ZIMBABWE and South Africa have entered an agreement to avoid double taxation for companies that operate in either of the countries in a bid to promote investment with each other.
The two neighbours have signed a memorandum of understating (MoU) on Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to taxes on income that would see reduced rates of tax dividends, interest, royalties and technical fees earned in either country by companies or individuals of the other state.
Finance and Economic Development Minister Patrick Chinamasa said this agreement elevates the countries’ bilateral relationship to a new level and serve the mutual interest of both countries.
“The benefits are that if a South African entity is doing business in Zimbabwe and it is a South African company it is subject to the laws of the South Africa and if it makes profit, that profit (is going to be taxed where it is operating from as well) but with this agreement such will be militated against because companies wanting to invest in Zimbabwe will not do so but this memorandum of understanding seeks to avoid those issues,” he said.
South Africa is Zimbabwe’s largest trading partner, with trade between the two countries reaching over $8 billion in 2014 while the signing of the Avoidance Act on double taxation agreement is expected to facilitate business between the two countries.
Permanent Secretary for Finance and Economic Development Willard Manungo pointed out Zimbabwe and South Africa agreed to initiate the process of renegotiating the agreement for avoidance of double taxation.
“The renegotiation process was informed by structural changes in our economies as well as international bests practices with respect to the promotion of investment and cooperation in tax administration.
“Currently, the two countries are applying the provisions of the outdated Avoidance of Double Taxation Agreement that entered into force on September 3, 1965,” he said.
The permanent secretary said the underlying principle for entering into this agreement is to create a favourable environment for investment in both states and to co operate in tax administration between Zimbabwe and South Africa.
“Specifically the agreement is meant to clarify, standardise and guarantee the fiscal treatment of tax payers who engage in business in the two countries thereby protecting taxpayers against double taxation of the same income.
“It is important to note that imposition of similar taxes in the two countries on income earned by the same taxpayers has detrimental effects on the exchange of goods and services as well as the movement of capital and persons across national boarders.
“The agreement offers reduced rates if tax dividends, interest, royalties and technical fees earned in the two countries by companies or individuals of the other state,” Manungo explained.