Lets analyse how Non‑Resident Shareholders’ Tax (NRST) arises in Zimbabwe, its tax treatment, statutory mechanics, and supporting case law, firmly grounded in section 26 of the Income Tax Act [Chapter 23:06] and the Ninth Schedule.
Non‑Resident Shareholders’ Tax in Zimbabwe: Arising, Scope, and Tax Treatment under Section 26 of the Income Tax Act.
1. Introduction
Non‑Resident Shareholders’ Tax (NRST) is a long‑standing component of Zimbabwe’s international tax framework, designed to ensure that dividends and dividend‑equivalent distributions paid to persons not ordinarily resident in Zimbabwe contribute to the nation’s fiscal revenue. The tax represents Zimbabwe’s assertion of its taxing rights over outbound profit distributions, reflecting the economic source principle in international taxation.
The statutory foundation for NRST is found in section 26 of the Income Tax Act [Chapter 23:06], read together with the Ninth Schedule. Over time, the legislature has expanded the scope of NRST beyond formal dividends to include deemed dividends, anti‑avoidance provisions, withholding mechanisms, and penalties. Zimbabwean courts have played a decisive role in clarifying the operation of the tax, particularly in situations involving foreign companies, branches, and associates.
This article examines:
- how NRST arises;
- the scope and meaning of “dividends”;
- withholding and compliance obligations;
- deemed dividend rules;
- penalties, interest, and refunds; and
- judicial interpretations supporting the current framework.
2. Nature and Purpose of Non‑Resident Shareholders’ Tax
Section 26(1) of the Income Tax Act provides the charging provision:
“There shall be charged, levied and collected throughout Zimbabwe for the benefit of the Consolidated Revenue Fund a non‑resident shareholders’ tax…”
NRST is therefore:
- a final withholding tax;
- imposed on dividends paid by Zimbabwe‑resident companies; and
- chargeable solely on non‑resident shareholders.
The tax reflects the principle that profits earned in Zimbabwe and remitted abroad should bear Zimbabwean tax before being expatriated. Once withheld and remitted, NRST constitutes a final tax, and no further income tax assessment arises in the hands of the shareholder in Zimbabwe.
2.1 Statutory Rate
| Type of Company Paying the Dividend | NRST Rate |
|---|---|
| Listed company | 10% |
| Unlisted / private company | 15% |
These rates apply to the gross dividend distributed by a Zimbabwe‑resident company.
3. Residence as the Jurisdictional Trigger
3.1 Ordinarily Resident Companies
Paragraph 1(3) of the Ninth Schedule deems a company to be ordinarily resident in the country where its central management and control is exercised. This mirrors common‑law principles recognised by Zimbabwean courts and comparative jurisprudence.
Thus, NRST arises only where:
- the dividend originates from a Zimbabwe‑resident company; and
- the recipient shareholder is not ordinarily resident in Zimbabwe.
4. When Does Non‑Resident Shareholders’ Tax Arise?
4.1 Actual Dividend Distributions
Paragraph 1(2) of the Ninth Schedule provides that a dividend is deemed to be distributed when it is:
- paid;
- credited to the shareholder’s account; or
- otherwise dealt with so that the shareholder becomes entitled to it,
whichever occurs first.
This provision prevents deferral of tax through accounting entries or constructive payments.
4.2 Deemed Dividends under Section 26(2)
One of the most important anti‑avoidance rules is found in section 26(2), which deems certain payments to be dividends:
“Any amount paid outside Zimbabwe by a local branch or subsidiary of a foreign company in excess of the amount allowable as a deduction… shall be deemed to be the payment of a dividend…”
This provision targets:
- excessive management fees;
- technical fees;
- royalties; and
- interest‑like charges paid to foreign parents or associates.
Where such payments exceed what is allowable under section 16(2)(q), (r) or (t), the excess is re‑characterised as a dividend and subjected to NRST.
4.3 Judicial Support: Substance over Form
In BAT & Others v Commissioner of Taxes 94‑HH‑001, the High Court affirmed that dividend characterisation depends on substance rather than labels, and that the Commissioner is entitled to look beyond formal arrangements to identify disguised distributions of profits.
5. Meaning and Scope of “Dividend”
The Ninth Schedule provides an inclusive but carefully limited definition of “dividend”.
5.1 General Definition
A dividend is:
“Any amount which is distributed by a company to its shareholders…”
This broad formulation ensures that all profit distributions fall within the tax net unless expressly excluded.
5.2 Statutory Exclusions
Key exclusions include:
- bonus shares;
- genuine return of share capital (subject to the Commissioner’s opinion);
- certain distributions by building societies;
- distributions by the Industrial Development Corporation of Zimbabwe;
- distributions to specific international financial institutions;
- qualifying Special Economic Zone distributions; and
- certain BOT / BOOT project distributions.
