Non-residents’ tax on remittances

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ZIMBABWE’S tax framework con­tains a significant but often over­looked provision known as the Non-Residents’ Tax on Remittances. Pro­vided for under Section 31 of the Income Tax Act and detailed in the 18th Schedule, this tax is charged, levied and collected throughout Zimbabwe for the benefit of the Consolidated Revenue Fund. It applies at a rate fixed from time to time in the charging Act and is designed to ensure that certain payments made to foreign-based entities do not escape the country’s tax net.

The Non-Residents’ Tax on Remittances primarily targets non-resident persons who transfer money out of Zimbabwe in respect of what the law calls “allocable expendi­ture.” In essence, the tax seeks to capture revenue from foreign individuals or partner­ships that conduct business activities within Zimbabwe and then remit funds abroad for services or expenses incurred outside the country but connected to that business.

Under the 18th Schedule, a “non-resident person” is defined as a person or partnership not ordinarily resident in Zimbabwe. How­ever, the definition specifically excludes li­censed investors, who are treated differently under Zimbabwe’s investment laws. This distinction is important, as it determines who falls within the scope of the tax. The law further clarifies that residency status is assessed at the date the remittance is ef­fected. In other words, whether or not tax is payable depends on the status of the person or partnership at the time the money is trans­ferred out of Zimbabwe.

The schedule defines “allocable expendi­ture” as expenditure of a technical, manage­rial, administrative or consultative nature in­curred outside Zimbabwe by a non-resident person in connection with or allocable to the carrying on of any trade within Zimbabwe. This broad definition covers a wide range of cross-border service payments. For exam­ple, a foreign company operating in Zimba­bwe may rely on its head office abroad for management support, technical advice or administrative oversight. Payments made from Zimbabwe to the foreign head office in respect of such services would typically constitute allocable expenditure.

A “remittance” is defined simply as the transfer of any amount from Zimbabwe to another country. The moment such a transfer is effected in respect of allocable expendi­ture, the tax obligation arises. This straight­forward definition ensures that the tax ap­plies to any outward flow of funds linked to qualifying expenditure, regardless of the method of transfer.

Paragraph 2 of the 18th Schedule sets out the core obligation. Any non-resident person who effects a remittance in respect of alloca­ble expenditure must pay the Non-Residents’ Tax on Remittances to the Commissioner within 10 days of the date of remittance. The law allows the Commissioner to grant addi­tional time for payment where good cause is shown, but the default position is strict com­pliance within the 10-day window.

Over the years, the payment period has been shortened to strengthen enforcement. Amendments introduced by Act 12 of 2006 and later by the Finance (No. 3) Act 10 of 2009 reduced the time allowed for payment, reflecting the government’s determination to enhance timely revenue collection. These changes underscore the importance placed on prompt compliance and improved cash flow into the Consolidated Revenue Fund.

Payment of the tax must be accompanied by a return in the prescribed form. This re­quirement ensures that the Zimbabwe Rev­enue Authority (Zimra) receives detailed information regarding the remittance, the nature of the allocable expenditure and the identity of the non-resident person involved. The filing of a return also facilitates moni­toring, audit and enforcement by the tax au­thorities.

The law imposes stiff penalties for failure to comply. Subject to certain exceptions, a non-resident person who fails to pay the tax as required is liable to an additional amount equal to 100 percent of the unpaid tax. This penalty, which was increased by the Finance Act 18 of 2000, effectively doubles the lia­bility of a defaulting taxpayer and serves as a strong deterrent against non-payment.

However, the Commissioner is granted discretion in appropriate cases. If satisfied that the failure to pay was not due to any in­tent to evade the provisions of the Schedule, the Commissioner may waive the whole or part of the penalty or refund amounts already paid in respect of it. This provision introduc­es an element of fairness by allowing genu­ine mistakes or administrative oversights to be considered on their merits.

Certain aspects of the penalty regime were later repealed by the Finance Act 1 of 2018, which was gazetted on March 14, 2018 with deemed effect from February 1, 2009.

Questions surrounding the charging of interest have also been addressed by the courts, notably in the case of Air Zimbabwe Corporation and Others v Zimra (03-HH- 096), which examined whether Zimra was entitled to charge interest under particular circumstances.

The 18th Schedule also provides for re­funds. If it is proved to the satisfaction of the Commissioner that a non-resident person has paid tax in excess of the amount prop­erly payable, the Commissioner must autho­rise a refund to the extent of the overpay­ment. However, no refund will be authorised unless the claim is made within six years of the date of payment. This limitation period emphasises the need for taxpayers to review their liabilities carefully and act promptly where overpayment has occurred.

In policy terms, the Non-Residents’ Tax on Remittances is aimed at protecting Zim­babwe’s tax base. By taxing funds trans­ferred abroad in connection with local trade, the law seeks to prevent revenue leakage and ensure that economic activities conduct­ed within Zimbabwe contribute to national development. It also promotes fairness be­tween resident and non-resident businesses by subjecting cross-border payments to tax­ation where appropriate.

For foreign businesses operating in Zim­babwe, the implications are clear. Careful attention must be paid to the classification of expenditure, the timing of remittances and the strict 10-day payment deadline. Robust accounting systems and proper documenta­tion are essential to avoid penalties and dis­putes with the tax authorities.

As Zimbabwe continues to strengthen domestic resource mobilisation, enforce­ment of the Non-Residents’ Tax on Remit­tances remains a key component of fiscal policy. While technical in nature, the provi­sions of the 18th Schedule carry significant financial consequences, reinforcing the prin­ciple that income and expenditure linked to trade within Zimbabwe cannot be shifted offshore without meeting corresponding tax obligations.

Simbarashe Hamudi