Understanding Zimbabwe`s Double Taxation Agreements
As a global economy, international trade and investment often involve cross-border transactions that can generate profits and create tax liabilities in multiple jurisdictions. Double taxation, the imposition of taxes on the same income or capital by two or more countries, can discourage such activities and hinder economic growth. To mitigate this problem, many countries, including Zimbabwe, have entered into double taxation agreements (DTAs) with their trading partners.
A DTA is a bilateral or multilateral treaty that allocates the taxing rights and obligations between the countries involved, based on certain criteria such as residence, source, and nature of income or capital. By doing so, a DTA can reduce or eliminate the double taxation of individuals and entities who are subject to tax in both countries, and provide for cooperation and exchange of information between the tax authorities.
Zimbabwe has signed DTAs with several countries, mainly in Africa, but also with some European and Asian countries. The current list of Zimbabwe`s DTAs includes:
– Botswana (1992)
– Democratic Republic of Congo (2001)
– India (1994)
– Italy (2013)
– Malaysia (1996)
– Mauritius (2004)
– Namibia (1993)
– South Africa (1997)
– Sweden (2018)
– United Arab Emirates (2001)
– United Kingdom (1976)
– Zambia (1991)
Each DTA is unique and may have different provisions and limitations, but they generally follow the model conventions developed by the Organisation for Economic Cooperation and Development (OECD) and the United Nations (UN). Some of the key features of Zimbabwe`s DTAs are:
– Residence-based taxation: A DTA may define the criteria for determining the tax residency of a person or entity, which can affect their liability to tax in Zimbabwe or the other country. For example, a person who is considered a resident of Zimbabwe under its domestic law may be exempt from tax in India on their employment income if they stay less than 183 days in India and are not paid by or on behalf of an Indian employer.
– Source-based taxation: A DTA may also specify the source of income or capital and the tax rate applicable to it in each country, which can affect the allocation of taxing rights. For example, a Zimbabwean company that operates a branch in Malaysia may be taxed in both countries on its profits from that branch, but may be entitled to a credit for the tax paid in Malaysia against its Zimbabwean tax liability.
– Limitation of benefits: A DTA may impose certain conditions or restrictions on the benefits of the treaty, such as a minimum ownership or activity requirement, to prevent abuse or exploitation of the treaty by third-party residents. For example, a Mauritian company that derives income from Zimbabwe may not be entitled to the reduced withholding tax rate under the DTA if it is a shell or conduit company that does not have substantial business activities in Mauritius.
– Mutual agreement procedure: A DTA may provide for a mechanism to resolve disputes between the tax authorities of the two countries, such as by a mutual agreement procedure (MAP) that allows for consultations and negotiations to avoid or settle double taxation cases. For example, if a Zimbabwean resident claims that they have been unfairly taxed by India on their capital gains from the sale of shares in an Indian company, they may request the competent authority of Zimbabwe to initiate a MAP with the competent authority of India to seek a resolution.
Overall, DTAs can facilitate international trade and investment by providing a more predictable and equitable tax regime for taxpayers who operate across borders. However, they also require careful interpretation and application to avoid unintended consequences or conflicts with domestic tax laws. Therefore, it is important for taxpayers who are subject to multiple tax jurisdictions to seek professional advice and guidance on their tax positions and obligations.