Tax Guide for US Expats Living and Working in Zimbabwe
Who Is Liable For Income Taxes in Zimbabwe
All individuals are subject to income tax on income accrued, or deemed to accrue, from a source in Zimbabwe. Compensation for services rendered in Zimbabwe is deemed to be derived from a Zimbabwean source, regardless of where the payment is made or where the payer resides.
The terms “resident” and “ordinarily resident” are not legislatively defined. Residential status depends on the facts and circumstances indicating a degree of presence. For example, a person living and working temporarily in Zimbabwe is considered resident but not ordinarily resident, while a transient visitor is considered neither ordinarily resident nor resident.
Income subject to tax. The taxation of various types of income is described below.
Employment income. Tax is levied on salary, wages and the value of employment benefits.
To calculate income tax liability, the following steps must be followed:
Step I: Calculate the income tax on the taxable income according to the tax rate structure set out below.
Step II: Calculate the tax credit entitlement discussed in Personal credits.
Step III: Deduct the amount in Step II from the amount in Step I to determine the income tax payable.
Step IV: Add the 3% AIDS levy to the amount computed in Step III to determine the total amount payable.
Education allowances provided by employers to their employees’ children 18 years of age and younger and all allowances or benefits accruing to employees are taxable for income tax purposes, but not for social security purposes. Social security contributions are calculated on basic salaries.
Nonresidents are taxed on their employment income in Zimbabwe at the rates.
Self-employment and business income. Partners are individually subject to tax on their share of business profits.
Income tax is levied on all income (other than capital gains) received or accrued from a Zimbabwean source, less noncapital expenditures incurred in the production of income or for business purposes. Certain specific types of income are exempt from tax.
Income from sources other than employment is generally subject to tax at a rate of 25.75%.
Registered taxpayers and government and statutory bodies must withhold and remit to the Commissioner General 10% of all payments for goods and services unless the payee provides a certificate of clearance from the Zimbabwe Revenue Authority. Amounts withheld are refundable on assessment.
Tax at a rate of 20% must be withheld from gross fees paid to nonworking directors and from gross payments to freelance insurance agents, insurance brokers and property negotiators.
Amounts withheld can be offset against income tax due on quarterly dates or on assessment.
Nonresidents are taxed on business income at a rate of 25.75%. Withholding tax is imposed on nonresidents at a rate of 15% on fees for technical, managerial, administrative and consulting services. The withholding tax is allowed as a credit against tax assessed at the normal rates. The amount of the credit is limited to the lesser of the tax assessed or the withholding tax.
Directors’ fees. Fees paid to working directors are taxed with other employment income at the rates.
Fees paid to nonworking directors are included in business income and taxed at a rate of 25.75%. Tax at a rate of 20% that is withheld from payments of the gross fees can be offset against income tax payable on quarterly dates or on assessment.
Investment income. Individuals are subject to a final with holding tax at a rate of 10% on dividends derived from companies listed on the Zimbabwe Stock Exchange, and to a 15% final withholding tax on all other domestic dividends.
Interest paid on deposits with local building societies, banks and other financial institutions is exempt from income tax, but it is subject to a final withholding tax at a rate of 15%. Individuals aged 55 and older are exempt from withholding tax on the first US$3,000 of such income.
Income from treasury bills and discounted instruments traded by financial institutions is exempt from income tax, but it is subject to a final withholding tax at a rate of 15% at the time of disposal or maturity of the instrument. Individuals aged 55 and older are exempt from withholding tax on the first US$3,000 of such income.
Other interest is not subject to withholding tax and is taxed at a rate of 25.75%.
Foreign-source dividends and interest paid to individuals who are ordinarily resident are deemed to be from a Zimbabwean source. Foreign-source dividends are subject to income tax at a rate of 20% of gross dividends. Credits may be granted for foreign tax withheld on interest income and dividends, up to the amount of Zimbabwe tax on the foreign-source income.
Net rental income is taxed at a rate of 25.75%. Individuals aged 55 and older are exempt from tax on the first US$3,000 of such income.
Nonresidents are taxed on investment income from Zimbabwe sources, other than dividends, at a flat tax rate of 25.75%. For nonresidents, withholding tax is imposed at a rate of 15% on fees and royalties. This withholding tax is allowed as credit against tax assessed at the normal rates. The amount of the credit is limited to the lesser of the tax assessed or the withholding tax.
Dividends paid to nonresidents on listed and unlisted marketable securities are subject to a final withholding tax at rates of 10% and 15%, respectively.
Taxation of employer-provided stock options. Employer-provided options to acquire stock at below the stock’s market value are subject to tax on the date the options may first be exercised at the rates.
Gains on the disposal of stock acquired through an employee option scheme are included in remuneration from employment and are subject to the Pay-As-You-Earn (PAYE) system (see Section D). The gains are included in remuneration. Tax on the gains is calculated in accordance with the rules discussed below.
For options granted before and exercised after 1 February 2009, the value of the benefit is the market value of the shares at the date the option is exercised. The benefit is subject to the PAYE system at a rate of 5% plus the 3% AIDS levy.
For options granted after 1 February 2009, the value of the benefit is the market value of the shares on the date the option to acquire them is exercised less the sum of the following:
- The option price paid by the employee
- The market price of the shares at the date of the offer
- An inflationary allowance computed by applying to the market price of the shares at the date of the offer the percentage increase in the All Items Consumer Index from the date the option was offered to the date the option was exercised The benefit described in the preceding paragraph is included in income subject to the PAYE system at the normal rates plus the 3% AIDS levy.
