2020 Budget: Amendments to the Income Tax Act

Payment of withholding taxes in foreign currency

• Section 4a para (f) of the Finance Act was amended retrospectively such that withholding taxes on specific person(s) will no longer be payable in foreign currency but are now payable in local currency. This applies to withholding tax on fees, remittances and dividends.
• Royalties payable by mining companies to the Minerals Marketing Corporation Zimbabwe (MMCZ) continue to be payable in foreign currency if the receipts are in foreign currency.

Late payment of taxes

The interest rate for late payment of taxes was increased from 10% per annum to 25% per annum with effect from 1 January 2020.

Youth employment tax credit

• A new tax credit was introduced with effect from 1 January 2020 as an incentive in support of job creation. Corporates will be allowed a credit of ZWL 500 per month per employee if they employ additional employees who are below the age of 30 years in a year of assessment, up to a maximum of ZWL 60,000 per year of assessment.
• The company should be registered for PAYE and compliant for the preceding tax period. The tax credit can only be claimed after the additional employee has served for a period of 12 consecutive months. 
• Trainees, interns and apprentices and managerial employees are excluded from the incentive.  
• The minimum wage payable to new employees should be at least ZWL 2,000 per month. The tax credit will not apply to corporates with a turnover exceeding an equivalent of USD 1 million. 

Withholding tax on Non – Executive Directors

The 20% withholding tax on Non – Executive Directors becomes a final tax with effect from 1 January 2020.

Tax exemption on venture capital

• In order to minimise opportunities for the abuse of tax exemptions on the provision of Venture Capital financing for start-up companies, the following conditions were introduced with effect from 1 January 2020.
  1. The Venture Capital Fund or company, as well as the Recipient Company, should be resident and also be tax compliant.
  2. The Recipient Company should not be listed on the stock exchange.
  3. Recipient Companies should be in critical sectors of the economy, in particular
  4. agriculture, mining, manufacturing and tourism.
  5. The Venture Capital Fund or company should not control (directly or indirectly through a related entity) a Recipient Company in which it holds shares. 
  6. Recipient Companies should primarily be financed through equity as opposed to debt. 
• The Venture Capital Fund will not benefit from tax exemption if it invests in the following: 
  1. Trade carried on in respect of immovable property.
  2. Trade carried on by financial institutions.
  3. Trade carried on in respect of financial or advisory services, including legal services, tax advisory services, stockbroking services, management consulting services, auditing or accounting services.
  4. Trade carried on in respect of gambling.

Maxwell Ngorima
mngorima@bdo.co.zw

Charity Machiridza
cmachiridza@bdo.co.zw

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