Value Added Tax registration

Simbarashe Hamudi

BUSINESSES operating in Zim­babwe must register for Value Added Tax (VAT) if they meet the statutory threshold for taxable sup­plies, ensuring compliance with tax obligations and the ability to claim input tax deductions. Taxable supplies are supplies that are charged tax at 15,5 percent or 0 percent.

According to Section 2(1) of the VAT Act, a registered operator is de­fined as any person who is either regis­tered or required to be registered under the VAT Act. This definition extends beyond those who have completed the registration process to include individ­uals and entities that meet the criteria but have not yet registered.

Both natural and artificial persons, including individuals, companies, local authorities, public authorities, partnerships, associations, clubs, and trusts, are eligible for VAT registration. Unlike the Income Tax Act, which does not classify partnerships and joint ventures as taxable persons, VAT law considers them as separate entities for registration purposes. However, the key condition for VAT registration is that an entity must be engaged in trade on a regular and continuous basis, with taxable supplies exceeding US$25,000 within any consecutive 12-month peri­od. This requirement ensures that busi­nesses generating significant revenue contribute to the tax system while also benefiting from the ability to claim in­put tax on their purchases.

Businesses seeking VAT registra­tion in Zimbabwe must submit specif­ic documentation to the Commission­er, including bank statements from the last three months, sales invoices, sales figures for the previous 12 months, and revenue projections for the up­coming year. This documentation helps tax authorities assess whether an entity meets the registration threshold of US$25,000 in taxable supplies over a 12-month period.

When calculating this threshold, zero-rated supplies are included, but exempt supplies, hobby-related in­come, private recreational activities not conducted as a business, and the occasional private sale of personal or domestic items are excluded.

This distinction ensures that only businesses engaged in regular com­mercial activities are subject to VAT obligations. However, the law also provides exceptions to prevent busi­nesses from being unfairly required to register due to temporary or ex­traordinary financial fluctuations. The proviso to Section 23(1)(a) and (b) of the VAT Act states that a business will not be considered to have exceeded the registration threshold if its reve­nue surpasses the limit due to specif­ic circumstances. These include the cessation or permanent reduction of business operations, the replacement of significant capital assets, or tempo­rary abnormal conditions that cause a short-term increase in taxable supplies.

For businesses facing exceptional situations, these provisions offer re­lief from immediate VAT registration obligations, ensuring that companies are not burdened with tax compliance due to temporary revenue spikes. For instance, if a business experiences a one-time surge in turnover due to asset replacement or restructuring, it may not be required to register. Similar­ly, companies affected by unforeseen economic disruptions or industry-spe­cific downturns can seek exemption if they can demonstrate that their taxable supplies will not consistently exceed the threshold. While VAT registration is a crucial step for businesses reach­ing the required threshold, these legal safeguards ensure that companies fac­ing exceptional circumstances are not unfairly subjected to tax obligations. As tax compliance remains a key as­pect of business operations, compa­nies must remain well-informed about VAT registration requirements and ex­emptions to avoid penalties and ensure smooth financial planning.

Voluntary registration for VAT ap­plies to individuals or entities with an annual turnover not exceeding US$25, 000 or those expecting to surpass this threshold. According to subsections (1) and (2) of Section 23 of the VAT Act, both natural and artificial per­sons can apply to the Commissioner using the prescribed form, providing valid reasons for their registration. To be eligible, applicants must engage in trade on a continuous basis, maintain accurate books of accounts in English for six years, have a fixed place of business, and open a bank account. Those with a history of non-compli­ance under the VAT Act are unlikely to qualify for voluntary registration, and the Commissioner may refuse regis­tration, provided that a written expla­nation is given.

Successful registration allows the entity to charge VAT, claim input tax on goods and services, and file timely returns with Zimra. While voluntary registration can benefit businesses sup­plying zero-rated goods by enabling them to reclaim VAT on purchases without collecting output tax, it may also entail administrative costs and po­tential disadvantages if additional VAT cannot be passed on to customers. It’s important to note that voluntary reg­istration does not allow for voluntary deregistration; a formal process must still be adhered to for deregistration.

Once a person is registered for VAT, they are required to complete and submit returns regularly in ac­cordance with section 28 of the VAT Act, accounting for any output tax on all taxable supplies and paying VAT if output tax exceeds input tax. The per­son is also required to comply with the fiscalisation requirements. Both the payment and the return are due on the 15th of the month following the end of the tax period, and failure to submit returns on time incurs a civil penalty of $30 per day for up to 91 days. Addi­tionally, late remittance incurs a penal­ty of 100 percent plus interest at a rate of 10 percent for any months or parts thereof that the tax remains unpaid. Section 57of the VAT Act mandates that operators keep accurate account­ing records supporting their VAT re­turns for a period of six years.

Should a registered person cease operations and deregister, section 24 imposes further obligations, including the submission of a final VAT return and accounting for VAT on any assets held at the time of deregistration.

In conclusion applications for registration must be submitted to the Commissioner within 30 days of be­coming eligible, using VAT forms appropriate to the applicant’s situa­tion. The Commissioner may reject applications lacking required details or documentation, and penalties for late registration are suspended until the necessary information is provided. If the Commissioner determines that an applicant’s taxable supplies will likely exceed US$25,000, and the applica­tion meets all requirements, a regis­tration certificate will be issued. Tax­payers are encouraged to register for VAT to avoid penalties associated with failure to register for VAT on time.

l Hamudi is Tax Partner at Baker Tilly Central Africa, based in Hara­re, Zimbabwe. He can be contacted at +263 775 399 536 or simbarashe. hamudi@bakertilly.co.zw For