Tax implication on Transfer of Shares by Foreigners : Indigenisation and Economic Empowerment Act

Under the Finance Act (No. 7) of 2025 (which supports the 2026 National Budget), the tax landscape in Zimbabwe remains focused on revenue mobilization and local participation. While the general Indigenisation and Economic Empowerment Act was significantly liberalized in recent years, specific “Reserved Sectors” and mineral-related requirements still trigger ownership transfers.

If a foreign entity sells a 25% stake to local investors to comply with these regulations, the tax implications are primarily governed by the Capital Gains Tax (CGT) Act as amended by the Finance Act of 2025.

1. The Tax Implication: Capital Gains Tax (CGT)

The sale of a 25% stake in a company is treated as a disposal of a “marketable security.” The tax payable depends on whether the company is listed on a stock exchange or is a private (unlisted) entity.

• For Unlisted (Private) Shares: The tax is charged at 20% of the capital gain.

  • Calculation: Capital\ Gain = Selling\ Price – (Original\ Purchase\ Price + Allowable\ Costs).

  • Note: If the shares were acquired before February 1, 2009, a flat rate of 5% of the gross sale price typically applies instead.

• For Listed Shares (ZSE/VFEX):If the shares are traded on the Zimbabwe Stock Exchange (ZSE) or Victoria Falls Stock Exchange (VFEX), the rate is much lower, typically 1% to 1.5% of the gross sale value (withholding tax), which acts as a final tax.

2. Who Pays the Tax?

• The Seller (Foreigner): Under Zimbabwean law, the liability to pay Capital Gains Tax falls on the seller. The foreign entity disposing of the 25% stake is responsible for the tax on the profit they realize from the sale.

• The Withholding Agent (Buyer/Depositary): While the seller owes the tax, the Finance Act requires the buyer (or a legal practitioner/stockbroker acting as a “depositary”) to withhold the tax from the purchase price and remit it directly to the Zimbabwe Revenue Authority (ZIMRA).

3. Key Considerations under Finance Act 7 of 2025

• Currency of Payment: If the sale is conducted in foreign currency (USD), the tax must be paid in foreign currency.

• Reserved Sectors: The 2025 Act expanded the list of “Reserved Sectors” (e.g., quarry mining, brick moulding). If the 25% sale is part of a “regularization” for a company in these sectors, ZIMRA requires a Capital Gains Tax Clearance Certificate before the share transfer can be legally registered.

• Valuation Oversight: Section 14 of the CGT Act allows the ZIMRA Commissioner to challenge the sale price if it is deemed to be below the “fair market value.” This is particularly relevant in indigenisation deals where shares might be sold at a discount to locals.

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