On Thursday 25 July 2024, the Minister of finance presented the mid-term fiscal policy review statement for Parliament’s considerations. Whilst these are proposals, it is important for businesses to strategically place themselves from an informed point of view.
MoreSection 2 and section 20 of the Zimbabwe VAT Act was amended.
Effective 1 January 2022 the definition of tax invoice was amended to consolidate the two words in that “tax invoice” and “fiscal tax invoice” to have the same definition.
“Tax Invoice” now means a fiscal tax invoice provided by a registered operator and printed by a fiscalised electronic register or fiscal memory device used by a registered operator.
1)It is also a requirement that on tax invoices, the words “fiscal tax invoice” be present in a prominent place. The name, address and registration number of the supplier,
2)The name, address and VAT number of the recipient,
3)An individual serialized number and the date upon which the tax invoice is issued
4)A description of the goods or services supplied,
5)The quantity or volume of the goods or services supplied.
6)Fiscal Signature
Section 165 of the Companies and Other Business Entities Act (Chapter 24:31) or “the Act” read together with the Fourth Schedule to the Act Deal with compliance by submission of Annual Returns. It says that every company shall make and file with the Registrar an annual return consisting of a summary, in the form contained in the Fourth Schedule that is Form of annual return of company. Failure to comply with the aforesaid section will result civil penalty of category 3. The details that should be contained therein in the form Annual Return are as follows:
The annual return of a company must be submitted within twenty-one (21) days of the anniversary date of its incorporation, registration or re-registration. This is a requirement that every company should comply with. There a reason why this is defaulted. Lack of knowledge of compliance requirements could be one of the reasons and there is need for professionals like MTC for professional advice. Also lack of knowledge of what needs to be done is also a contributing factor for failing to submit annual returns in time. The process may be cumbersome coupled with unwillingness to pay for professional service up until there is a need to change other forms. The Registrar requires one to be up to date with Annual returns should there be need to change other forms arises.
This article serves to inform our clients to update their annual returns as and when they fall due. This is of utmost importance to avoid future hurdles brought about by the mere fact that the annual returns are not updated.
What is a company according to the New Act?
Before defining a company, it is important for one to know that for the purposes of the new Act banking institutions are no longer governed by the Companies Act, being specifically excluded in the definition section. Section 4 of the New Act is exclusionary to the following entities:
For the purposes of the New Act the following are Registrable business entities
(a) a public limited company;
(b) a private limited company;
(c) a company limited by guarantee;
(d) a co-operative company;
(e) a foreign company;
(f) a private business corporation
(g) subject to section 278 (“Voluntary registration of partnership agreements, etc.”), partnerships, syndicates, joint ventures and certain associations of persons.
What Companies should do?
There are immediate compliance requirements under the New Act. A few are dealt with hereunder;
Any failure to comply with the filing requirements is an offence and companies are encouraged to put in place apt measures to ensure they are in full compliance with the requirements.
Contact us to assist with all processes now
A tax invoice is a document which is prescribed in the VAT Act (Section 20). A registered operator making a taxable supply is required to provide the recipient with a tax invoice within thirty days of the supply being made.
Features of a valid tax invoice
Price and VAT charged
There are three methods allowed for reflecting the price and VAT as follows:
Additionally, according to Zimra public notice number 40 of 2020, registered operators are also encouraged to request for these tax invoices in the currency of transaction. This means that if you have paid in RTGS you should be issued with an RTGS invoice and if you have paid in foreign currency, the invoice should be in foreign currency
TAKE NOTE OF THESE AS A VAT REGISTERED OPERATOR
The new act Companies and other Business Entities Act [Chapter 24.31] (C&OBE) came into operation on the 13th of February 2020 repealing the Companies Act [Chapter 24.03] of 1952 and Private Business Corporations Act [Chapter 24.11] of 1993. The Act came along with two Statutory Instruments (SI) that is SI 46 of 2020 and SI 47 of 2020. The former sets the pre and post registration formalities of entities and the latter which contains a list of applicable fees due to the Registrar on complying with the former.
Here are some of the highlights form the new Act:
Section 11 of the act notes of the powers of Registrar to refuse registration of any document(s) submitted to him if it contains any matter contrary to law or by reason of any omission or misleading description has not been duly completed or does not comply with the requirements of this Act or contains any error, alteration or erasure. Should this happen, a corrected replacement should be lodged to replace the faulty document for processing to proceed.
The new Act has come to add a touch of times in technological advancement paving way for electronic registration of company documents by a self-actor or a registered user of the electronic registry. The applicant will be furnished with Certificate of Incorporation together with Memorandum and Articles of Association, CR5 and CR6. This applies for both a private company and public company.
