Employers in Zambia have several tax responsibilities. One of these is the Pay As You Earn (PAYE) system, where employers are required to deduct PAYE from their employees' salaries based on official tax tables. This must be remitted to the Zambia Revenue Authority (ZRA) by the 10th day of the month following the deduction.

Skills Development Levy (SDL)

Employers must also pay a monthly levy of 0.5% based on their total employee gross earnings. This levy is solely the employer's responsibility and cannot be deducted from employee pay. It's due on the 10th of the month following the month the wages were earned.

National Pension Scheme Authority (NAPSA)

Both employers and employees are mandated to contribute 5% of an employee's basic salary (up to a prescribed limit) to the NAPSA scheme. This translates to a total of 10% contribution each month.

National Health Insurance Management Authority (NHIMA)

Employers and employees must each contribute 1% of an employee's basic salary to the NHIMA fund.

Other Potential Taxes

There are other potential taxes that employers may be responsible for. These include Withholding Tax, which is applicable to certain payments such as dividends, royalties, interest, service fees paid to non-residents and more. The rates for this tax vary. There is also Property Transfer Tax (PTT), which is levied on the sale of property at varying rates.

Key Points

Employers must register with the ZRA and relevant authorities to handle tax obligations. They must also maintain accurate payroll records for tax inspection. Failure to comply with tax obligations in Zambia can result in severe penalties and interest charges.

In Zambia, the Pay As You Earn (PAYE) system is a progressive income tax system, meaning that higher levels of income are taxed at higher rates. PAYE is deducted from employee salaries based on these graduated rates. The Zambia Revenue Authority (ZRA) provides updated PAYE tax tables that outline the specific tax amounts to be deducted based on income levels.

National Pension Scheme Authority (NAPSA)

Employees are required to contribute 5% of their basic salary (up to a prescribed earnings ceiling) to the NAPSA scheme. This contribution is deducted directly from their salary.

National Health Insurance Management Authority (NHIMA)

Employees must contribute 1% of their basic salary to NHIMA. This enables them to access health insurance benefits.

Other Potential Deductions

If an employee belongs to a union, union dues might be deducted from their salary. Employees may also choose to have voluntary deductions made, such as contributions to retirement savings plans or other personal savings schemes.

In Zambia, Value Added Tax (VAT) is an indirect tax imposed on the consumption of goods and services at each stage of the supply chain. The current standard VAT rate in Zambia is 16%.

VAT on Services

Most services provided within Zambia are considered taxable supplies and are subject to VAT at the standard rate. However, a limited number of services are VAT-exempt, including financial services, medical services, and educational services. Certain services, primarily related to exports, are zero-rated, meaning that while they are still technically taxable, the VAT rate applied is 0%.

VAT Implications for Service Providers

Businesses providing taxable services with an annual turnover exceeding the VAT registration threshold (currently ZMW 800,000) must register for VAT. VAT-registered businesses are required to charge VAT on their taxable services and issue tax invoices to their customers. They can also claim back the VAT they paid on business purchases (input tax), offsetting it against the VAT they collect (output tax). VAT-registered businesses are required to file monthly VAT returns and remit any VAT due by the 10th of the following month.

Special Considerations

Services rendered outside of Zambia but used within Zambia may be subject to a "reverse charge" mechanism. This means the Zambian recipient of the service becomes responsible for accounting for the VAT.

Reduced Corporate Income Tax (CIT) Rates are one of the general tax incentives. For farming and agro-processing, the CIT rate is 10%. Non-traditional exports have a 15% CIT rate, compared to the standard rate of 35%. Hotels on income from food and lodging (through 2022) have a 15% CIT rate.

Sector-Specific Incentives

Multi-Facility Economic Zones (MFEZs) and Industrial Parks offer a zero percent tax rate on dividends for the first 5 years of operation, 50% tax on dividends for years 6-8, and 75% tax on dividends for years 9-10. They also offer zero-rated VAT on supplies to MFEZ/Industrial Park developers and exemption from import duties on raw materials, machinery, and equipment.

In the manufacturing sector, there is a five-year tax holiday for approved investments under the Zambia Development Agency Act. The tourism sector also offers a five-year tax holiday for approved investments under the Zambia Development Agency Act. In the mining sector, the mineral royalty tax is deductible for CIT purposes.

Additional Incentives

Capital Allowances include accelerated depreciation (100% in the first year) on industrial and commercial buildings, implements, and farm improvements, and 50% accelerated depreciation of the cost of machinery.

Employment Creation incentives are available for businesses creating jobs according to an approved employment schedule, which may be entitled to customs duty rebates under the Zambia Development Agency Act 2006.

Export Incentives include exemption from duties and VAT on imported machinery for non-traditional exporters.