Getting to Know Value Added Tax (VAT) in Zambia

Value Added Tax (VAT) is a key indirect tax in Zambia, administered by the Zambia Revenue Authority (ZRA). Introduced on 1 July 1995 to replace the former Sales Tax, VAT is a consumption-based tax levied on the value added at each stage of the supply chain for goods and services. Registered businesses charge output VAT on their sales, deduct input VAT paid on purchases, and remit the net amount to the ZRA. The burden ultimately falls on the final consumer, while registered suppliers act as collection agents. This system promotes neutrality for businesses, as they can recover input VAT, and supports revenue collection efficiency.

VAT is governed by the Value Added Tax Act (Chapter 331 of the Laws of Zambia), along with subsidiary regulations, including the Value Added Tax (General) Regulations, the Zero-Rating Order, and the Exemption Order.

Scope and Applicability

VAT applies to taxable supplies of goods and services in Zambia, as well as imports. Taxable supplies are either standard-rated (16%) or zero-rated (0%). Supplies not listed as zero-rated or exempt are standard-rated by default.

• Exports: Most goods and certain services exported are zero-rated, enhancing competitiveness, though services performed physically in Zambia remain taxable even if for non-residents.

• Imports: Standard-rated goods attract 16% VAT at entry, calculated on the customs value plus duties.

• Digital/Electronic Services: Non-resident providers of cross-border electronic services (e.g., via internet or digital networks) to Zambian customers must register and charge VAT if thresholds are met. These are deemed supplied in Zambia based on customer location criteria.

• Imported Services: Services utilized in Zambia by non-registered recipients may trigger VAT via reverse charge.

Certain supplies are fully exempt (no VAT charged, but no input VAT recovery).

Rates

Zambia's VAT features a single standard rate with targeted relief:

The standard rate has remained 16% as of December 2025.

Zero-Rated vs. Exempt Supplies

A critical distinction affects cash flow and compliance:

• Zero-rated: VAT at 0%, but suppliers can claim input VAT credits. Ideal for exporters and certain essentials.

• Exempt: No VAT output, but input VAT becomes a cost (irrecoverable).

Examples (based on statutory orders; consult ZRA for full lists):

Common Zero-Rated Supplies:

• Exports of goods (with proof like customs documents and payment into Zambian banks).

• Certain food staples and agricultural inputs.

• Medicines and pharmaceuticals (specific lists).

• Certain energy products or equipment.

Common Exempt Supplies:

• Financial services (e.g., bank interest, insurance).

• Education (school fees, certain supplies).

• Health services (medical treatments).

• Passenger transport (air, rail, certain road).

• Land and buildings (sale/lease, with exceptions).

Businesses dealing exclusively in exempt supplies cannot register for VAT.

Registration and Thresholds

Mandatory registration applies if taxable turnover (excluding exempt supplies) exceeds:

• ZMW 800,000 in any 12-month period, or

• ZMW 200,000 in any three consecutive months.

Voluntary registration is available below thresholds, beneficial for recovering input VAT. Non-residents supplying digital services face the same thresholds and must appoint a local tax agent if needed.

As of 2025, the threshold remains ZMW 800,000 annually (unchanged despite increases in turnover tax thresholds).

Obligations and Compliance

Registered suppliers must:

• Issue valid tax invoices (from 2025, primarily via the Smart Invoice electronic system; non-compliant invoices disallow input claims except for exempted suppliers).

• File monthly VAT returns and pay/remit by the 21st of the following month (earlier for certain cases).

• Maintain records for at least six years.

• Account for VAT on the earlier of invoice date, payment, or delivery.

If input VAT exceeds output, refunds may be claimed (subject to audits). Penalties apply for late filing, underpayment, or non-compliance.

Withholding VAT (WWAT) mechanism was suspended effective 1 August 2025.

Recent Changes and Outlook

Key 2025 updates via amendments:

• Input VAT claims restricted to Smart Invoice-issued documents (effective 1 January 2025), enhancing digital compliance and reducing fraud.

• Transitional allowance for pre-2025 invoices meeting validity rules.

• Continued emphasis on electronic services taxation.

These reforms aim to modernize administration, close loopholes, and align with digital economy growth. Businesses should monitor ZRA updates, migrate to Smart Invoice, and review supply classifications regularly.

In summary, Zambia's VAT system balances revenue needs with economic incentives through zero-rating exports and exemptions for essentials. Proper management ensures compliance while minimizing costs. For tailored advice, consult the ZRA or a qualified tax professional. Visit the ZRA website for latest guides and orders.