Tax incentives are generally defined as ‘fiscal measures that are used to attract local or foreign investment capital to certain economic activities or particular areas in a country’. Generally tax incentives must confer an advantage on the beneficiary while at the same time imposing a cost on the government.
The Zimbabwe Revenue Authority administers various tax incentives aimed at promoting investment while the Ministry of Industry and International Trade, the Industrial Development Corporation and the Zimbabwe Investment Authority are the main administrators of non tax incentives. ZIMRA’s mission includes trade and economic development facilitation. Revenue incentives in Zimbabwe apply equally to both domestic and foreign investors and the major goals of incentives in place are:
- Income generation
- Export promotion
- Employment creation and skills transfer
- Small business development
- Industrial development
- Revenue inflows
Like many other developing countries, Zimbabwe offers a number of tax and customs incentives in the form of tax holidays, reduced tax rates, and accelerated depreciation. The incentives are given by sector, type of activity, form of organization, and geographical location of investment as follows:
- Operators of tourist facilities in approved Tourist Development Zones enjoy preferential treatment
- Taxable Income is taxed at 0% for the first 5 years
- Taxed at 25% after the 5 year tax holiday
Preferential Zones ‘Growth Point Areas’
- Several incentives are offered to operators in Growth Point Areas
- These are areas declared to be growth point areas
- Legislation meant to encourage commercial and industrial development in selected parts of the country. Promotes equitable development of the countryâ€™s provinces
- Taxable Income of person engaged in new manufacturing project in growth point area is taxed at a special rate of 10%
- Taxable Income of person engaged in new project providing infrastructure in growth point area is taxed at 15%
- Can also claim Special Initial Allowance on construction of commercial buildings
- Qualifies for a further deduction of an Investment allowance equal to 15% of the cost of new commercial or buildings, or staff housing erected, additions or alterations to existing commercial or industrial buildings or staff housing and new or unused articles, implements and machinery used in a growth point area.
- Holders of an investment licence enjoy special rates
- Enjoy a tax holiday for the first 5 years
- Taxed at a special rate of 25% after the first five years
- Employees of such operators also enjoy exemptions from tax on the value of benefits provided this does not exceed 50% of the income.
- Enjoy concessions as listed in this documents provided they qualify
- Taxable income from manufacturing or processing company which exports 50% or more of its output taxed at a special rate of 20%
Build Own Operate and Transfer (BOOT) and BOT Arrangements
- Contractors may enter into contracts with state or Statutory Corporation under which he undertakes to construct infrastructure for the state or statutory corporation
- This will be in consideration for the right to operate or control for a specified period after which the contractor will transfer ownership or control of the item to the state or statutory corporation
- Enjoys tax holiday for first 5 years
- Taxed at 15% for the second five years
Industrial Park Developer
- Special provisions have been made for industrial park developers.
- These are persons who own and maintain industrial parks, that is, approved premises or an area in which any person other than the industrial park developer, carry on business of manufacturing or processing goods or components of goods for export from Zimbabwe.
- Enjoys a tax holiday for the first 5 years
- Thereafter taxed at a tax rate of 25%
- Not liable to tax from dividends paid to residents or non-residents.
- Also exempt from withholding tax on interest and fees payable to non-residents
- Disposal of specified assets forming part of the or connected to the industrial park is exempt from Capital Gains Tax
- Mining companies enjoy a special flat tax rate of 15% when compared to the standard rate of tax of 30%.
- All capital expenditure on exploration, development, and operating incurred wholly and exclusively for mining operations is allowed in full
- There is no restriction on carryover of tax losses; these can be carried forward for an indefinite period.
- Special Initial Allowance on capital equipment is allowed at a rate of 100%
- Taxable income of a holder of special mining lease is taxed at a special rate of 15%.
- Export Market Development Expenditure: This is a double deduction available to operators.
- This is in respect of non capital expenditure incurred wholly or exclusively for purposes of seeking opportunities for the export of goods from Zimbabwe or for creating or increasing the demand of such exports
‘Preferential Zones’ Export Processing Zones (EPZ):
- Special incentives used to be available.
- Concessions are temporarily suspended as the legislation was repealed by Zimbabwe Investment Authority and efforts are underway to rectify this position.
- Used to provide for 0% tax for first 5 years
- Thereafter taxed at 15%
- Operators also used to benefit from numerous other incentives
Special Initial Allowance (SIA)
- This is a capital allowance which ranks as a deduction
- Allowed on expenditure incurred on construction of new industrial buildings, farm improvements, railway lines, staff housing and tobacco barns. Also allowed on additions or alterations to existing items as already mentioned.