These exclusions demonstrate legislative policy choices favouring capital formation, infrastructure development, export orientation, and international development finance.
6. Persons Subject to Non‑Resident Shareholders’ Tax
Under paragraph 2 of the Ninth Schedule, NRST applies to dividends paid to:
- non‑resident individuals;
- non‑resident partnerships;
- foreign companies; and
- certain foreign life insurance companies.
Notably, pension funds, benefit funds, and medical aid societies enjoy limited exemptions.
The High Court in BAT & Ors v Commissioner of Taxes 94‑HH‑001 confirmed that a foreign company receiving Zimbabwe‑source dividends squarely falls within the scope of NRST.
7. Withholding Obligations: Primary Liability of Companies
7.1 Duty to Withhold
The tax is collected through a withholding mechanism. Every Zimbabwe‑resident company paying a dividend to a non‑resident shareholder must withhold NRST and remit it to ZIMRA within 30 days of distribution.
The withholding obligation exists regardless of disputes or objections lodged against the Commissioner’s determinations, underscoring the “pay now, argue later” principle in tax law.
7.2 Apportionment of Dividends with Foreign‑Source Income
Where a company derives more than 15% of its receipts from foreign sources, the taxable portion of the dividend is determined using the statutory formula:
C / A × B
This formula ensures that NRST applies only to Zimbabwe‑sourced profits, aligning the tax with international source‑based principles.
8. Liability Shifting: Agents and Shareholders
8.1 Agents as Secondary Withholders
Paragraph 3 introduces a secondary enforcement mechanism. If a company fails to withhold NRST, any agent receiving the dividend on behalf of a non‑resident shareholder must withhold and remit the tax.
An agent includes any person whose address appears in the share register and to whom dividend warrants are delivered.
8.2 Shareholder’s Residual Liability
Under paragraph 4, if neither the company nor an agent withholds the tax, the non‑resident shareholder becomes directly liable to pay NRST within 30 days of distribution.
This layered approach ensures that NRST remains collectible despite administrative or compliance failures.
9. Certificates and Compliance Documentation
Companies and agents must issue NRST withholding certificates, detailing:
- gross dividends;
- income tax deducted under section 25 (if any);
- reductions applied; and
- NRST withheld.
Failure to issue correct certificates constitutes a criminal offence, reflecting the seriousness with which dividend withholding compliance is treated.
10. Penalties and Interest
10.1 Penalty Regime
Paragraph 6 imposes a severe penalty for non‑withholding:
- payment of the tax due; plus
- an additional 100% penalty.
This effectively doubles the liability.
10.2 Interest on Late Payment
Interest accrues at rates prescribed by statutory instrument. In Air Zimbabwe Corporation & Others v ZIMRA 03‑HH‑096, the High Court confirmed that ZIMRA is entitled to charge interest where authorised by statute, reinforcing administrative enforcement powers.
10.3 Discretion to Waive Penalties
The Commissioner may waive penalties where failure to withhold was not due to intent to evade tax, aligning enforcement with fairness and proportionality principles.
11. Refunds of Overpaid Non‑Resident Shareholders’ Tax
Paragraph 7 provides for refunds where:
- excess tax was charged;
- dividends were rescinded under exchange control laws; or
- dividends were utilised to import essential goods under government concessions.
In BAT v Commissioner of Taxes 94‑HH‑001, the court confirmed that taxpayers are entitled to refunds where statutory conditions are met, but claims must be lodged within six years of payment.
12. Policy Rationale and Anti‑Avoidance Function
NRST serves three core objectives:
- Revenue protection – ensuring Zimbabwe captures tax on profits generated locally.
- Anti‑avoidance – preventing disguised dividend stripping via management fees or service charges.
- International equity – aligning Zimbabwe’s tax system with global dividend withholding norms.
The deemed‑dividend rules in section 26(2) are particularly critical in combating base‑erosion by multinational enterprises.
13. Conclusion
Non‑Resident Shareholders’ Tax is a cornerstone of Zimbabwe’s outbound investment taxation regime. It arises whenever profits generated by Zimbabwe‑resident companies are distributed—directly or indirectly—to non‑resident shareholders. Through section 26 and the Ninth Schedule, the legislature has crafted a comprehensive system combining withholding, deeming provisions, agent liability, penalties, and refund mechanisms.
Judicial decisions such as BAT v Commissioner of Taxes and Air Zimbabwe v ZIMRA have reinforced the legality, fairness, and enforceability of the tax, while ensuring that administrative discretion is exercised within statutory confines.
As Zimbabwe deepens cross‑border investment, NRST will remain a critical tool in balancing investor confidence with sovereign taxing rights.
