My client is to provide consulting services in Zambia. Will Withholding tax be applicable from the Zambian side? How is this handled in practice? The SA co. (My client) doesn't normally have a taxable income so how will they then recover the Withholding taxes?
Important:
This answer is based on tax law for the tax year ending 28 February 2020.
Answer:
It is outside the scope of the service provided by us.
We also don’t provide guidance with respect to foreign taxes. The tax withheld in Zambia is 20% (in respect of services rendered in Zambia). You can find more detail on the Zambia Revenue’s website at the following link: https://www.zra.org.zm/commonHomePage.htm?viewName=WithholdingTax
The double tax agreement doesn’t provide any relief, other than to provide that the RSA must give a credit for the foreign tax. This was done.
If the services are rendered in Zambia, the section 6quat rebate will be available. If not, in other words they are rendered in South Africa, the section 6quin rebate (for years of assessment commencing before 1 January 2016).
You mention that the client will not have taxable income. Both rebates are limited to the RSA tax on the foreign income and it would mean that the taxpayer will not get the full credit. The excess is not lost, but is carried forward for 7 years. Section 6quat gives an option to make a deduction, but is not available if the services were rendered in the RSA, unless they are rendered in a year of assessment commencing on or after 1 January 2016.
We don’t have enough information to comment on whether there is a permanent establishment.
If the services are rendered in Zambia, the section 6quat rebate will be available.
Management or consultancy fee means “payment in any form, other than an emolument, for or in respect of any creation, design, development, installation and maintenance of any information technology or solution, programme or system, administrative, consultative, managerial, technical or consultative or any service of a like nature”.
It should be noted that withholding tax is deductible from payments to a payee who is not in business in Zambia but renders a service to a person carrying on business in Zambia. It does not matter whether the service is rendered in Zambia or not.
The rate of withholding tax is 20%.