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HMRC internal manual

Double Taxation Relief Manual

Zambia: Notes

The treaty that entered into force in 2015 replaced that which had been in effect since 1972, as amended by a protocol signed in 1981. Apart from a general updating to reflect changes in the OECD Model Tax Convention and the domestic laws and treaty preferences of both state, notable changes include:

Article 4 – resident – dual resident companies

The 2014 treaty introduced the competent authority approach to the tie-breaker for dual resident companies. The previous agreement used the place of effective management to determine residence in such cases.

Article 5 – taxation of services

A new services provision was introduce meaning that the performance of services in Zambia will result in a permanent establishment in Zambia in the following circumstances:

  • For services performed by an enterprise through employees or other personnel engaged for such purpose, where the activities continue in Zambia for a period or periods aggregating more than 183 days within any 12 month period commencing or ending in the fiscal year concerned; and
  • For services performed by an individual, where that individual’s stay in Zambia is for a period or periods exceeding 183 days within any 12 month period commencing or ending in the fiscal year concerned.

Article 9 – associated enterprises – corresponding adjustments

The 2014 treaty adds the OECD paragraph 2 of Article 9 which requires Zambia to make an appropriate adjustment to reflect a change made by the UK falling within paragraph 1 of Article 9.  A provision in the protocol to the treaty means that where the UK makes a primary adjustment which contains a tax or non-tax penalty, Zambia are not required to take the penalty into account when making a corresponding adjustment.

Article 10 - dividends

The 2014 treaty introduces a 5% rate for all dividends (except REITs), whereas in the previous agreement only direct investments holding more than 25% of the voting power were able to claim to the lower rate. So the rate for portfolio investors is reduced from 15% to 5%.  The subject to tax test in the dividends article has been removed to accommodate the UK introduction in 2009 of the foreign dividend exemption.