Redefining Digital Tax: Zimbabwe’s Shift to 15% DSWT and a Strict USD Requirement for Imported Services
HARARE — Effective January 1, 2026, Zimbabwe is embarking on a comprehensive overhaul of its tax framework for cross-border transactions, introducing a targeted Digital Services Withholding Tax (DSWT) and simultaneously tightening currency requirements for the remaining VAT on Imported Services (VATIS). These measures aim to curb tax avoidance by foreign entities and secure vital foreign currency revenue.
Bye-Bye “Reverse Charge,” Welcome DSWT: Taxing the Digital Giants
The most significant change is the introduction of the Digital Services Withholding Tax (DSWT) at a rate of 15%, which is specifically designed to replace the Value Added Tax (VAT) on imported digital services. This move directly addresses the challenge of taxing foreign-based digital service providers that lack a physical presence in Zimbabwe.
The DSWT will target payments made by Zimbabwean residents (individuals and businesses) for services consumed locally, including:
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Online Content Charges: Subscriptions for streaming (e.g., Netflix, Spotify).
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Satellite Internet Access: Fees for providers like Starlink.
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E-hailing Fees: Payments to international ride-hailing applications.
The Collection Pivot: Crucially, the compliance burden is shifted to local financial intermediaries (banks, mobile money operators, and payment processors). They will be mandated to withhold the 15% tax at the point of payment before transferring funds abroad, ensuring immediate revenue collection for the government and significantly increasing the final cost of these services for the Zimbabwean consumer.
The Mechanism Being Replaced: How VAT on Imported Services (VATIS) Used to Work
Prior to the DSWT, Zimbabwe applied VAT on Imported Services (VIS/VATIS) at the standard rate (currently 15%) primarily through a “Reverse Charge” mechanism.
The system placed the tax liability on the local recipient (the Zimbabwean resident) of the service, not the foreign supplier. The resident was required to self-assess the VAT, treat it as both Output Tax (tax payable to ZIMRA) and Input Tax (tax reclaimable if a registered business making taxable supplies), and account for it on their monthly VAT return.
While this system created a neutral tax position for large, VAT-registered businesses, it led to:
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Administrative Burden: Complex compliance and cashflow strain for local companies, which had to remit the tax before claiming it back.
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Massive Tax Leakage: The system was ineffective in capturing VAT from individual consumers who purchased digital services and were not tax-registered, allowing significant cross-border revenue to escape the tax net.
Tightening the Rules: VATIS Exclusively Payable in Foreign Currency
While the DSWT will govern digital payments, VATIS remains in effect for other imported services (e.g., consulting, specialized repair work, non-digital licenses). To buttress the fiscal strength of this tax head, the Minister of Finance has proposed a critical change to the currency of settlement.
| Feature | Details |
| Existing Law | VATIS is currently payable in the currency of choice (local or foreign) in terms of Section 38 (4a) of the VAT Act. |
| Proposed Change | Effective January 1, 2026, the insertion of a new Section 13 (6) of the VAT Act will mandate that VATIS be payable exclusively in United States Dollars (USD) or the equivalent foreign currency. |
| Valuation | The foreign currency payment must be equivalent to the international cross rate of exchange prevailing at the time of transfer. |
| Decision Impact | Taxpayers engaging foreign service providers for non-digital services will be strictly required to source and settle the VATIS obligation in USD, reinforcing the government’s efforts to collect hard currency from international transactions. |
Widening the Tax Net: Removal of the ECOT Threshold
In parallel to the DSWT, the government is also broadening the reach of the existing Electronic Commerce Operators’ Tax (ECOT), a 5% gross income tax.
The measure proposes the removal of the US$500,000 annual revenue threshold that previously allowed smaller local and international e-commerce businesses to be exempt from the tax. Effective January 1, 2026, all e-commerce operators, regardless of their revenue size, will be required to register for ECOT and remit the 5% tax. This change significantly expands the tax base, ensuring that every participant in Zimbabwe’s booming e-commerce sector contributes to the national fiscus.
