Not So Risky Business

Zambia has experienced steady economic growth since its independence in 1964. The country has benefited from sensible macroeconomic management, economic liberalization, and buoyant copper exports to achieve average growth of 6.4% over the last decade, albeit stumbling recently due to falling commodity prices. That said, the country’s reputation for peace and stability amidst other conflict-ridded nations in the region has been a major factor in attracting investment. The World Bank ranks Zambia 105th out of 190 nations in terms of the ease of starting a business in 2017, behind Rwanda (76th) although ahead of Lesotho (117th), South Africa (131st), Angola (144th), Botswana (153rd), and Namibia (170th).

There are a set of procedures and legal steps that companies need to follow to set up a new business. The World Bank notes that starting a business in Zambia requires seven procedures, takes 8.5 days, and costs 33.7% of income per capita. The registration of companies is governed by the Companies Act 1994 and is carried out at the Patents and Companies Registration Office (PACRA). Foreign companies are not required to enter into partnership with locals to register a company and there are two types of companies that can be incorporated in Zambia: private limited companies and public limited companies. Private limited companies fall into three categories: company limited by shares, company limited by guarantee, and an unlimited company. A company limited by shares is typically for the purposes of conducting business driven by profit, is limited to 50 shareholders, and requires a minimum required capital of ZMK5 million. A company limited by guarantee is typically set up to provide assistance and include foundations and trusts and is not permitted to conduct business for the purpose of making a profit. Lastly, an unlimited company has share capital, though its members have unlimited liability for the company’s debts and other liabilities. A public limited company requires a minimum capital of ZMK50 million and can apply to list its shares on the Lusaka Stock Exchange (LuSE).

The list of procedures to register a company include checking the company name for uniqueness at the PACRA; having a Commissioner of Oaths sign the Companies Form 11 (a declaration of compliance); registering the company with the registrar at PACRA; obtaining a taxpayer’s tax number from the Zambia Revenue Authority (ZRA); registering for Social Security with the National Pensions Scheme Authority; paying a business levy with the city council; and registering for VAT with the ZRA. Many of the steps needed to start a business were eased or eliminated in the last several years to streamline procedures and increase the number of registered businesses.

The system of taxation in Zambia is one that is source-based and every individual receiving income from a source within or deemed to be within Zambia is liable to be taxed on that income. The ZRA is the body that administers the tax system and the tax year for both individuals and companies currently runs from January 1 to December 31 in Zambia. Income tax is divided into PAYE, tax on self-employed individuals, and company tax. PAYE is collected from individuals with formal jobs and employers deduct the tax from an employee’s wages and remit it to the ZRA. The PAYE exempt threshold was increased in 2017 from ZMK3,000 a month to ZMK3,300, while the income bands and the top marginal tax rate was increased from 35% to 37.5% for those earning above ZMK6,200. Company tax is levied on business profits of incorporated companies and branches of foreign companies. Taxpayers are required to compute taxable income on an actual basis by reference to the charge year. Companies that are newly listed on the LuSE are eligible for a 2% tax reduction the above income tax rate applicable and a further 5% reduction where Zambians hold at least 33% of the shares. Companies operating in priority sectors designated by the Zambia Development Agency are exempted from income tax for the first five years, 50% between years six and eight, and 25% between years nine and 10. Their dividends are also exempted from tax for five years starting from the date of commencing operations, and imports of capital equipment and machinery face zero import duties for five years.