Corporate Tax News Issue 59 - July 2021

Tax authorities revise compliance obligations due to COVID-19

The Commissioner General of Zimbabwe’s revenue authority (ZIMRA) issued a notice on 26 March 2021 that extends the deadline for the submission of tax returns relating to the 2020 calendar year. The extension was granted due to the lockdown imposed to deal with the COVID-19 pandemic.

Due date extension

The due dates for submission of the income tax return (and the transfer pricing return, where required) are extended as follows:

  • 30 June 2021 for “small” taxpayers
  • 31 July 2021 for “medium-sized” taxpayers
  • 31 August 2021 for “large” taxpayers and persons engaging in transactions with domestic and/or foreign related parties.

Preparation of corporate income tax return 

The Reserve Bank of Zimbabwe reintroduced the multicurrency system through Statutory Instrument No. 85 of 2020. The instrument legalised the use of foreign currency for transactions carried out within Zimbabwe to make it easier for Zimbabweans to transact during the COVID-19 crisis. 

With effect from 1 January 2021, businesses are required to pay corporate income tax in foreign currency based on gross foreign currency receipts remaining after deducting the prescribed retention or liquidation thresholds. Following these changes, taxpayers can use the following options to compute their tax liability:

Option 1: Zimbabwe dollar income tax return: Taxpayers whose gross income is in both foreign currency and Zimbabwe dollars can compute their tax liability by combining the foreign income with the domestic income using the applicable exchange rates and then calculate the total tax liability in Zimbabwe dollars.

Sections 4 (A) (1) (c) and (b) of the Finance Act No. 2 of 2020 (Chapter 23:04) provide guidance to taxpayers that derive both domestic and foreign income and who must apportion the income. Tax on income earned in foreign currency is paid in foreign currency and tax on income earned in Zimbabwe dollars is paid in local currency. Income tax returns generally are completed in Zimbabwe dollars, and where a taxpayer has both foreign and Zimbabwe income, a single return is submitted with a combined tax liability set out in Zimbabwe dollars.

Option 2: Separate income tax returns: Taxpayers with gross income in both local and foreign currency can prepare and submit separate income tax returns for taxable income accrued or received in the respective currencies. However, the taxpayer must submit a written application to the Commissioner detailing its positions and attach the income tax return to the application. Where apportionment of allowable deductions is required, taxpayers are required to apportion based on the contribution of the relevant currency(ies) to total turnover method or any another method the Commissioner may approve upon request.

Option 3: Single income tax return in foreign currency: Taxpayers with gross income mainly in foreign currency but with allowable deductions in both local and foreign currency may prepare and submit a single income tax return in foreign currency. However, the taxpayer must submit a written application to the Commissioner detailing its positions and attach the income tax return to the application.

Transfer pricing return

All persons with income from trade and investments earned or accrued from domestic and cross-border related party transactions must submit their income tax returns supported by a transfer pricing return.

Maxwell Ngorima

Charity Machiridza