ZAMBIA Law and Practice Contributed by: Mulenga Chiteba, Constance Namatai Mwango and Diana Chisale, Mulenga Mundashi Legal Practitioners
incorporated in the Republic by the company incor - porated outside the Republic, expressed as a per - centage. There is an exemption from the payment of proper - ty transfer tax for indirect transfers arising out of a group reorganisation where the shareholding does or does not change in the Zambian entity. However, the exemption is only available to companies that have been part of the group of companies for at least three consecutive years preceding the group restructuring. If the shares are in a publicly listed and traded com - pany, there will be no property transfer tax. 5.4 Tax Implications of Change of Control There are no change of control provisions that could trigger tax or duty charges. 5.5 Formula-Based Income Attribution No formulas are used because local affiliates of for - eign-owned companies are treated as independent entities that are selling goods and services in Zambia. 5.6 Deductibility of Intra-Group Management and Administrative Charges If a local affiliate makes a payment for management and administrative expenses incurred by a non-local affiliate, the local affiliate should be able to demon - strate that the transaction is on an “arm’s length” basis in order for the expense to be allowed as a deduction, in accordance with the Transfer Pricing Regulations. 5.7 Restraints on Related-Party Borrowing The only restriction on related-party borrowing is that the interest rates charged by non-local affiliates to local affiliates should be charged on an “arm’s length” basis in accordance with the Transfer Pricing Regula - tions. 6. Taxation of Foreign Income of Local Corporations 6.1 Foreign Income Exemptions Zambian income taxation is based on the principles of “residence” and “source”. Corporate tax will not be imposed on a local corporation’s income that is not
derived from a source within Zambia or not deemed to be derived from within Zambia. However, interest and dividends received by local corporations from a source outside Zambia will be subject to Zambian corporate tax. 6.2 Non-Deductible Local Expenses The following are non-deductible expenses as pre - scribed under the Income Tax Act: • capital expenditure or loss of capital, other than loss of stock in trade, unless specifically permitted under the Act; • any loss or expense that is recoverable under any insurance contract or indemnity; and • any tax or penalty chargeable under the Act. 6.3 Dividends From Foreign Subsidiaries Dividends from foreign subsidiaries of local corpora - tions are taxed at the standard corporate tax rate of 30% on the basis that they constitute income accru - ing to the local corporation. 6.4 Taxation of Intangibles Developed by Local Corporations Intangibles developed by local corporations can be used by non-local subsidiaries in their business with - out incurring local corporate tax, as there are no regu - lations covering this. 6.5 Controlled Foreign Corporation-Type Rules There is no tax on local corporations in respect of the income of their non-local subsidiaries; this also applies to non-local branches of local corporations. 6.6 The Substance of Non-Local Affiliates No rules related to the substance of non-local affili - ates apply. 6.7 The Sale of Shares in Non-Local Affiliates If a local corporation receives income on the sale of shares in a non-local affiliate, it will be considered as income and will be subject to local corporate tax.
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