TAXATION is a crucial aspect of any country’s economic system, serving as a primary source of revenue for government operations and public services.
In Zimbabwe, the tax framework extends to cover various sectors, including the entertainment and sports industries. I explore the income tax intricacies faced by non-resident individuals involved in the entertainment and sports sectors and their hosts.
The Income Tax Act establishes the withholding tax framework for the taxation of non-resident entertainers and sportspersons in Zimbabwe. The key requirement of the Act is that any registered taxpayer entering into a contract with a non-resident entertainer or sportsperson must withhold 15 percent of all amounts paid in relation to the individual’s personal activities. This withholding tax is applicable to a broad range of payment methods, including cash settlements, barter arrangements, setoffs, crediting director’s loan accounts, inter-company debits and credits, or any other form of settlement of obligations.
The responsibility for withholding tax lies with the withholding agent, who is either the contractor or a person employed by the contractor responsible for disbursing payments to the non-resident individual. The withholding agent must remit the tax to the Zimbabwe Revenue Authority (ZIMRA) within 10 days of payment to the non-resident, or within a timeframe approved by the Commissioner.
It is important to note that this withholding tax is not a final tax. Non-residents have the option to submit a tax return and can obtain a tax credit against their income tax liability. If the tax credit exceeds the income tax payable by the non-resident, the Commissioner is obligated to promptly refund the excess amount. This ensures that the tax system remains equitable, allowing non-residents to account for their overall tax liability.
The legislation provides legal safeguards for withholding agents who properly execute their duties. The withholding of the tax amount, as required by law, does not constitute a breach of the contract between the parties. This provision protects withholding agents from any legal repercussions arising from the fulfillment of their statutory obligations. It reinforces the notion that tax compliance should not jeopardise the contractual relationships between withholding agents and non-resident entertainers or sportspersons. Moreover, individuals representing contractors in contract negotiations are obligated to inform the counter-party about the provisions of the Act relating to this withholding tax.
Other jurisdictions impose withholding taxes on payments made to non-residents for entertainment and sports activities. The rates and mechanisms, however, vary widely. In the United States, for example, the Internal Revenue Service (IRS) requires withholding on payments made to foreign persons, including non-resident entertainers and athletes. The withholding rate is generally 30 percent, unless a reduced rate or exemption applies under a tax treaty. In the United Kingdom, tax regulations for non-resident entertainers and sportspeople also apply. Similar to Zimbabwe, the UK imposes withholding tax on payments made to non-residents, and the rate may be reduced under tax treaties. The responsibility for withholding tax lies with the payer, who must remit the tax to Her Majesty’s Revenue and Customs (HMRC). Countries worldwide recognise the need to regulate and tax the income earned by non-residents in these sectors, reflecting the international mobility of talent and the economic significance of entertainment and sports events.
While the taxation of non-resident entertainers and sportspersons is a necessary component of a country’s revenue collection, it is not without its challenges and considerations. One of the primary challenges is the complexity of international transactions in the entertainment and sports industries. Contracts often involve multiple parties, varying payment structures, and intricate financial arrangements. The wide definition of “payment” under the Act reflects the diverse nature of financial transactions in these sectors. From cash settlements to barter arrangements and inter-company debits, the legislation attempts to encompass the myriad ways in which payments are made. However, this compounds the challenges in terms of administration and enforcement.
Ensuring that all withholding agents are aware of and comply with the Act is another significant challenge. The obligation to withhold tax may fall on different entities within the contractual chain, from event organisers to talent agencies. Coordinating these various parties to enforce tax compliance requires effective communication, education, and, potentially, additional regulatory measures. Moreover, the international nature of entertainment and sports activities raises questions about the coordination of tax regulations across borders. While tax treaties may address some of these issues by specifying reduced withholding rates, the potential for double taxation or gaps in tax coverage still exists.
The provisions represent a crucial component of the country’s taxation framework, addressing the specific considerations surrounding non-resident entertainers and sportspersons. The legislation establishes a comprehensive system of withholding tax, placing responsibilities on withholding agents while providing legal safeguards and administrative procedures to ensure compliance. Harmonising tax regulations and enhancing international cooperation could contribute to a more streamlined and efficient taxation framework for non-residents in the entertainment and sports industries. As these industries continue to evolve, so too must the regulatory frameworks that govern them, ensuring that taxation remains both effective and equitable.
WTS Tax Matrix Academy will be hosting its 8th Annual Tax Conference from May 22 to 25, 2024 at Elephant Hills Resort. Tapera is the founder of WTS Tax Matrix (Pvt) Ltd and the CEO of WTS Tax Matrix Academy. He writes in his personal capacity.