Incentives for Manufacturing Investments in Zambia: A Comprehensive Guide

Zambia has positioned itself as a premier investment destination for manufacturing, leveraging various fiscal incentives, customs duty exemptions, and supportive regulatory frameworks. With proactive policies such as the Investment, Trade and Business Development Act (ITBD) of 2022, Zambia Development Agency (ZDA), and Zambia Revenue Authority (ZRA) guidelines, the country offers a conducive environment for manufacturing enterprises. This guide details the incentives, their eligibility criteria, and their implications for sectoral development.

Fiscal Incentives for Manufacturers

Corporate Tax Benefits and Allowances

Manufacturing enterprises in Zambia receive favorable tax treatments, significantly boosting profitability and reducing initial investment burdens. Notably:

• Reduced Corporate Tax: Firms producing organic and chemical fertilizers pay only a 15% corporate tax rate compared to the standard 30%.
• Accelerated Depreciation: Manufacturers can fully depreciate machinery and equipment costs within the first year, immediately reducing taxable income.

Tax Holidays

Investors in priority sectors, including agro-processing, textiles, and mineral beneficiation, benefit greatly from Multi-Facility Economic Zones (MFEZs). They enjoy:

• 0% corporate tax for the initial ten years.
• Gradually increasing taxes afterward: 50% taxation in years 11-13 and 75% taxation in years 14-15.

Customs Duty Exemptions and Rebates

Duty-Free Imports

Manufacturers benefit from significant customs duty reductions on essential inputs, including:

• Reduced duty rates (5–15%) on capital equipment and industrial machinery.
• Zero-duty imports for raw materials used in textile and metal processing within MFEZs.

Sector-Specific Rebates

Zambia provides specific rebates aligned with national growth priorities:

• Construction materials for roofing sheets and tiles receive full customs duty rebates.
• Automotive assembly components, including engines and transmissions, enjoy duty-free status, subject to local content criteria.

Multi-Facility Economic Zones (MFEZs)

Streamlined Regulation and Infrastructure

MFEZs offer advantageous conditions such as:

• Fast-tracked business licensing and flexible zoning regulations.
• VAT exemptions on imported construction materials and machinery within the zones.

Dividend and Profit Repatriation

To attract international investors, Zambia offers:

• 0% withholding tax on dividends during the initial ten-year period in MFEZs.
• A capped withholding tax rate of 15% post-tax holiday, below regional averages.

Value-Added Tax (VAT) Incentives

Input Tax Credits

Manufacturers can claim VAT refunds for pre-production expenses incurred up to two years before business commencement, enhancing cash flow.

Export VAT Refunds

Through the Commercial Exporters Scheme, VAT refunds on exports are expedited, typically within 30 days, significantly improving liquidity for export-oriented enterprises.

SME Inclusion and Investment Thresholds

Reduced Capital Requirements

Zambia has lowered the investment threshold for local SMEs to $50,000, enabling easier access to manufacturing incentives. Joint ventures with a 25% local stake qualify at $150,000, further encouraging partnerships.

Rural Manufacturing Support

Manufacturing ventures in rural areas benefit from:

• 50–100% accelerated depreciation.
• A five-year corporate tax holiday.

Targeted Sector Programs

Agro-processing Initiatives

The Farm Block Development Program offers land leases, infrastructure, and tax incentives to agro-processors, significantly reducing setup costs.

Mineral Beneficiation and Metalworking

Zambia provides zero-rated VAT on mining inputs for local manufacturing, fostering value addition in the mining sector.

Strategic Outlook and Recommendations

Despite robust incentives, challenges remain in administrative efficiency, notably VAT refund delays. Strategic future enhancements should include:

• Digitalizing incentive application processes.
• Expanding rural agro-processing linkages.
• Introducing renewable energy incentives aligned with global sustainability trends.

Implementing these strategies will reinforce Zambia’s position as a top regional hub for sustainable, diversified manufacturing investments.