In addition, Section 303 sets out transitional arrangements of the registered companies under the repealed acts. Already registered companies are to remain registered but have been given 12 months from the date when the new act came into being, to re-register.Failure of which will result in de -registration of non-compliant entities. It is interesting to note at this disjuncture that there aren’t systems in place for electronic registration and indications are that the timelines set in the Act maybe extended since the registrants have been disadvantaged of the time taken without systems in place. Re registration will not create a new entity but will rather capture already available information into Registrar’s system for easy interface, access to records, electronic signatures among other issues for the purpose of compliance with the new systems in place. This came as a panacea to curb shortcomings of the manual registration process by the introduction of the Electronic registry.
Section 29 brought about an interesting new feature in the company registration fraternity. The Assumed names are now mandated be registered. The popular name for Assumed Names have been called “Trade Names”. The acceptance for registration of the assumed names remains first come first served as the case with registered names. Section 25 prohibition of “undesirable names” shall also be applicable in accepting Assumed names.
Section 294 spells out the powers of Registrar to issue civil penalties. Where default is made in complying with any provision of the Act or regulations for which a civil penalty is specified to be, the Registrar may, in addition to, any other penalties specified in the Act or any other law, serve the defaulter with a civil penalty order.
Some of the provisions are that, the business address form is now required to include an email address according to Section 76 and 77. Likewise, Annual Returns due are to be submitted within 21 days of the centenary date of the company’s incorporation, registration or re-registration in terms of section 303 (Section 165). Section 195 also provides that; a company with up to 10 shareholders must have at least two directors; and, where there are more than 10 shareholders, the company must have at least three directors.
Concerning Shell and Shelf Companies can now be discounted if registered in batches and Applicant declares as such in a prescribed form. Shell and Shelf Companies now have a lifespan of 12 months unless an annual return is submitted. (Section 293).
Section 191 contains provisions on appointment, remuneration, duties, powers and removal of auditors. No person shall serve as an auditor of a company for more than five consecutive financial years. A past auditor is required to wait for two financial years before becoming eligible for reappointment. Note Section 191(7) for circumstances under which a private company is obligated to appoint an auditor, a similar provision existed in the old Companies Act’s section 150(7).
These are some of the takeaways of the new Act, both already registered and potentials registrants should take heed of the paraphernalia of consequences of not aligning their business operations to the changes in legislation. The volatility of the Zimbabwean legislation requires technocrats to be well abreast with what is happening in the legal fraternity. MTC is here to help you should you require any help in an as far as company registration.
WHAT IS TAX COMPLIANCE?
An illustrious catchphrase which says that, there only two things are certain in life, one of them being taxes. This is quite true given the volatility and complexity of Zimbabwean tax legislation. Even the complexities that is involved in making sure that tax returns are up to scratch is causing people to turn to tax professionals such as MTC for assistance. In this regard, tax compliance refers to taxpayers’ decision to comply with tax laws and regulations by paying tax timely and accurately. In simple terms, it means submitting a tax returns within the postulated period, correctly declaring income received and deductions, paying taxes by due date to (ZIMRA) Zimbabwe Revenue Authority.
Benefits of being compliant
Main tax offences in Zimbabwe
Below are a fractional of some of the rampant tax offenses committed by RO in Zimbabwe. Each category has different offences that the Tax payer may encounter
Penalties
In respect of above mentioned offences, the law has corresponding penalties and fines for the offences. Penalties are a legal or official punishment, such as a fine or forfeit for not fulfilling the required law. Penalties are fines given for not adhering to certain law their differ from different tax paid. They may also come with interest.
Effects of Penalties
Conclusion
Tax audit is one of the most effective control mechanisms used by ZIMRA in addressing the problem of noncompliance. There is need for RO to voluntarily comply to avoid so that tax audits which are burdensome and costly.
This article attempts to answer several critical questions on the practical application of the 10% withholding tax on contracts for the supply of goods or services. With the negative impact this tax has on business, it is essential that we have a close look at it to avoid some common pitfalls in its administration. Failure to comply with this tax head (or any other for that matter) results in businesses losing potential working capital savings. While some people may have benefited by collecting the tax without submitting it to ZIMRA, some others have lost by failing to withhold from suppliers. Failure to withhold the tax transfers the obligation to pay it from the supplier to the customer, compounded with 100% penalty and interest.
There are a few critical questions which must be answered about this tax head. Under what circumstances does this tax apply? Who is entitled to withhold the 10%? Are there any persons or products that are exempt from this tax? Does it apply to individuals who are not in business? Why does ZIMRA withhold 10% from amounts due a supplier of goods or services? Once withheld, is it recoverable and from whom? What information is required to institute recovery of the tax? Are there any obligations attached to withholding the tax? These and many other practical questions are discussed in this article.
