The Domestic Minimum Top-Up Tax (DMTT) in Zimbabwe is a new tax measure specifically designed to align Zimbabwe’s corporate tax system with the global anti-base erosion framework known as the OECD Pillar Two rules.
It was introduced into the Income Tax Act [Chapter 23:06] under Section 12B by the Finance Act (No. 13 of 2023).
The purpose of the DMTT is to ensure that large multinational enterprise (MNE) groups operating in Zimbabwe pay a minimum effective tax rate of 15% on the income they generate from the country.
🏛️ Key Features of Zimbabwe’s DMTT
The DMTT is essentially a mechanism used by a source country (like Zimbabwe) to claim the right to tax income that would otherwise be taxed at a low rate and potentially “topped up” by another jurisdiction.
1. The Target and Scope
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Global Benchmark: The DMTT primarily targets foreign entities that are part of large MNE groups.
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Threshold: Following the proposal in the latest budget review, the tax will apply to MNE groups whose consolidated annual turnover is equal to or exceeds the OECD threshold of EUR 750 million in at least two of the four preceding fiscal years.
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Applicable Entities: The DMTT covers various forms of foreign entities operating in Zimbabwe, including:
Locally incorporated subsidiaries of a foreign entity.
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Locally registered companies of a foreign entity.
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Local agents, arms, or branches of a foreign entity.
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2. The Minimum Tax Rate
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The DMTT ensures that the effective corporate tax rate on income earned by the foreign entity from Zimbabwe is brought up to a minimum of 15%.
3. The Calculation: When it is Applied
The DMTT is triggered when a foreign entity’s effective tax rate (ETR) on its Zimbabwe-sourced income is less than 15%
{DMTT Amount} = Top-Up Percentage} times {Jurisdictional Profits in Zimbabwe}
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Scenario 1: Low Tax Rate: If the foreign entity’s home country or a preferential Zimbabwean tax incentive (e.g., Special Economic Zone status) results in the entity paying an effective rate of less than 15%, the DMTT is levied.
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Scenario 2: Double Taxation Agreements (DTAs) Overridden: The DMTT rules are designed to override the provisions of any existing DTA that would otherwise result in the foreign entity paying less than 15% corporate tax on its Zimbabwean income. This asserts Zimbabwe’s taxing right.
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Top-Up Percentage: The percentage is calculated as:
15% – {Entity’s Actual Effective Tax Rate in Zimbabwe}
4. Strategic Rationale (Why Zimbabwe Introduced It)
The DMTT is crucial for protecting Zimbabwe’s tax revenue base:
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Retention of Revenue (Source over Residence): Under the global Pillar Two rules, if an MNE’s income in Zimbabwe is taxed below 15%, the top-up amount would typically be claimed by the MNE’s parent company’s home country (via the Income Inclusion Rule or IIR). By enacting a Domestic Minimum Top-Up Tax, Zimbabwe steps in first to collect the difference, ensuring the revenue remains within the country.
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Curbing Tax Avoidance: It removes the tax incentive for MNEs to shift profits out of Zimbabwe using complicated transfer pricing or other Base Erosion and Profit Shifting (BEPS) schemes, as any low-taxed profit will simply be subjected to the local 15% top-up tax.
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Global Compliance: It positions Zimbabwe as compliant with international tax standards, which is important for attracting legitimate, long-term foreign direct investment.
In summary, the DMTT is Zimbabwe’s tool to enforce a 15% minimum corporate tax rate on the largest global players operating within its borders, securing tax revenues that might otherwise be lost to foreign tax authorities.
This is an excellent summary of a key policy measure related to international tax compliance, specifically Zimbabwe’s alignment with the OECD’s Pillar Two framework.
The proposed amendment focuses on refining the scope and administration of the existing Domestic Minimum Top-Up Tax (DMTT), which was introduced in Zimbabwe’s Income Tax Act (Section 12B).
Here is an analysis of the proposal, its interpretation, and its impact.
🌍 Analysis of the Amendment to Domestic Minimum Top-Up Tax (DMTT)
The proposal has two main components: establishing an applicability threshold and mandating compliance reporting.
