Introduction
I advise clients on wide ranging business transactions. These may include mergers, where businesses combine, acquisitions where business are acquired, purchase of mining assets such as claims, sale and purchase of immovable properties, joint ventures, profit sharing arrangements and many other. It is unbelievable how people overlook possible tax obligations arising from such transactions. In this article I share with you some of the obligations to look out for.
Taxes
Possible taxes include some of those listed below.
- Value Added Tax (“VAT”).
- Capital Gains Tax (“CGT”).
- Special Capital Gains Tax (“SCGT”).
- Income Tax (PAYE, Corporate Tax).
- Withholding Taxes.
I will address some of the taxes below.
Value Added Tax (“VAT”)
This tax arises from the Value Added Tax Act (Chapter 23:12) or “VAT Act”. According to section 6 of the VAT Act, there shall be charged, levied and collected, for the benefit of the Consolidated Revenue Fund a tax at such rate as may be fixed by the Charging Act on the value of:-
- the supply by any registered operator of goods or services supplied by him on or after the 1st January, 2004, in the course or furtherance of any trade carried on by him.
- the importation of any goods into Zimbabwe by any person on or after the 1st January, 2004.
- the supply of any imported services by any person on or after the 1st January, 2004.
- goods and services sold through an auctioneer.
The price of goods or services should be stated clearly whether they are exclusive or inclusive of VAT.
It is always advisable to check whether the seller of goods or provider of services is registered for VAT as such person will be required to charge VAT unless the products are exempted or zero rated. VAT has the effect of increasing the selling price on the part of the purchaser and may become a permanent cost if it cannot be recovered through input VAT claim.
It is quite common for some companies in a group of companies to transact with each other. This may give rise to VAT payable to ZIMRA.
Capital Gains Tax
This is charged in terms of section 6 of the Capital Gains Tax Act (Chapter 23:01) or “CGT Act”. Section 6 of the CGT Act there shall be charged, levied and collected throughout Zimbabwe for the benefit of the Consolidated Revenue Fund a capital gains tax in respect of the capital gains, as defined in this Part, received by or accrued to or in favour of any person during any year of assessment.
According to the CGT Act, CGT is a tax levied on the capital gain arising from the disposal of a specified asset. Specified asset means immovable property (for example land and buildings) and any marketable security (for example shares).
CGT is known by many people with respect to the sale of immovable properties and shares. I have been consulted by many prospective sellers seeking to understand CGT payable on a transaction and an estimate of the seller’s net proceeds.
Income Tax
Income Tax is regulated by the Income Tax Act (Chapter 23:06). It comes in the form of Pay As You Earn (“PAYE”) for taxable earnings arising from employment or in the form of Corporate Tax for taxable earnings from business.
PAYE is understood by many people. It is further simplified by the existence of tax tables which are updated regularly. Corporate Tax is not understood by many people but by people such as Accountants, tax advisors and to some extent tax lawyers.
Corporate tax consideration will determine for example deal structures such as joint venture, profit sharing or even mergers and acquisitions of business. Even group restructuring may be done to benefit from taxes.
Conclusion
It is advisable to consider tax implications on business transactions. I especially advise parties to consider the effect of VAT, CGT, SCGT and corporate tax.
Disclaimer
This simplified article is for general information purposes only and does not constitute the writer’s professional advice.
Godknows (GK) Hofisi, LLB(UNISA), B.Acc(UZ), Hons B.Compt (UNISA), CA(Z), ACCA (Business Valuations) MBA(EBS, Heriot- Watt, UK) is the Managing Partner of Hofisi & Partners Commercial Attorneys, chartered accountant, insolvency practitioner, commercial arbitrator, registered tax accountant and advises on deals and transactions. He has extensive experience from industry and commerce and is a former World Bank staffer in the Resource Management Unit. He was recently appointed to sit on the Council of Estate Administrators in Zimbabwe. He writes in his personal capacity. He can be contacted on +263 772 246 900 or ghofisi@hofisilaw.com or gohofisi@gmail.com. Visit www//:hofisilaw.com for more articles.