Capital gains and losses. Capital gains derived from sales of marketable securities listed on the Zimbabwe Stock Exchange, unlisted securities and real property are subject to capital gains tax. Disposals of all specified assets purchased before 1 February 2009 are taxed at a rate of 5% of the gross sale proceeds. Disposals of listed marketable securities after that date are taxed at a rate of 1% of the gross sale proceeds. This 1% tax became a final tax, effective from 1 August 2009. Disposals of other specified assets purchased after 1 February 2009 are taxed at a rate of 20% of the capital gain after deduction of an inflationary allowance of 2.5 % per year on the cost from the acquisition date to the disposal date.
The capital gains withholding tax is imposed at the following rates:
- 5% of the gross proceeds from disposals of immovable property purchased before 1 February 2009
- 15% of the gross proceeds from disposals of immovable property purchased after 1 February 2009
- 1% of the gross proceeds from disposals of listed marketable securities
- 5% for disposals of unlisted marketable securities
The above taxes are credited against the capital gains tax, except for the 1% tax, which became a final tax, effective from 1 August 2009.
Individuals aged 55 and older are exempt from tax on the sale of their principal private residence and on the first US$1,800 of total proceeds received during the year from the sale of listed and unlisted marketable securities.
Rollover relief is available for sales of real property used in a trade or business if individuals or companies sell business premises and purchase replacement premises or if individuals sell business premises to a company under their control, subject to the condition in both cases that the business continues to be carried on in the new premises.
Rollover relief is also available for the sale and replacement of a principal private residence.
Capital losses may be carried forward indefinitely.
Deductions
Deductible expenses. Pension contributions, up to a maximum annual amount of US$5,400, may be deducted from taxable income. If both pension and retirement fund contributions are made, the maximum combined deduction is US$5,400.
Personal credits. The following tax credits are deductible from basic income tax payable, effective from 1 January 2011.
Relief for losses. Losses may be carried forward for six years. Mining losses derived from specific mining locations may be carried forward indefinitely. However, they are not deductible from income from other mining locations or from non-mining income. Losses from business or investment activities are not deductible from employment income.
B. Other taxes
Estate and gift taxes. Estate tax is levied on the estates of all deceased persons with assets located in Zimbabwe or with foreign assets arising from Zimbabwean sources. The family home and a family vehicle are not included in the dutiable value of the estate. The first US$50,000 of the dutiable value is tax free. The rate of the estate tax on the balance of the dutiable value is 5%.
Zimbabwe does not levy gift tax. However, the market value of a donation of marketable securities or real property is subject to capital gains tax (see Section A).
Presumptive tax. Presumptive tax at various rates is imposed on informal traders, cross-border traders, small-scale miners, hairdressers and operators of taxicabs, omnibuses, specified goods’ vehicles, driving schools, licensed and unlicensed bottle stores and restaurants and cottage industries (cottage industries are trades or industries involved in furniture making and upholstery or metal fabrication and other industries prescribed in statutory instruments). Presumptive tax paid is allowed as a credit against income tax due on assessment.
C. Social security
Monthly contributions payable by the employee, which are 3% of the first US$200 of an employee’s monthly basic monetary earnings, are withheld by employers and paid to the National Social Security Authority monthly, together with an equal amount contributed by the employer.
E. Double tax relief and tax treaties
A credit is available for foreign taxes paid, limited to Zimbabwe taxes payable on the underlying foreign-source income. Zimbabwe has entered into double tax treaties with the following countries.
Bulgaria
Germany
Norway
Canada
Iran*
Poland
Congo
Malaysia
Serbia*
Mauritius
South Africa
Namibia*
Sweden
France
Netherlands
United Kingdom
* This treaty has not yet entered into force.
To learn more about the history, culture, economy and other information about Zimbabwe
We have been preparing US income tax returns for US Citizens and permanent residents living in Zimbabwe for over 15 years. As a US Citizen or permanent resident (green card holder) you are required to file a US return each year regardless of the fact that you file and pay taxes in your residence country. The expatriate earned income exemption ($100,800 for 2015) can only be claimed if you file a timely tax return. It is not automatic if you fail to file.
We have scores of clients located in Zimbabwe and know how to integrate your US taxes into the local income taxes you pay. Any income tax you pay there can be claimed as a dollar for dollar credit against the tax on your US return on the same income.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the tax fiscal year for US tax purposes). You must pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these forms or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
There are certain times you may wish to make elections with respect to your Corporation or Investment Company which will give you US tax benefits. There are other situations where forming a US corporation to receive your business income may be more advantageous than using a corporation in your resident country. We can help you with these decisions.
If you are self-employed, you will have to pay US self-employment taxes (social security). If you are a bona-fide employee you do not have to worry about paying US social security on your wages earned in Zimbabwe.
We have helped hundreds of expats around the world catch up because they have failed to file US returns for many years. Unfortunately, unlike India, Canada, UK, etc. you must also file so long as you are a US citizen or resident. You can if you follow proper IRS and State Department procedures surrender your US Citizenship and therefore cut off your obligation to pay US taxes in the future. You must surrender that Citizenship for non-tax avoidance reasons and then can usually not return to the US for more than 30 days per year for the subsequent ten years.
Let us help you with your US tax returns, US tax planning and other US tax and legal concerns. Download our expat tax questionnaire or request a request a consultation by phone, skype or email