- SIA is also allowed on articles, implements, machinery and utensils purchased for purposes of trade.
- Allowance is optional and once claimed this replaces wear and tear
- Allowed at the rate of 25% of cost for from year one.
- Allowed at the rate of 150% of cost for small or medium enterprise. 100% allowed in the first year of assessment and 25% in each of the following two years.
Farmers Special Deductions:
- Farmers are allowed special deductions over and above the normal deductions.
- Examples include expenditure on fencing, clearing and stamping land, sinking boreholes and wells and on aerial and geophysical surveys
Double Taxation Agreements:
- Zimbabwe has signed several Double Taxation Agreements
- These are meant to avoid or mitigate double taxation of the same income in the two parties to the agreement, that is where a business entity operates in the two territories
- The agreements restrict some withholding taxes to the amounts specified.
- The DTAâ€™s offer reduced rates of withholding taxes on dividends, interest, royalties and technical fees.
- As an example, almost all the DTAâ€™s signed limit the rate of tax on Technical Fees to 10% or less
Value Added Tax
The holder of an investment licence issued in terms of the then Export Processing Zone Act, (licence investor) was entitled to VAT refunds on all local purchases. Section 44(9) of the VAT Act as read with Section 19 of the VAT Regulations
- Companies operating in an EPZ do not qualify for VAT registration as they are not conducting trade in Zimbabwe and are deemed to be operating in an export country.
- However EPZ companies may be registered for the purposes of processing VAT refunds in terms of Section 44(9) of the VAT Act (Chapter23:12) a.r.w. S.I. 273 of 2003.
- Section 44(9) of the VAT Act as read with Section 19 of the VAT Regulations authorises refunds of VAT paid on all purchases made by an EPZ company. Note that the EPZ concessions are currently unavailable as the Act was repealed. This position is being rectified.
Services supplied by designated tourist facility operator [Section 10(2)q]
- Tourist facility operators conducting business in approved tourism development zones or an operator of a hunting safari is required to charge VAT at 0% for services offered to persons who are not residents of Zimbabwe and who are required under the exchange control Act to pay for such services in foreign currency. Such operators end up in a refund position for goods and services acquired locally
Farming inputs and equipment are subject to VAT at 0% [Section 10 a. r. w. 2nd schedule of the Regulations]
- Most farm inputs such as animal feed, animal remedy, fertiliser, plants, seeds and pesticides and equipment or machinery used for agricultural purposes are zero rated.
Deferment of collection of VAT on the importation of capital goods [Section 12A]
- Value added tax can be deferred on some capital equipment for the exclusive use in mining, manufacturing, agricultural and aviation industries whose investment generally relies on imported capital. The whole amount becomes due within 90 days from the date of deferment.
VAT Relief to certain Diplomats and Diplomatic and Consular Missions [Section74]
- VAT refund may be granted to: a. Any person who is not a citizen or permanent resident of Zimbabwe, and enjoys full or limited rights or privileges, in terms of the Privilege and Immunities Act or,
- Any diplomatic or consular mission of a foreign country, established in Zimbabwe for official supplies. The refund shall not be payable to a citizen or permanent resident of Zimbabwe.
Customs and Excise Incentives
Most of these incentives come in the form of rebates and suspension of duty and the summary is shown below.
Rebate of duty on goods for the mining industry: Gen Regs 113
- It is granted on articles when imported or taken out of bond or purchased from the licensed premises of a manufacturer by a person engaged in the mining industry.
Rebate of duty on goods for the prospecting and research for mineral deposits: Gen Regs 129
- Granted on goods which are imported by a person who has entered into a contract with the Government, which is approved by the Commissioner, for the prospecting and search for mineral deposits
Rebate of duty on materials to be used in the preparation and packaging of fresh produce for export: Gen Regs 132
- Granted on such materials as the Commissioner may approve when such materials are imported to be used in the preparation and packaging of fresh produce for export by a person or organisation approved by the Commissioner.
Rebate of duty on goods imported in terms of an agreement entered into pursuant to a special mining lease: Gen Regs 138
- Granted on goods which the Secretary for Mines certifies are eligible for a rebate of duty in terms of an agreement in the special mining lease.
