Zambia

1. Zambia Katrina Mabika Director BDO Zambia

2. THE ZAMBIAN ECONOMY • GDP growth in 2010 7% • Main import partners – South Africa 40,2% • DRC 12,9% • Main export partners – Switzerland 47,1% • China 11,2% • Inflation rate 2009 13,4% • 2010 8.5% • Kwacha lending rates < 22,06% • Volatile exchange rates • US Dollar 2010 K4,823.6 2006 K3,601.5 Facing the Challenges of Doing Business in Africa

3. THE ECONOMY – KEY SECTORS • Mining – record copper prices in 2010 • Tourism – New brand name ‘Let’s Explore Zambia’ • Agriculture – bumper maize crops in 2010 • Retail and distribution - Lake Kariba Waterfront Development • Others – manufacturing, property development – shopping malls Facing the Challenges of Doing Business in Africa

4. BUSINESS ENTITIES • Sole proprietorships • Partnerships • Companies limited by shares • Companies limited by guarantee • Branches of foreign companies Facing the Challenges of Doing Business in Africa

5. LIMITED LIABILITY COMPANY • Public or private companies • Incorporation procedure • Minimum of two shareholders and directors • Minimum issued share capital • Capital structuring • Legal status and statutory administration • Empowerment legislation Facing the Challenges of Doing Business in Africa

6. Private Company Facing the Challenges of Doing Business in Africa • The private company is the most common vehicle • Maximum number of members is 50 and minimum number is 2 • A minimum of ZMK 2,000,000 (ZAR 3,051)1 in paid up share capital • A minimum of two members and two directors • More than half of the directors, including the managing director and at least one executive director must be resident in Zambia • 11 ZMK = 0.00152550 ZAR

7. Branch of a foreign company • A branch of a foreign company is regarded as a foreign company if it establishes a place of business or owns immovable property in Zambia • A branch must nominate at least one locally resident director or branch manager to take statutory responsibility for branch affairs • Both a Zambian company and a branch are subject to the provisions of the Companies Act • Both are treated as separate taxable entities and required to submit annual audited financial statements and tax returns and pay corporate income tax Facing the Challenges of Doing Business in Africa

8. BRANCH OF A FOREIGN COMPANY • Simple formation procedure • No local shareholders but encourages greenfield investments • One director or branch manager • Employment obligations • Tax obligations • Annual filing requirements Facing the Challenges of Doing Business in Africa

9. Branch or Company? Facing the Challenges of Doing Business in Africa • Key advantage of a limited liability company is that risks are limited to the paid up share capital of the local Zambian entity; in a branch, liabilities would also be the responsibility of the foreign parent company • Formation procedures and financial statement and corporate tax obligations are similar • Branch option may be advantageous in certain operating environments. • Repatriation of profits – no foreign exchange

10. Branch or Company? Facing the Challenges of Doing Business in Africa • Under branch arrangement operating profits recognized in books of parent company whereas a limited company would be required to declare a dividend. There would be a 15% withholding tax implication which may be recovered in terms of the DTA (participation exemption) • Winding up procedures simplified for a branch. • Long term presence in Zambia, limited company may be most beneficial.

11. OUR TAX REGIME • Zambia Revenue Authority (ZRA) • 35% income tax on adjusted company profits, telecommunications @ 40% • Value Added Tax at 16% • Pay as You Earn on salaries at 0%-35% Facing the Challenges of Doing Business in Africa

12. OUR TAX REGIME • No capital gains tax • Property transfer tax of 5% on transfers of shares or property • 3% presumptive tax on turnover for small businesses Facing the Challenges of Doing Business in Africa

13. INCOME TAX • Fiscal year end of 31 March • Provisional returns at 30 June and quarterly payments • Standard rate of 35% on adjusted profits • Capital allowances Facing the Challenges of Doing Business in Africa

14. VALUE ADDED TAX • 16% on standard rated supplies • Zero rated and exempt supplies • Returns filed by 21st of following month • Refunds following control inspections Facing the Challenges of Doing Business in Africa

15. DISTRIBUTION OF PROFITS • Dividends • Management fees • Withholding taxes at 15% • VAT reverse charge at 16% Facing the Challenges of Doing Business in Africa

16. WITHHOLDING TAXES • Deductible at a rate of 15% from • Foreign management / consultants fees • Royalties • Interest • Rents • Commissions Facing the Challenges of Doing Business in Africa

17. SAICA INTERNATIONAL TAX CONFERENCE 2006 DOUBLE TAXATION RELIEF • Reduced rate of WHT in some countries • Kenya, Tanzania, Uganda – exempt • South Africa – refer to domestic rate. DTA does not deal with reduced rates • Latest DTA’s signed with China & Seychelles Facing the Challenges of Doing Business in Africa

18. SAICA INTERNATIONAL TAX CONFERENCE 2006 INVESTMENT INCENTIVES • Agriculture • Mining • Investment Act 1993 • Zambia development agency Facing the Challenges of Doing Business in Africa

19. Zambian Incentives Facing the Challenges of Doing Business in Africa • An investor who invests at least USD 250,000 and employs at least 10 people will be entitles to a residence permit and work permits for up to 5 expatriate employees. • In the Mining Sector: • Guaranteed input tax claim for five years on pre-production expenditure for exploration companies in the mining sector • Mining companies holding a large scale mining license carrying on mining of base metals taxed at 30% and dividends paid by such company taxed at 0%

20. Zambian Incentives Facing the Challenges of Doing Business in Africa • In the Mining Sector: • 100% mining deduction on capital expenditure on buildings, railway lines, equipment, shaft sinking or any similar works. • The debt/equity ratio has been reduced from 2:1 to 3:1 to encourage further investment in the Mining Sector.