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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:

• Directors of the company as at the date of the return,
• Secretary of the company

•  Name and address of the company external auditors
• Company’s registered office
• Place where the register of members or shareholders is kept, if not kept at the registered office

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:

• Banking institutions
• Building societies
• Insurers
• Micro Finances
• Corporative societies
• Trade unions

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;

1. Re-registration– All existing companies are required to re-register with the Registrar of Companies within a period of 12 months from the date on which the new Companies Act became effective. By re-registration the companies will not be creating new legal entities or entirely removing the company’s existing rights and obligations. The re-registration exercise is an administrative process aimed at establishing a new and updated register of operating companies so as get rid of inactive companies which do not appear on the updated companies register.
2. Record of Beneficial Owners -Companies are required to keep and maintain a register of beneficial owners and such information is required to be filed with the Registrar of Companies. A beneficial owner includes, without limitation, an individual who directly or indirectly holds more than twenty percent of the company’s shares or directly or indirectly holds more than twenty percent of the company’s voting rights. The new Companies Act further provides that not more than twenty percent shares in a company may be held by a nominee on behalf of a beneficial owner.

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.

• A tax invoice is a basis for registered operators to claim Input Tax Credit.
• Only one tax invoice should be issued for each taxable supply.
• Any replaced tax invoice should be clearly marked ‘copy’.

Features of a valid tax invoice

• The words “tax invoice” in a prominent place,
• The name, address and registration number of the supplier,
• The name, address and VAT number of the recipient,
• An individual serialized number and the date upon which the tax invoice is issued
• A description of the goods or services supplied,
• The quantity or volume of the goods or services supplied.

Price and VAT charged

There are three methods allowed for reflecting the price and VAT as follows:

• Method 1- The amount excluding VAT, plus the VAT charged and the total amount including VAT
• Method 2 – Where VAT is included in the final price, there should be a statement that VAT is included and the rate of tax
• Method 3 – Where VAT is included in the final price, the amount charged including VAT and the amount of VAT charged.

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

• If an organisation decides to comply with tax systems, pay their taxes it eliminates penalties they were bound to pay after being investigated by the authorities. PART X of the VAT Act deals with compliance in particular section 62 Subsection 2 states that a registered operator (RO) who fails to notify commissioner of ZIMRA of changes in details such as address, is liable for a penalty or conviction to a fine not exceeding a period of one hundred and eighty-one days. Section 57 of the same VAT Act states that RO shall keep records of business transactions such as tax invoices, credit notes, debit notes, bank statements, deposit slips, stock lists and paid cheques relating, import documents among others failure of which will attract a fine not exceeding level seven. It does not make business sense to play tom and jerry with tax authority when a RO is presented with an option to just be compliant and let your business flourish.
• It increases in the entitlement of any registered operator to a refund of tax. All tax refunds are subject to audits before they are being paid out. It is where the tax authority thoroughly investigates of any anomaly. The RO should be up to date in all tax heads and should there be any outstanding issues, the refund will not be processed.
•  The money that you pay in taxes goes to settle a number of financial responsibilities. In addition to paying the salaries of government workers, the taxes also help to support common resources such as maintenance of public infrastructure, roads, schools, hospitals. And also, provision of relief in times of disaster.

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

• Capital gains offences
• Income Tax, Presumptive Tax and PAYE offences
• Value Added Tax offences

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

•  The organisation will need to pay much more money than they were supposed to initially
•  Company may shutdown failure to pay the calculated fine.
•  A lot of undisclosed issues may be availed during the cause of the investigation and may tarnish the organisation s image to its stakeholders

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 10^th 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:

•  As of 1 January 2020, the corporate income tax, a fringe lessening of the corporate tax rate from 25% to 24% was effected but Aids Levy remains at 3% of tax.  Withholding tax on non-executive director’s fees has been to be final tax and not subject to a claimable tax credit. Zimbabwe currently functions on a source-based tax system that is to say income from a source within, or deemed to be within, Zimbabwe will be subject to tax in Zimbabwe except a particular exemption is available.

