreements, or remissions. There is no duty levied on exports.
Customs Rebates
Immigrant Rebate: The definition of an immigrant is any person who enters Zimbabwe to take up employment or permanent residence, or who is a visitor remaining to take up employment or permanent residence, or who is a diplomat coming for work purpose or permanent residency and anyone attending an educational institution. It also includes spouses and children of above mentioned persons and persons who have resided or been employed in Zimbabwe and have been outside Zimbabwe for a period not more than 2 years.
Any immigrant can import duty free household effects and one motor vehicle provided that he owned the goods at the time of arrival in Zimbabwe or at their importation; any goods imported at the time of the immigrant’s arrival, goods that are intended for personal use, and goods not for resale or for commercial use. The immigrant importing a motor vehicle must be above 16 years of age.
Duty Free Importation Schemes
For the promotion of exports, Zimbabwe has allowed duty free importations of raw materials that are designated for the manufacture of goods for export. There are two systems in place for this issue: the Duty Export Draw Back Scheme and the Inward Processing Scheme.
Export Drawback Scheme
Under the Export Drawback Scheme refund for the import duties paid can be claimed back when the qualifying goods are exported from Zimbabwe. Qualifying goods are defined as any goods that are exported unused upon which import duties were originally paid in form of custom duties, surtax or import tax. They can exist in the following forms:
Same State Drawback: This rebate is granted on goods that were duty paid, and that are exported unused and in the form in which they were imported.
Industrial Drawback: It is granted on duty-paid raw materials used in the manufacture of Zimbabwean products, and which are exported unused in Zimbabwe.
Commercial Vehicle Rebate
Anyone investing in the assembly of commercial motor vehicles may apply for a rebate of duty in respect of component parts imported or removed from bond warehouses for use in the assembly of commercial motor vehicles.