Analysing the tax implications of IT‑related service agreements in Zimbabwe, using your illustrative transaction between IT Guru, Bank X and GoDaddy. The discussion is grounded in Zimbabwean tax legislation, ZIMRA practice, and relevant case law, with statutory references and authorities cited throughout.
A Critical Analysis of Hosting and Antivirus Services Arrangements.
1. Introduction
The digitalisation of financial institutions has resulted in increased reliance on Information Technology (IT) service providers for critical infrastructure such as domain hosting, cybersecurity, antivirus protection, and cloud-based data management. In Zimbabwe, these arrangements raise complex tax questions, particularly where services are rendered locally but supported by offshore digital service providers.
This article analyses the Zimbabwean tax implications of a typical IT services arrangement involving IT Guru, a Zimbabwean resident IT company; Bank X, a resident commercial bank; and GoDaddy, an offshore hosting provider. The analysis focuses on Income Tax, Withholding Tax, Non‑Resident Tax on Fees (NRWT), Value Added Tax (VAT), and the Digital Services Withholding Tax (DSWT), with reference to the Income Tax Act [Chapter 23:06], the VAT Act [Chapter 23:12], relevant Finance Acts, and authoritative court decisions.
2. Overview of the Transaction Structure
Under the arrangement:
- IT Guru enters into a service agreement with Bank X to provide:
- Domain hosting management
- Antivirus and cybersecurity services
- Bank X pays:
- A consolidated service fee
- Hosting levies billed by IT Guru
- IT Guru, in turn:
- Pays GoDaddy for hosting services (offshore payment)
- Retains a margin for services rendered locally
This structure raises questions of source of income, characterisation of payments, and tax withholding obligations at each transactional layer.
3. Income Tax Implications
3.1 Source of Income Principle
Zimbabwe operates a source-based income tax system. Section 12(1) of the Income Tax Act provides that income is taxable if it is derived from a source within, or deemed to be within, Zimbabwe.
The courts have consistently held that the source of income from services is the place where the services are rendered, not where payment is made. This principle was affirmed in Standard Chartered Bank Zimbabwe Ltd v ZIMRA (SC 23/18), where the Supreme Court emphasised substance over billing mechanics in determining tax liability.
3.2 Tax Position of IT Guru
IT Guru renders IT support, system administration, and cybersecurity oversight within Zimbabwe. Accordingly:
- Its service income from Bank X is Zimbabwe‑sourced
- The income is subject to corporate income tax under section 6 of the Income Tax Act.
- Allowable deductions may be claimed under section 15, including:
- Hosting fees paid to GoDaddy
- Antivirus licence costs
- Operational expenses directly incurred in earning income
However, section 16 disallows deductions for expenses not incurred in the production of income, necessitating proper contractual documentation separating local services from pass‑through costs.
4. Withholding Tax on Payments by Bank X to IT Guru
Payments by Bank X to IT Guru constitute fees for technical and professional services.
- Under section 80 of the Income Tax Act, a 10% withholding tax applies to resident service providers unless the service provider presents a valid ITF 263 Tax Clearance Certificate.
- If IT Guru furnishes an ITF 263, Bank X is not required to withhold.
- If not, Bank X must withhold and remit withholding tax by the 10th of the following month.
In Delta Corporation Ltd v ZIMRA (HH 621/15), the court held that withholding tax obligations fall squarely on the payer, irrespective of whether the recipient later declares the income. This underscores compliance risk for financial institutions like Bank X.
5. Non‑Resident Tax on Fees (NRWT): IT Guru to GoDaddy
5.1 Characterisation of Hosting Fees
Payments by IT Guru to GoDaddy raise NRWT considerations under section 30 of the Income Tax Act, read together with the 17th Schedule.
The key question is whether domain hosting constitutes:
- Technical services
- Royalties
- Or purely automated electronic services
Zimbabwean jurisprudence favours a functional analysis. In M Company (Pvt) Ltd v ZIMRA (SC 98/21), the Supreme Court ruled that payments for offshore facilitation services constituted fees, not reimbursements, and were subject to NRWT.
5.2 NRWT Implications
- Hosting services provided by GoDaddy are used in Zimbabwe
- The income is deemed Zimbabwe‑sourced under section 12A (income deemed from a source within Zimbabwe)
- IT Guru is required to withhold 15% NRWT on gross payments to GoDaddy
Failure to withhold exposes IT Guru to:
- Tax assessments
- Penalties
- Interest under section 46 of the Act
This principle mirrors the court’s reasoning in G Bank Zimbabwe Ltd v ZIMRA (HH 207/15) concerning foreign service providers paid through interbank arrangements.
6. VAT Implications
6.1 VAT on IT Services by IT Guru
Under section 6(1)(a) of the VAT Act, the supply of services by a registered operator in Zimbabwe is subject to VAT at 15.5%.
Accordingly:
- IT Guru must charge output VAT on fees invoiced to Bank X
- Bank X may claim input VAT if services are taxable and used in making taxable supplies
6.2 Imported Services: GoDaddy Hosting
Historically, imported services were self‑accounted for VAT by the recipient under section 13(1). However, section 13A, as amended effective 1 January 2026, introduced the Digital Services Withholding Tax mechanism.
Hosting services fall squarely within:
- Cloud computing
- Electronic services
- Platform‑mediated digital services
7. Digital Services Withholding Tax (DSWT)
Under the 2026 amendments:
- Zimbabwean financial institutions are required to withhold VAT when payments are made to offshore digital service providers
- The withholding rate is:
- 15.5% where the supplier is not VAT‑registered in Zimbabwe
- 3/23 VAT fraction if the supplier is registered
If IT Guru pays GoDaddy through a Zimbabwean bank, the bank acts as the withholding agent, remitting VAT to ZIMRA. This was clarified in Public Notice 05 of 2026.
The Ministry of Finance has confirmed that DSWT is not a new tax, but an administrative mechanism to enforce VAT on digital imports.
8. Risk of Double Taxation and Relief
Zimbabwe has Double Taxation Agreements (DTAs) with several jurisdictions. If GoDaddy is resident in a treaty country:
- NRWT rates may be reduced or eliminated
- VAT obligations remain unaffected, as VAT is a consumption tax
Section 24 of the Income Tax Act gives treaty provisions precedence over domestic legislation.
9. Compliance Risks and Practical Issues
Key risks in IT‑related agreements include:
- Misclassification of hosting fees as reimbursements
- Failure to withhold NRWT
- Non‑compliance with DSWT mechanisms
- Poor contract drafting that does not separate:
- Local services
- Offshore digital components
In PL Mines (Pvt) Ltd v ZIMRA, the court emphasised that commercial undertakings cannot override statutory tax obligations. Businesses must therefore structure IT agreements with tax compliance embedded.
10. Conclusion
IT‑related service agreements in Zimbabwe sit at the intersection of income tax, withholding tax, and VAT, increasingly influenced by global digital tax reforms. In the IT Guru–Bank X–GoDaddy structure:
- IT Guru’s income is fully taxable in Zimbabwe
- Bank X bears withholding obligations unless exemption certificates are produced
- Payments to GoDaddy trigger NRWT and DSWT exposure
- VAT compliance has shifted from self‑assessment to withholding at source
The evolving legislative framework, supported by judicial authority, signals ZIMRA’s firm stance on taxing digital value creation within Zimbabwe. Careful contract drafting, accurate tax characterisation, and proactive compliance are essential to mitigate risk in IT service transactions.
Author’s Note:
This article is for academic and professional discussion purposes and does not constitute legal or tax advice. For transaction‑specific guidance, professional consultation is recommended.
