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In order to develop and enhance Zambia’s economic relationship with the United Arab Emirates (the UAE), Zambia and the UAE have negotiated and concluded a double taxation agreement (DTA) which was published in Zambia’s Government Gazette on Wednesday, 11 January 2023. The DTA is therefore in force in Zambia and applies to persons that are residents of Zambia and/ or the UAE (collectively, the “Contracting States”). We accordingly highlight the salient provisions of the DTA from a Zambian law perspective.
Taxes Covered by the Double Tax Agreements
The DTA applies to “income tax” in Zambia, and “income tax” and “corporate tax” in the UAE, irrespective of the manner in which the taxes are levied. The DTA will further apply to any identical or substantially similar taxes which may be imposed (in addition to, or in place of, the taxes as mentioned above) under the laws of a Contracting State after the date of signature of the DTA.
Taxation of Business Profits under the Double Tax Agreements
The profits of an enterprise resident in a Contracting State will only be taxable in that Contracting State, unless the enterprise carries on business in the other Contracting State through a permanent establishment (PE) that is situated in the other Contracting State. To this extent, under the DTA, a Zambian enterprise would be deemed to have created a PE in the UAE, if, inter alia, “substantial, mechanical, scientific equipment or machinery was used for more than 18 months or installed in the UAE by, for, or under contract with the Zambian Enterprise. The profits of the Zambian enterprise attributable to the PE created in the UAE would therefore be taxable in the UAE.
MIitigation of Double Taxation on the Payment of Dividends, Interest, Royalties and Technical Fees
Prior to the enactment of the DTA, Fees paid by Zambian residents to residents of the UAE were subject to withholding tax (WHT) at 20 percent. With the enactment of the DTA, Fees paid by a company resident in Zambia (ZambiaCo) to a resident of the UAE, may be taxed in the UAE. Despite this, Fees paid by ZambiaCo may also be taxed in Zambia in accordance with the specific provisions of Zambia’s Income Tax Act applicable to each of the “individual” Fees – however, if the beneficial owner of the Fees is a resident of the UAE, then the WHT charged on the Fees in Zambia must not exceed 5 percent of the gross amount of the “individual” Fees paid to the resident of the UAE. Notwithstanding the above, if the beneficial owner of the Fees is the UAE (itself) or any of the UAE’s political subdivisions or a local governmental authority, then the Fees paid by ZambiaCo shall only be taxable in the UAE.
Income from Employment
In terms of the DTA, salaries and wages (the Remuneration) earned by a resident of Zambia will only be taxable in Zambia, unless the employment is exercised in the UAE, in which case, the Remuneration earned by the employee while in the UAE would be taxed in the UAE. However, if:
then the Remuneration earned would only be taxable in Zambia, despite the employee spending some time working in the UAE.
The DTA is currently in force in Zambia and parties seeking to mitigate their tax exposure must bear in mind that the benefits under the DTA do not apply automatically and parties must apply for a limited deduction directive in order to take advantage of the benefits under the DTA.
Should you have any questions on the amendments to the Mines Act, please do not hesitate to contact Arshad Dudhia.
1. Emmanuel Manda – Senior Associate
2. Innocent Mung’omba – Associate
3. Samuel Muleya – Legal Assistant