An analysis of Non‑Residents’ Tax on Royalties in Zimbabwe, focusing on how it arises, its statutory mechanics, compliance obligations, and judicial interpretation, firmly grounded in the Income Tax Act [Chapter 23:06], the Nineteenth Schedule, and leading Zimbabwean tax cases.
Non‑Residents’ Tax on Royalties in Zimbabwe: How It Arises, Legislative Framework, and Judicial Interpretation
1. Introduction
Non‑Residents’ Tax on Royalties (NRTR) is a key withholding tax within Zimbabwe’s international tax regime, designed to ensure that income derived from the exploitation of intellectual property, know‑how, and industrial equipment within Zimbabwe is taxed locally, even where the recipient is not resident in Zimbabwe. The tax reflects the source‑based principle of taxation, whereby income is taxed in the jurisdiction where it arises, rather than where the recipient is resident.
The legislative framework for NRTR is primarily contained in sections 32 and 96 of the Income Tax Act [Chapter 23:06], read together with the Nineteenth Schedule. Over time, this framework has been refined to combat profit shifting, protect the domestic tax base, and align Zimbabwe’s tax system with international norms.
This article examines:
- the statutory basis of NRTR;
- how and when the tax arises;
- the nature and scope of “royalties”;
- withholding and enforcement mechanisms;
- penalties, interest, and refunds; and
- how Zimbabwean courts have interpreted and applied these provisions.
2. Statutory Basis of Non‑Residents’ Tax on Royalties
The charging authority for NRTR is found in section 32 of the Income Tax Act, which imposes tax on royalties payable to non‑resident persons, while section 96 provides enforcement and recovery mechanisms. The detailed operational rules are contained in the Nineteenth Schedule, which forms the backbone of the tax.
Unlike normal income tax, NRTR is a withholding tax collected at source, making it a final tax in Zimbabwe in respect of that income. This ensures efficiency of collection and minimises enforcement difficulties across borders.
3. Purpose and Policy Rationale
NRTR serves several critical policy objectives:
- Protection of the tax base – preventing the erosion of taxable profits through royalty payments to offshore related parties.
- Source‑based taxation – ensuring that economic value created by the use of intellectual property and technology in Zimbabwe is taxed locally.
- Administrative efficiency – collecting tax at source from the payer reduces reliance on foreign recipients for compliance.
- Anti‑avoidance – limiting the ability of multinational enterprises to extract profits through excessive royalty charges.
These objectives are particularly important in developing economies where intellectual property and industrial equipment are frequently owned offshore.
4. Key Definitions under the Nineteenth Schedule
4.1 Non‑Resident Person
A non‑resident person includes:
- non‑resident individuals;
- partnerships not ordinarily resident in Zimbabwe; and
- foreign companies.
The definition expressly excludes licensed investors with qualifying export orientation, reflecting Zimbabwe’s investment‑promotion policy.
Residence for purposes of withholding is determined on the date the royalties are paid, preventing manipulation of residence status.
4.2 Meaning of “Royalties”
The definition of royalties is deliberately broad. It includes amounts payable as consideration for:
- the use of, or right to use, copyright works;
- patents, trademarks, designs, models, and secret processes;
- industrial, commercial, or scientific equipment; and
- information concerning industrial, commercial, or scientific experience.
This wide formulation ensures that payments commonly used in technology licensing, franchising, mining, telecommunications, and broadcasting fall within the tax net.
4.3 Statutory Exclusions
Royalties do not include amounts payable in respect of:
- projects specifically exempted by the Minister through statutory instruments (for example, infrastructure or utility projects);
- projects covered by international agreements entered into by the Government of Zimbabwe and approved under the International Treaties Act.
These exclusions reflect policy‑driven exemptions rather than interpretative gaps.
5. Source Rules: When Royalties Are Deemed to Arise in Zimbabwe
Under paragraph 1(2) of the Nineteenth Schedule, royalties are deemed to be from a source within Zimbabwe if:
- the payer is ordinarily resident in Zimbabwe; or
- the royalties are payable by virtue of the use or right to use intellectual property or equipment in Zimbabwe.
This dual test ensures that NRTR applies even where:
- the payer is offshore, but the intellectual property is used in Zimbabwe; or
- the payer is resident, regardless of where the payee is located.
