ZAMBIA Law and Practice Contributed by: Mulenga Chiteba, Constance Namatai Mwango and Diana Chisale, Mulenga Mundashi Legal Practitioners
1. Corporate Structures, Residence and Tax Treatment 1.1 Corporate Forms and Their Tax Treatment Businesses in Zambia generally adopt a corporate form. The two main alternative forms of corporate structures are public companies and private compa - nies, which could be structured into any of the follow - ing categories: • a private company limited by shares; • a private company limited by guarantee; • an unlimited private company; • a public liability company; • a partnership; or • a sole proprietorship. Except for partnerships, these are all taxed as sepa - rate legal entities. The key differences are as follows: • a public company is one that does not impose any restrictions on the right to transfer any of its shares through its Articles of Association, other than restrictions on the right to transfer a share that has not been fully paid for, and a provision for the compulsory acquisition – or right of first refusal – of shares being transferred to other members of the company in the event of shares not being fully paid for; • a private company limited by shares is a company whose Articles limit the number of members to no more than 50; • an unlimited private company is a private company whose Articles allow for more than 50 members; • a company limited by guarantee is a company whose subscribers at incorporation make a dec - laration of guarantee specifying the amount they undertake to contribute to the assets of the com - pany in the event of the company being wound up; and • an additional category is an entity referred to as a business name, which can be either a partnership or a sole proprietorship for one or two individuals. Regardless of the category, all companies are taxed similarly. However, business names (partnerships and
sole proprietorships) are taxed differently from com - panies. 1.2 Use and Taxation of Transparent Business Structures A private company limited by shares is a commonly used structure. Investment entities, including private equity and hedge funds, prefer the route of a private company limited by shares, for the following reasons: • for the concept of separate legal personality between the members of the company and the corporate entity itself; • members are not personally liable for the debt of the company and, in the event of winding up, the liability of members is limited to the extent of their respective unpaid obligation towards the capital of the company; • there is less stringent regulatory scrutiny than applies to a public company; and • a private company is taxed on the basis of profits only, after deducting the allowable expenses of the company. 1.3 Tests for Determining Tax Residence The test used for determining the residence of incor - porated businesses and transparent entities is wheth - er they are incorporated or formed under the laws of Zambia, or whether the place of effective manage - ment and control of the entity’s business or affairs is within Zambia for the chargeable year. 1.4 Applicable Corporate and Individual Tax Rates Incorporated businesses are subject to corporation tax, which is currently 30%. The tax rate for partner - ships/business names or sole proprietorships is the rate of tax applied to individuals. The current top tax rate is 37% for any annual income in excess of ZMW110,400 (approximately USD4,049.51). The presumptive tax on a person carrying on the busi - ness of betting, lotteries and gaming is as follows: • lottery winnings (brick and mortar) – 15% of net proceeds; • online betting – 25% of gross takings; • betting (brick and mortar) – 15% of gross takings;
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