📰 Company Operation and ZIMRA Scrutiny: The Necessity of “Workers”
The question of whether a company can operate without workers, especially in the context of the Zimbabwe Revenue Authority (ZIMRA) audits, is a highly relevant issue for businesses in Zimbabwe. While legal theory allows for companies to exist without full-time employees, practical and tax realities make it a significant audit red flag.
Here is an article analyzing this matter, focusing on the legal, tax, and compliance perspective in Zimbabwe.
The Phantom Workforce: Why ZIMRA Questions Companies Without Workers
A corporate entity, such as a Private Limited Company (Pvt Ltd), is a separate legal person. Legally, it is possible for a company to exist and generate income with minimal or no traditional “employees” on its payroll. However, in the eyes of the Zimbabwe Revenue Authority (ZIMRA), the absence of a workforce is often a strong indicator of non-compliance, prompting close scrutiny during audits.
1. The Core Tax Conflict: Activity vs. Payroll
ZIMRA’s central concern is the fundamental conflict between a company reporting taxable activity (sales, revenues, or profits) and simultaneously reporting zero or minimal payroll.
| Scenario | ZIMRA’s Suspicion |
| High Revenue, Zero PAYE | If a company is selling goods or providing services, someone is doing the work. ZIMRA suspects the company is employing staff (or paying directors/owners salaries) but failing to register for and remit Pay-As-You-Earn (PAYE) income tax and related statutory deductions (NSSA, NEC, etc.). |
| Claiming Deductible Expenses | A company typically claims expenses like “consultancy fees,” “management fees,” or “sub-contractor costs.” ZIMRA will scrutinize these to determine if the paid individuals or entities were, in fact, disguised employees to avoid PAYE obligations. |
| Physical Presence | If the company has a physical office or shop, ZIMRA questions who is physically managing the premises, serving customers, or handling inventory. |
The most common outcome of such an audit is ZIMRA reclassifying the payments made to non-employees (e.g., directors’ fees or contractor payments) as deemed salaries, leading to a massive demand for retrospective PAYE, interest, and penalties.
2. The Distinction: Employee vs. Independent Contractor
For a company to legally operate without traditional employees, it must utilize independent contractors or consultants. However, ZIMRA applies stringent tests (e.g., the control, risk, and integration tests) to distinguish between the two:
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Employee: The company dictates how and when the work is done, provides tools, and integrates the worker into the organization’s structure. The company is responsible for PAYE.
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Independent Contractor: The worker provides a specific service under a contract, is responsible for their own tools and taxes, and has freedom in how they perform the work.
If ZIMRA successfully proves the “contractor” is an employee in substance, the company is liable for all the taxes it failed to withhold.
3. Essential Personnel the Company Cannot Avoid
Even a fully automated or highly contractual business usually requires certain roles, which ZIMRA uses as audit anchors:
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The Public Officer (PO): Every Zimbabwean company must appoint a Public Officer who is the formal contact point for ZIMRA. The PO is usually a director or senior manager, and they perform statutory duties that are usually remunerated.
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Directors/Shareholders: If the directors or shareholders are actively involved in the day-to-day operations and are not purely receiving dividends, any salary, commission, or fee paid to them may be subject to PAYE.
4. How to Navigate ZIMRA Scrutiny
Companies that genuinely operate with minimal or no employees must have impeccable documentation to prove their tax position:
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Written Contracts: Maintain formal, detailed contracts with every service provider (consultants, lawyers, accountants) that clearly define them as independent contractors.
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Withholding Tax (WHT): Ensure the company complies with WHT requirements on all payments made to non-tax-compliant service providers (i.e., those without a valid Tax Clearance Certificate – ITF 263). WHT payments are a record of service fees paid and can provide cover during an audit.
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Bank Account Discipline: The business must maintain clear separation between company funds and the personal funds of directors/owners. Personal expenses or drawings disguised as business costs are a major red flag.
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Board Resolutions: Document decisions regarding the Public Officer’s and Directors’ remuneration structures, clearly stipulating whether they are receiving salaries (subject to PAYE) or only dividends/fees (which may be subject to other taxes).
The bottom line is that while a company may technically exist without employees, ZIMRA auditors will always assume that business activity implies human effort, and that effort must be correctly taxed under the relevant tax head (PAYE, WHT, or Income Tax). Operating without a clear payroll structure is an open invitation for an intensive tax audit.
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