6. How Non‑Residents’ Tax on Royalties Arises
6.1 The Charging Event
NRTR arises when:
- royalties are paid or deemed to be paid by a payer; and
- the payee is a non‑resident person at the time of payment; and
- the royalties are deemed to be from a source within Zimbabwe.
The tax is triggered not only by actual payment but also where royalties are:
- credited to the payee’s account; or
- otherwise dealt with so that the payee becomes entitled to them.
This rule prevents indefinite deferral of tax through accounting devices.
6.2 Timing of Liability
The obligation to withhold and remit NRTR arises on the date of payment or deemed payment, and the tax must be paid to the Commissioner within 10 days.
This short statutory window underscores the “collect‑before‑remit” philosophy underlying withholding taxes.
7. Persons Responsible for Withholding
7.1 Primary Obligation of the Payer
Paragraph 2 imposes the primary duty to withhold NRTR on every payer of royalties to a non‑resident person. This includes:
- private companies;
- partnerships;
- statutory corporations; and
- the State itself.
Failure to comply exposes the payer to both tax liability and penalties.
7.2 Role of Agents
Where the payer fails to withhold, agents who receive royalties on behalf of non‑resident payees are required to withhold and remit the tax. The Schedule deems a person to be an agent where:
- their address appears in the payer’s records; and
- royalty payments are delivered to them.
This ensures that NRTR remains collectible even where the primary withholding mechanism breaks down.
7.3 Residual Liability of the Payee
If neither the payer nor an agent withholds the tax, the non‑resident payee becomes directly liable to pay NRTR within 10 days of receipt. This layered liability structure reinforces the enforceability of the tax.
8. Certificates and Compliance Requirements
Payers and agents must issue withholding tax certificates, specifying:
- the gross amount of royalties; and
- the amount of NRTR withheld.
Failure to issue accurate certificates constitutes a criminal offence, with enhanced penalties where wilfulness is proved.
9. Penalties and Interest
9.1 Penalty for Non‑Withholding
Where NRTR is not withheld or remitted:
- the defaulter is liable for the unpaid tax; plus
- an additional penalty equal to 100% of the tax.
This penalty regime reflects the legislature’s view that failure to withhold is a serious threat to revenue collection.
9.2 Interest and Judicial Authority
The entitlement of ZIMRA to charge interest was judicially considered in Air Zimbabwe Corporation & 10 Others v ZIMRA 03‑HH‑096. The High Court held that:
ZIMRA may only charge interest where such interest is expressly authorised by statute.
This case is particularly significant for NRTR because it affirms that:
- penalties and interest must have a clear legislative basis; and
- administrative convenience cannot override statutory limits.
9.3 Remission of Penalties
The Commissioner has discretion to waive penalties where failure to withhold was not due to intent to evade tax, introducing proportionality into enforcement.
10. Refunds of Non‑Residents’ Tax on Royalties
Paragraph 7 provides for refunds where:
- NRTR has been charged in excess; or
- tax was incorrectly withheld.
However, refund claims must be lodged within six years of payment, after which the claim becomes time‑barred.
This reflects the balance between taxpayer protection and fiscal finality.
11. NRTR in the Wider Tax System
NRTR must be read alongside:
- Non‑Residents’ Tax on Fees;
- Non‑Residents’ Tax on Remittances; and
- Non‑Resident Shareholders’ Tax.
Each tax targets a different form of outbound income, with NRTR focusing specifically on the exploitation of intellectual property and technical know‑how in Zimbabwe.
12. Conclusion
Non‑Residents’ Tax on Royalties is a cornerstone of Zimbabwe’s source‑based international tax regime. It arises whenever royalties from a Zimbabwean source are paid or deemed to be paid to a non‑resident person, and it is enforced primarily through withholding at source.
The Nineteenth Schedule provides a comprehensive framework governing source rules, withholding obligations, penalties, and refunds. Judicial decisions such as Air Zimbabwe Corporation v ZIMRA reinforce the principle that while the tax must be effectively enforced, both liability and sanctions must remain firmly rooted in statute.
As Zimbabwe continues to rely on technology transfer, licensing, and foreign expertise, NRTR will remain a vital mechanism for protecting the national tax base while balancing investor confidence and legal certainty.
