What is Withholding Tax System?

Mechanism allowing for the collection of taxes at source. Process enables tax to be secured early, increasing collection efficiency. Most viable way of collecting taxes from non-residents with no place of business in Zimbabwe.Paying entity pays a net amount to the recipient, remitting the tax withheld to ZIMRA.

All Withholding Tax in terms of the Income Tax Act.

Withholding Tax on Contracts-Section 80.

Withholding tax of 30% should be deducted from payments of more than US$1,000 or ZWL130,000 per annum to residents in respect of contracts unless a valid tax clearance certificate (ITF263) is provided by the payee. The deduction of withholding tax is predicated on a person being a payee.https://lucent.co.zw/what-is-30-withholding-tax-on-tenders/tax/.

Withholding tax is not deductible on persons who are not payees. They are not required to produce tax clearance certificates to be paid. The following are exempt from 30% withholding Tax.

• Payment of taxes to ZIMRA.
• Payments made to employees.
• A sale effected in any shop in the ordinary course of the business of such shop.
• Tax payments and any delict claim against the State.
• Payments to non-resident persons in respect of fees, royalties and remittances.

Resident and Non-Resident Shareholders Tax

Dividends paid to non-resident shareholders and resident individuals, Partnerships and Trusts attract withholding taxes as below;

• Dividend from Listed Companies 10%
• Dividend from all other companies 15%

Non-Residents Tax on Fees

Non-resident person means – a person, other than a company, who; or a partnership or foreign company which is not ordinarily resident in Zimbabwe. The definition is met any time that a resident tax payer in Zimbabwe makes payments to a foreign resident entity or individual.

Fees – means any amount from a source within Zimbabwe payable in respect of any services of a technical, managerial, administrative or consultative nature.

Every payer of fees to a non-resident person shall withhold non-residents’ tax on fees from those fees. The withholding tax rate is 15%.

Non-Resident Tax on Remittances.

Non-resident person who effects any remittance in respect of allocable expenditure shall in relation to such remittance pay non-residents’ tax on remittances to ZIMRA. The rate of the withholding tax is 15%.

Non-Resident tax on royalties.

Every payer of royalties to a non-resident person shall withhold non-residents’ tax at 15% on royalties from those royalties.

Resident Tax on Interest

15% should be withheld from interest paid by a financial institution.

Non-Executive Directors Fees.

20% should be withheld from payments to resident and non-resident non-executive directors who are not subject to PAYE. Non-executive director’s fee qualifies as business income and tax withheld is deductible from income tax payable. The effect is that 20% withholding tax to be deducted by the company on directors’ fees is now a final tax.