Duties, royalties and taxesDuties, royalties and taxes payable by private parties
What duties, royalties and taxes are payable by private parties carrying on mining activities? Are these revenue-based or profit-based?
The following duties, royalties and taxes are payable by private parties carrying on mining activities, each of which (with the exception of royalties and value added tax) are profit-based.
Corporate income tax
As detailed in the Income Tax Act, Zambia has a source-based system for the taxation of income. Income from a source deemed to be a Zambian source is subject to income tax. Corporate income tax (CIT) on mining companies is charged as follows:
- income from mineral processing carried out under a Mineral Processing Licence is taxed at the rate of 35 per cent; and
- income from mining operations (for both base metals and industrial minerals), at the rate of 30 per cent per annum.
Exploration operations are not included under the definition of mining operations and, therefore, the above-mentioned CIT will not apply to a holder of a large-scale exploration licence, provided that they do not undertake any mining operations. Notwithstanding this, however, a holder of an exploration licence will be required to submit annual CIT returns.
To date, the rates of CIT indicated are correct as a result of negotiations between mining companies and the government.
Cobalt and vanadium
8 per cent of the norm value
Base metals (other than copper, cobalt and vanadium)
5 per cent of the norm value
6 per cent of the norm value
6 per cent of the gross value
5 per cent of the gross value
5 per cent of the gross value
Norm value is defined by the Mines Act as:
- the monthly average London Metal Exchange cash price per tonne of the metal or recoverable metal sold;
- the monthly average Metal Bulletin cash price per tonne of metal or recoverable metal sold to the extent that it is not quoted on the London Metal exchange; or
- the monthly average cash price per tonne at any exchange market approved by the Commissioner-General (the Commissioner General) of the Zambia Revenue Authority (ZRA) of metal sold or recoverable metal sold to the extent that it is not sold on the London Metal Exchange or Metal Bulletin.
The gross value is defined as the realised price for a sale (free on board) at the point of export from Zambia or point of delivery within Zambia.
Duties and value added tax
During the construction and production phase, mines usually purchase machinery that is imported. Import duties (at a rate of up to 25 per cent) and VAT (at 16 per cent) are levied on these goods. ZRA has the discretion to grant tax relief to the mines in the form of various allowances, deductions and write-offs, such that mining entities defer the taxation to a later year when they are in a better financial position to pay. Export of goods from Zambia is considered to be a zero-rated supply if requisite evidence of exportation is produced.
In the budget speech, the Minister of Finance announced that the VAT regime will be replaced by a sales tax. The new regime is expected to be implemented in July 2019.
Tax required to be deducted from any dividend shall be deducted at the rate of zero per cent per annum for any dividend paid by a company carrying on mining operations. Withholding tax applies at the following rates in respect of other payments:
- dividend payments to non-residents and profits distribution by branches of foreign companies at 20 per cent;
- construction and haulage operations fees paid out to non-residents at 20 per cent;
- interest at 15 per cent;
- interest paid out to non-residents at 20 per cent;
- commission and entertainment fees paid out to non-residents and management and consultancy fees paid out to non-residents at 20 per cent; and
- management and consultancy services paid out to resident consultants at 15 per cent.
What tax advantages and incentives are available to private parties carrying on mining activities?
Whereas the normal CIT rate is 35 per cent, mining companies carrying out mining operations (for both base metals and Industrial minerals) are taxed for CIT purposes at 30 per cent. In addition, withholding tax on dividends paid by mining companies is zero per cent whereas it is generally 15 per cent or 20 per cent for other companies depending on whether the recipient is a resident or non-resident.
US dollar accounting
Mining companies may be allowed to maintain account books in US dollars in accordance with generally accepted accounting principles if the Commissioner-General is satisfied that not less than 75 per cent of the gross income is earned in the form of foreign exchange from outside Zambia.
Prospecting expenditure deductions
All prospecting expenditure incurred in a charge year is allowed as a deduction.
Mining expenditure deductions
A deduction is allowed in respect of the capital expenditure incurred on a mine that is in regular production in the charge year.
Deductions for mining expenditure on non-producing and non-contiguous mines
For a person carrying on mining operations in a mine that is in regular production and who is also the owner of, or has the right to work a mine that is not contiguous with the producing mine and from which the person has made a loss in the charge year, the amount of such loss shall not be deducted in ascertaining the gains or profits from his or her mining operations provided that such loss may be allowed as a deduction in ascertaining the gains or profits arising from the same mine when it commences regular production.
Capital allowances are deducted in ascertaining the gains or profits of a business for each charge year at the rate of 25 per cent.
Losses may be carried forward for a period not exceeding 10 years. The tax losses carried forward for one charge year is limited to 50 per cent of taxable profits.
Customs duty on imports of mining equipment
The holder of a mining right is entitled to exemption from customs and excise duties, and from any other duty or impost levied under the Customs and Excise Act, in respect of all machinery and equipment (including specialised motor vehicles) required for any of the activities carried on or to be carried on in pursuance of the right or otherwise for the purposes of his or her investment in mining or prospecting or exploration.
This option is available under the Mines Act, in that the Commissioner-General may, on application by the holder of the mining right, defer payment of royalty due from the holder if, during any period for which a payment of royalty is due the cash operating margin of the holder in respect of mining operations in the mining area falls below zero.Tax stablisation
Does any legislation provide for tax stabilisation or are there tax stabilisation agreements in force?
There is currently no legislation providing for tax stabilisation agreements or clauses. However, the Zambian government has been known to enter into concession agreements with individual mining companies in which stabilisation clauses have been included. In the event that there is a tax dispute between mining entities and the government, the mining entities can lobby the government, who will then consider their concerns.Carried interest
Is the government entitled to a carried interest, or a free carried interest in mining projects?
The government is not entitled to a carried interest or a free carried interest in mining projects. The government plays more of a regulatory role, but has no direct participation in terms of the direction of mining operations or shareholding in mining right holders.Transfer taxes and capital gains
Are there any transfer taxes or capital gains imposed regarding the transfer of licences?
Property transfer tax (PTT) is payable on the transfer of any type of mining right from one party to another. Any mining right under the Mines Act is considered to be property and the Property Transfer Tax (Amendment) Act No. 16 of 2015 provides that PTT of 10 per cent of the realised value, which is the value of a good sold on the open market, in respect of a mining right or an interest in the mining right, shall be payable on the transfer, assignment, encumbrance or other dealing involving a mining right or mining interest.Distinction between domestic parties and foreign parties
Is there any distinction between the duties, royalties and taxes payable by domestic parties and those payable by foreign parties?
There is no distinction between duties or royalties for domestic and foreign parties.