TAX MATTERS: Foreign exchange differences on legacy debt

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THE return of the multicurrency system through reforms made in 2019 has presented increasing uncertainty in currency markets in recent times.
This can be an issue, as foreign exchange movements create significant volatility for companies, not least from a tax perspective. Exchange gains and losses may be defined as profits or losses, which arise as a result of comparing “at different times the expression in one currency of the whole or some part of the valuation put by the company in another currency on an asset or liability of the company.”

The intention of this article is not to detail the tax consequence of the foreign exchange differences, but to address the tax issues of foreign exchange differences created as a consequence of statutory instrument (“SI”) 33 of 2019, focusing mainly on foreign denominated loan balances. According to s4(1) (d) of the SI, these did not require conversion from the US$ to the Zimdollar on a 1:1 basis. To kick off the debate, we go back to basics on the taxation of foreign exchange from a Zimbabwean corporation tax perspective.