Marvelous Tapera 
IN Zimbabwe, Special Economic Zones (SEZs), sometimes known as free zones, are defined as geographical areas within an economy where business activity is governed by different laws from the rest of the economy.
It is an area with more free-market-oriented economic rules than a country’s usual or national law. These regulations govern investment, trade, customs and taxation. Foreign and local investors are both eligible to invest in Zimbabwe’s SEZs.
Any person wishing to invest in the economic zone must apply for an investment licence, and the application shall be accompanied by the prescribed fee and such documents as the agency may require. An investment licence for investment in the zone shall be valid for a period of ten (10) years.
The most common objective around the world is to attract foreign direct investment (FDI), as a means of boosting exports, links to global value chains and structural transformation of the economy. In trying to promote the development of SEZs, Zimbabwe has established the Zimbabwe Investment and Development Agency (ZIDA), which handles bureaucracy challenges and investment approval processes, legal instruments, as well as fees for permits and licences. There are special incentives that are afforded to investors that invest in them and some of those special incentives are discussed in this article.
Meanwhile, the Finance Act has amended the definition of a special economic zone as a part of measures declared in terms of the ZIDA Act. It has also redefined the term investment licence as one issued in terms of the 2019 Act, to a licensed investor with a qualifying degree of export-orientation.
“Qualifying degree of export-orientation”, as characterising a licensed investor, means the licensed investor exports all of its goods and services. This amendment simply replaced the Special Economic Zone Act. The implication is that one does not enjoy tax incentives of a special economic zone by being located or operating within the zone, but by exporting 100 percent of its output.
Taxable income of a licensed investor having qualifying degree of export orientation is taxed at the rate of zero percent in the first five years of operation and 15 percent thereafter. The tax laws provide for a Special Initial Allowance of 50 percent in the first year of assessment and 25 percent in each of the next two years of assessment, in respect of capital expenditure incurred by the licensed investor within the special economic zone. The conditions for claiming special initial allowances must be satisfied, otherwise the licensed investor would be granted wear and tear.
The tax laws were also amended on the treatment of dividends. A dividend does not include amount payable by a person licensed in terms of the SEZ Act. Therefore, with effect from January 1, 2017 the tax laws were amended by the repeal and substitution in the definition of a dividend to any amount so distributed by a licensed investor having a qualifying degree of export-orientation, which arises from its operations in a SEZ. This provision has the effect of exempting dividends distributed by licensed investors from withholding tax on dividend.
The exemption also extends to fees for services rendered by a non-resident to a licensed investor in respect of its operations in a special economic zone. Therefore, with effect from January 1, 2017 the tax laws were amended in the definition of fees by the repeal and substitution with services rendered to a licensed investor in respect of its operations in a special economic zone. This has the effect of replacing the export processing zones with special economic zones for purposes of exemption of the fees payable to a non-resident.
The Act dealing with export processing zones was repealed in 2010. With effect from January 1, 2017 tax laws were also amended by the repeal and substitution of the definition of a “non-resident person” to mean “a person other than a company, who or a partnership or foreign company, which is not ordinarily resident in Zimbabwe, but does not include a person partnership or foreign company operating that is a licensed investor having a qualifying degree of export-orientation.”
The effect of this amendment is to exempt royalties paid to non-residents by a licensed investor out of his operations in the zone.
The licensed investor for purposes of this provision refers to a person who is licensed to operate within a special economic zone.
Meanwhile, the exemption of royalties to a non-resident when paid by a licensed investor operating within an export processing zone is repealed by reason of the Export Processing Zone being repealed. Foreign employees holding temporary employment permits issued by the department of Immigration to work in the licensed SEZ pay income tax at 15 percent of their taxable income.
The exportation of unbeneficiated lithium by a miner in a SEZ is exempted from the five percent export tax with effect from January 1, 2020, but up to January 1, 2025, provided that the lithium being exported is in the form of Spodumene and chemical grade petalite concentrate.
In conclusion, the incentives for special economic zones are zero percent corporate income tax for the first five years of operation with a corporate tax rate of 15 percent applying thereafter.
Duty free importation on capital equipment, special initial allowance of 50 percent of cost from year one and 25 percent in the subsequent two years, Exemption from non-residents tax on fees for services that are not locally available, exemption from resident and non-resident shareholders’ tax, exempt from capital gains tax on disposal or sale of specified assets.
Inputs, which include raw materials and imported for use by companies set up in the SEZs, will be imported duty free. The duty exemption will, however not apply where such raw materials are produced in Zimbabwe. Meanwhile, Matrix Tax School invites you to take part in the Managing Tax Practise – Advanced course. The course commences on October 5, 2021 and is for a duration of eight weeks.
Tapera is the founder of Tax Matrix (Pvt) Ltd and chief executive of Matrix Tax School. He writes in his personal capacity.