Rebate of duty on goods imported temporarily for an approved project: Gen Regs 140
- Granted on goods which are temporarily imported by contractors or other persons for completion of approved projects as may have been approved by the Minister
Rebate of duty on goods for incorporation in the construction of approved projects: Gen Regs 141
- Granted on components or materials for incorporation in the construction of approved projects as may be approved by the Minister
Rebate of duty on goods imported for specified mine development operations: Gen Regs 144
- Granted to a holder in respect of specified goods which, during the specified period, are imported by that holder for use solely and exclusively for mining development operations
Refund of duty on capital goods imported for use in tourist development zones: Gen Regs 144A
- Granted to an operator of a tourist facility in a tourist development zone on capital goods imported for the purposes of or in connection with that tourist facility
Rebate of duty on imports covered by a Duty Free Certificate issued under the export incentive scheme: Gen Regs 144B
- Granted on capital goods and raw materials specified by the Minister to be eligible.
Rebate of duty on parts and accessories of certain public transport type passenger vehicles: Gen Regs 144C
- It is granted on parts and accessories of any public transport type passenger vehicle with a seating capacity of ten or more persons (including the driver) of the tariff subheading 8702 when the Zimbabwe Revenue Authority issues to the person seeking the rebate a certificate to the effect that the parts and accessories concerned are imported for the purpose of repairing or refurbishing any public transport type passenger vehicle referred to in subsection (1).
Rebate of duty on goods imported for Tourist Development Zones: Gen Regs 144L
- Granted on such equipment and machinery as the Commissioner may approve, when such goods are imported for use in a tourism development zone
Bonded warehouse facility:
- Where one can import e.g. motor vehicles which can only be taken out of bond when you have found a buyer and have raised money for payment of duty Gen Regs 74
- An importer can warehouse their goods in any licensed bonded warehouse if the proprietor has space. Maximum period to warehouse goods is 2 years.
Trade agreements so that goods can enter Zimbabwe duty free or at lower rates thus making them cheaper: Gen Regs 25
- A certificate of origin signed by the exporter or manufacturer of the goods and authenticated by the relevant authority.
Trade agreements so that goods can enter importing country duty free or at lower rates thus their prices become competitive: Gen Regs 62
- Available trade agreements are: COMESA, SADC, Zimbabwe-Malawi trade agreement, Zimbabwe-Botswana trade agreement, and Zimbabwe-Namibia trade agreement.
- Exporter should be registered under the relevant trade agreement. A certificate of origin signed by the exporter or manufacturer of the goods and authenticated by the relevant authority
Inward processing rebate: S.I.59 of 1997
- Anyone who wants to import or take out of bond goods for inward processing should first apply and get registered under that facility.
Registered aircraft assembler: S.I. 18 of 2001
- Rebate is granted to a registered assembler on component parts and materials imported or taken out of bond, for use in the assembly of aircraft.
Registered bicycle assembler: S.I. 313 of 2000
- Rebate is granted to a registered assembler on bicycle kits imported or taken out of bond, in their completely knocked down state, for use in the assembly of bicycles.
Registered bus assembler: S.I. 169 of 2004
- Rebate is granted to a registered assembler on component parts and materials imported or taken out of bond, for use in the assembly of buses.
Registered electrical manufacturer: S.I. 378 of 1999
- Rebate is granted to a registered manufacturer on component parts and materials imported or taken out of bond, in their completely knocked down state, for use in the manufacture of approved electrical goods.
Registered motor vehicle assembler: S.I. 13 of 1999
- Rebate is granted to a registered motor vehicle assembler on component parts imported or taken out of bond, for use in the assembly of motor vehicles.
Registered tyre manufacturer: S.I. 265 of 2001
- Rebate is granted to a registered manufacturer on materials listed in the 2nd schedule to the S.I. imported or taken out of bond, for use in the manufacturer of tyres.
Registered pharmaceutical manufacturer: S.I. 174 of 2005
- Rebate is granted to a registered manufacturer on materials imported or taken out of bond, for use in the manufacturer of approved pharmaceutical products.
Rebate of duty on goods for the tourism sector: S.I. 60 of 2009
- A rebate of duty is granted to all Tourism operators who are registered with the Zimbabwe Tourism Authority in respect of new equipment and boat equipment imported for the exclusive use in the tourism business.
Suspension of duty on goods for the tourism sector: S.I. 46A of 2009
- A suspension of duty is granted to all Tourism operators who are registered with the Zimbabwe Tourism Authority (ZTA) in respect of imported, specified, new motor vehicles under tariff codes listed in the schedule, provided the vehicles are for the exclusive use in the tourism business.
The 7 day Credit facility for importations S.I. 74 of 2009
- Granted by ZIMRA to approved importer or agent wishing to remove imported goods under the 7 day credit facility upon fulfilment of the prescribed conditions.