 CONCERNING VAT:

•  A value-added tax (VAT) is tax placed on a product or service when its value is added during the the supply chain, from production to the consumption. A borderline decrease of the VAT standard tax rate from 15% to 14.5% was effected commencing 1 January 2020. VAT registration threshold was increased from ZWL60,000 to ZWL1,000,000 for those who wish to be VAT agents.

CONCERNING THE INTERMEDIATED MONEY TRANSFER TAX (IMTT):

• Tax-free threshold increased from ZWL20 to ZWL100

CONCERNING PERSONAL TAX:

• Any employee in Zimbabwe who earns compensation in a currency other than that of Zimbabwe dollar is obligated to pay tax in foreign currency. When an employee receives remuneration partly foreign currency or partly in Zimbabwe dollars, such taxable income will be subject to PAYE using the PAYE tables, it is apportioned and converted accordingly.  The 2020 budget seems to have come up with relief for taxpayers as the tax-free threshold has been reviewed upwards from ZWL $700 to ZWL $2 000 from 1 January 2020. On bonuses, the tax threshold has been reviewed upwards also from ZWL $1 000 to ZWL $5 000

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.

• Deductions are typically expenses that the taxpayer incurs during the year that can be applied against or subtracted from his gross income in order to figure out taxable income.
• Tax deductions reduce how much of your income is subject to taxes. Deductions lower your tax liability by the percentage of your highest income tax bracket. So, if you fall into the 25% tax bracket, a $1,000 deduction saves you $250.Section 15 of the income tax Act details those deductions that are permissible in the determination of taxable income
• When completion Self-Assessment Return (ITF 12C), no deduction is allowable in respect of following expenses which are prohibited (according to section 16 of the Income tax Act): –
• Any loss or expense which is irrecoverable under any contract of insurance
• Cost incurred in the maintenance of the taxpayer or his family
• Domestic expenses including travel between home and business place
• Fines and penalties
• Provision for doubtful debts
• Entertainment expenditure
• Depreciation as charged in the accounts
• Tax levied on income and/or interest charged on overdue tax
• Any loss or expense which is irrecoverable under any contract of insurance
• Unproductive interest
• Restraint of trade

The importance of a Lease Agreement with regards to taxation.

More often when Zimra is conducting audits, they request this document where the Registered Operator does not own the place of operation. This shows that this is not a mere document in the eyes of the tax man but a source of vital information during audit.

Some of the vital informational that is found in the Lease Agreement

• Monthly rentals
• Any premium or deposit paid
• The duration of the lease
• Any obligation on improvements

Taxation of Lease premium

Today we are focusing on the lease premium

• Lease premium- also known as a deposit, this is a once off payment made by the lessee to the Lessor over and above the monthly rentals mostly at the inception of the lease.
• To the lessor it is taxable income and the whole amount is accounted for in the year of receipt
• To the lessee it is an allowable deduction under the following conditions:
• The premises should be used for the purpose of trade, apportion where there is dual use
• The premium is spread over the shorter of the lease period or ten years i.e. you cannot claim the full amount even though you paid it in full.
• If the contract is terminated prematurely, the outstanding lease premium is forfeited

• The definition of remuneration contained in the 13th Schedule of the Income Tax Act
includes amounts such as salary, leave pay, allowances, wages, overtime pay, bonus,
commission, fees and benefits. Fees payable to or earned by the director are
considered part of remuneration and therefore subject to employees’ tax if paid to a
director of a company or paid to a chairman or member of any board of a statutory
corporation from which the individual also receives other amounts constituting
remuneration.
• Director’s fees are paid to both Executive and Non-Executive Directors
• Executive directors are taxed through the payroll under PAYE
• For non-executive directors, the fees are taxed at 20% withholding tax
• The due date for payment of WHT is on or before the 10th day from the date of
payment of the fees
• Finance Act Amendment No. 3 of 2019 exempts non-executive directors from 10%
WHT for lack of tax clearance certificate. The amendment further exempts the NED
fees from income tax computations on the 3rd schedule, paragraph 4(w).
• This means NED fees become a final tax, no need for filing a return unless the
director has other income apart from the fees
• The director should meet conditions of an independent contractor. If s/he receives
benefits and allowances over and above board fees, Zimra may bring taxation of fees
under PAYE as the amounts will be viewed as remuneration