The 10% withholding tax applies where any person contracts with another person registered with the Zimbabwe Revenue Authority (ZIMRA) for the supply of goods or services. If the first mentioned person (company, individual, etc) does not have a Tax Clearance Certificate, 10% of the total amount due him will be withheld by the customer. Certain conditions must be present for this to apply. The customer has to be registered with ZIMRA as a taxpayer, while the supplier does not have to be registered. This implies that the customer ought to have a Business Partner (BP) number allocated by ZIMRA on registration. The value of the goods or services supplied should be ZWL10 000 or more in a year of assessment. This threshold is determined by looking at the invoice value, the cumulative invoice value, or the amount payable.
There are certain institutions and suppliers that are exempt from this withholding tax. Exempt institutions include financial institutions, medical aid societies, schools, hospitals etc. The only suppliers of goods that are exempt are farmers when supplying agricultural produce, including livestock (based on ZIMRA practice, not legislation). This exemption therefore is specific to the nature of the supplier, only farmers are exempt with regards to the supply of agricultural produce. The exemption does not cover agricultural produce supplied by middlemen, such as ‘green’ vendors. It is however noteworthy that supermarkets are exempt when selling to customers who are purchasing not in the course of trade.
It is interesting, though disturbing to note that supplies by individuals, whether in business or not, are not covered for exemption. A case to note is when an individual sells his personal motor vehicle to a company registered with ZIMRA. While such a person may not be a motor dealer, he/she will lose 10% of the value of the car if he/she fails to produce a tax clearance certificate. The big question is how does the individual obtain a tax clearance certificate while he is not trading? It would appear, without recourse to the Law, that tax clearances are only for people or companies engaged in some form of trade. However a close look at the provisions of the Law shows that a tax clearance can be given to any person who satisfies the Commissioner that he is up to date with any tax obligation. An employee can thus prove to the Commissioner that his employer is on Final Deduction System and is up to date with all PAYE payments. This implies that the employee is therefore up to date with his income tax obligations, barring any business income. Such an individual can get a tax clearance certificate from ZIMRA.
Once deducted, getting a refund of the withholding tax is a long and painful process. One must submit his Income tax return(s) and any other returns due to ZIMRA and satisfy the Commissioner that he is due the refund. One way to satisfy the Commissioner is to prove that the amount withheld was actually paid to ZIMRA. This calls for proof of payment of the amount withheld by the customer. It may not be enough just to get proof of deduction from the customer, proof of receipt by ZIMRA may also be required. ZIMRA may also want to ensure that the claimant has no further tax obligation against which the refund can be set-off. Therefore, one has to ensure that all his books are in order before daring to claim a refund of the withholding tax.
Administration of this tax head has its fair share of practical challenges. How does one withhold 10% on a prepayment? How do you deduct the 10% withholding tax from a sole supplier of critical raw materials? How does one deal with cash payments exceeding the threshold? How can one pay 90% of a product’s price when tendering cash, having withheld 10%? Won’t the supplier provide goods worth the amount tendered? One of the ways out of this puzzle is to gross-up the amount due and pay for the supplier. This entails increasing the cost of the product to cover the 10% paid on behalf of the supplier. Such a move would drive prices up, making the man in the streets poorer. This practice does not only prejudice the final consumer, it also prejudices ZIMRA. While the customer claims the cost including the 10% paid on behalf of the supplier, the supplier may not declare that amount as income. He will only declare as income what he receives for the supply.
This complexity in the administration of this tax head has prompted some traders to decline dealing with customers without tax clearance certificates. While this is not encouraged it provides a way of mitigating against the risks of dealing with customers without tax clearance certificates and the administrative costs associated with withholding the tax. The Law requires that everyone who withholds the 10% should give the supplier a certificate as proof of the deduction. One should also ensure that the amount withheld is remitted to ZIMRA by the 10th of the month immediately following the deduction. Some are however happy to deal with customers without tax clearance certificates as a way of getting free funds. The amounts deducted can be invested in stock or raw materials until the time they are due to ZIMRA. Such a move requires proper planning, nevertheless.
Written by Simon Gwenzi
In this Covid 19 period, the government of Zimbabwe has not introduced any tax relief measures than already is in the 2020 budget. The budget is already constraint due to a paraphernalia of issues which demand the revenue collected. Hence the article will highlight some of the tax relief measure that were effected beginning January 2020.
CONCERNING CORPORATE TAX:
CONCERNING VAT:
CONCERNING THE INTERMEDIATED MONEY TRANSFER TAX (IMTT):
CONCERNING PERSONAL TAX:
Tax deduction is a reduction of income that is able to be taxed and is commonly a result of expenses, particularly those incurred to produce income. Tax deductions are a form of tax incentives, along with exemptions and credits.