1. The Proposal: Alignment of DMTT Threshold (Section 12B)
The amendment focuses on Section 12B of the Income Tax Act, which governs the DMTT.
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Measure: The Minister proposes to amend the application of the DMTT to only high-earning foreign entities with a minimum consolidated annual turnover threshold of EUR 750 million.
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Effective Date: 1 January 2026.
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Interpretation:
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International Standard: The EUR 750 million threshold is the global benchmark set by the Organisation for Economic Co-operation and Development (OECD) for its Pillar Two Global Anti-Base Erosion (GloBE) Rules. By adopting this figure, Zimbabwe is formally aligning its domestic tax law with the internationally agreed-upon scope of the global minimum tax (15% effective tax rate).
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Focus on Large Multinationals: This amendment confirms that the DMTT is not intended to target smaller foreign investors. It is specifically directed at very large Multinational Enterprise (MNE) Groups that have the means and history of utilizing complex cross-border tax planning to shift profits out of source jurisdictions like Zimbabwe.
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Refining the Scope: This measure clarifies which foreign entities are “in-scope” for the DMTT. Only a local subsidiary or branch of a foreign group whose ultimate parent entity has group revenue exceeding €750 million will be subject to the tax.
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2. The Mandate: Country-by-Country Reporting (CbCR)
The second part of the proposal is administrative but critical for implementation.
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Measure: Affected enterprises must furnish ZIMRA with their groups’ consolidated annual turnover at the end of every year of assessment under the Country-by-Country Reporting (CbCR) mechanism.
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Interpretation:
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CbCR Framework: CbCR is a standard component of the OECD’s Base Erosion and Profit Shifting (BEPS) Action Plan 13. It requires MNEs to report aggregate information on the global allocation of income, taxes paid, and certain indicators of economic activity across the jurisdictions in which they operate.
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Administrative Tool: This mandate provides ZIMRA with the essential data needed to enforce the DMTT. ZIMRA will use the reported consolidated annual turnover to determine if the local entity belongs to a group that meets the €750 million threshold.
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Transparency and Risk Assessment: The CbCR data will allow ZIMRA to conduct high-level tax risk assessments and identify MNEs operating in Zimbabwe that may be paying less than the 15% minimum effective tax rate required under the DMTT.
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3. Decision Impact
The decision impact, as stated in the text, is a direct reflection of the goals of the global Pillar Two initiative.
| Impact Category | Detail of Benefit | Relevance to Zimbabwe |
| Prioritization of Taxing Rights (Source Jurisdiction) | The DMTT ensures that if a foreign entity’s profit in Zimbabwe is taxed at less than 15%, Zimbabwe gets to collect the top-up tax up to 15%. | Without the DMTT, the top-up tax would be collected by the parent entity’s home country (usually a developed nation) under the GloBE rules. This measure protects Zimbabwe’s revenue base. |
| Minimizes Tax Avoidance | It eliminates the incentive for MNEs to use preferential tax regimes or aggressive transfer pricing to shift profits out of Zimbabwe, knowing that any profit taxed below 15% will incur a local top-up tax. | Creates a floor on the effective tax rate, making tax avoidance schemes less profitable. |
| Alignment with International Standards | Formal adoption of the €750 million threshold and mandated CbCR ensures Zimbabwe is recognized as complying with the global framework. | This reduces the risk of foreign jurisdictions applying their own top-up rules (like the Under-taxed Profits Rule – UTPR) to Zimbabwean entities, thereby maintaining the country’s tax sovereignty. |
| Enhanced Revenue Stability | The combination of the DMTT and CbCR increases transparency, facilitates effective tax administration, and ensures large MNEs pay a fair share. | Provides a potentially significant new revenue stream for the government, directly linking the presence of large foreign groups to a minimum tax contribution. |
📊 Summary and Next Steps
This amendment represents Zimbabwe’s commitment to maintaining its status as a “source jurisdiction” capable of exercising its primary right to tax income generated within its borders by large multinational corporations.
The flow is essentially: MNE Consolidated Revenue > €750m Local Entity’s Effective Tax Rate < 15% Zimbabwe’s DMTT is Levied (to bring the rate up to 15%). The mandatory CbCR facilitates the identification of these MNEs.
