Introduction
Withholding tax is one of the most common and significant forms of taxation in Zambia. Whether you are an individual consultant, a business owner, or a foreign service provider, understanding how withholding tax applies to your services is essential for legal compliance and financial planning.
In Zambia, the Withholding Tax (WHT) system allows the Zambia Revenue Authority (ZRA) to collect tax at the source of income — meaning the person making the payment deducts a portion and remits it to ZRA.
This guide breaks down what services are subject to withholding tax in Zambia, who is responsible for deducting it, and how it affects both residents and non-residents.
1. What Is Withholding Tax and Why Does It Exist?
Withholding tax is a mechanism used by the ZRA to collect taxes upfront when payments are made for certain goods or services.
Instead of waiting for individuals or companies to declare income later, the law mandates the payer (client or employer) to deduct a fixed percentage from the payment and remit it directly to the ZRA on behalf of the service provider.
The main objectives of withholding tax are:
- To ensure efficient and early collection of revenue for the government.
- To reduce tax evasion and improve compliance.
- To simplify the tax administration process, especially for non-residents.
2. Who Should Deduct and Remit Withholding Tax?
The responsibility to withhold and remit tax rests on the payer of the income — that is, the business, government institution, or individual making a payment to the service provider.
For example:
- If a company hires a consultant, the company must deduct the appropriate withholding tax before paying the consultant.
- If a Zambian business engages a foreign contractor, it must deduct tax at the non-resident rate.
Failure to withhold and remit the correct amount to ZRA can result in penalties, interest, and disallowance of expenses for tax purposes.
3. Services Subject to Withholding Tax in Zambia
The Income Tax Act (Sections 81, 81A, and 82A) outlines several categories of income and services that are subject to withholding tax. Below are the main ones:
a) Management and Consultancy Services
This includes payments made for:
- Administrative, managerial, or consultancy services.
- Technical or professional advice.
- Legal, accounting, or IT consulting services.
Whether the service provider is resident or non-resident, withholding tax applies to such payments. The applicable rate differs based on residency status.
b) Royalties
Royalties refer to payments for the use of intellectual property, such as:
- Patents, copyrights, and trademarks.
- Designs, models, or formulas.
- Industrial, commercial, or scientific equipment.
For instance, if a Zambian firm pays a foreign software company for licensed software, that payment may attract withholding tax as a royalty.
c) Non-Resident Contractors
Payments made to non-resident contractors for services performed in Zambia are also subject to withholding tax.
This includes:
- Construction, installation, or maintenance work.
- Technical supervision.
- Cleaning or repair contracts executed by foreign entities.
These payments are usually taxed at a final rate, meaning the foreign contractor does not need to file additional tax returns in Zambia on that income.
d) Commissions
Commissions that are not part of employment income are subject to withholding tax. Examples include:
- Commissions paid to sales agents or brokers.
- Referral or incentive fees to third-party partners.
This ensures that all forms of intermediary earnings are taxed appropriately at the source.
e) Public Entertainment Fees
When non-resident entertainers, musicians, or sports professionals perform in Zambia, any payments made to them are subject to withholding tax.
Event promoters or hosts must deduct the tax before disbursing the payment to the foreign entertainer.
This ensures foreign entertainers contribute to the Zambian tax system when earning income locally.
f) Interest and Dividends
Although typically handled under separate provisions, interest and dividends also fall within the withholding tax regime.
- Interest: When paid to certain entities or non-residents.
- Dividends: When paid to shareholders, both resident and non-resident, depending on the structure and exemptions.
These taxes ensure investors and lenders contribute fairly to the tax system on their Zambian income.
g) Haulage and Transportation Services
Payments made to non-resident transport operators who carry goods or passengers into or within Zambia are often subject to withholding tax.
For example, if a foreign trucking company delivers goods from South Africa to Zambia, the Zambian client may need to deduct withholding tax before making payment.
4. Rates of Withholding Tax in Zambia
The rate of withholding tax depends on the nature of the service and whether the recipient is resident or non-resident.
Below is a general guide to the rates (subject to change by ZRA regulations):
| Type of Payment | Resident Rate | Non-Resident Rate | Tax Finality |
| Management and consultancy fees | 15% | 20% | Final for non-residents |
| Royalties | 15% | 20% | Final for non-residents |
| Commissions | 15% | 20% | Credit for residents |
| Non-resident contractor payments | N/A | 20% | Final |
| Interest | 15% | 15% or per DTA | Final |
| Dividends | 15% | 15% or per DTA | Final |
| Public entertainers | N/A | 20% | Final |
Note: These rates are subject to change, and some may be reduced under Double Taxation Agreements (DTAs) between Zambia and other countries.
5. Exemptions and Double Taxation Relief
Certain payments or entities are exempt from withholding tax or enjoy reduced rates due to DTAs.
For instance:
- Payments made to government institutions may be exempt.
- Residents of countries with a DTA with Zambia (such as the UK, South Africa, or Mauritius) may pay a lower rate.
To benefit from these exemptions or reduced rates, documentation proving residency and eligibility under the DTA must be submitted to the ZRA.
6. How to Remit Withholding Tax to ZRA
Businesses or individuals who deduct withholding tax must remit it to the ZRA within 14 days after the end of the month in which the deduction was made.
Steps include:
- Register on the ZRA TaxOnline portal.
- Complete the Withholding Tax Return form.
- Indicate details of the payee, payment date, and amount withheld.
- Generate a payment reference number (PRN).
- Make payment via bank or electronic transfer.
Failure to remit on time attracts penalties and interest charges.
7. Why Withholding Tax Matters for Businesses
Proper handling of withholding tax benefits both the business and the economy.
For businesses:
- It ensures tax compliance and avoids penalties.
- It maintains credibility with regulatory bodies and partners.
- It helps in proper bookkeeping and audit readiness.
For the economy:
- It provides steady revenue for public services and infrastructure.
- It reduces tax evasion.
- It encourages accountability among taxpayers.
8. Common Mistakes to Avoid
Many businesses in Zambia face tax compliance challenges due to misunderstanding withholding tax obligations. Common errors include:
- Failing to deduct tax on qualifying payments.
- Using wrong tax rates for non-residents.
- Late remittance to ZRA.
- Incorrect reporting of withholding tax returns.
To avoid these issues, it is recommended to consult a tax expert or accountant familiar with Zambian tax laws.
Conclusion
Withholding tax in Zambia plays a critical role in ensuring fair taxation and compliance. It applies to a wide range of services — from consultancy and management to royalties, commissions, and foreign contractor payments.
Understanding which services are subject to withholding tax helps businesses plan better, avoid penalties, and maintain transparent financial practices.
For any business operating in Zambia — whether local or foreign — mastering the withholding tax framework is not just about compliance; it’s a strategic move toward sustainable growth and trust with the Zambia Revenue Authority.
