The rebirth of the Zimbabwe dollar through Statutory Instrument 142 of 2019 has seen a renewed interest in the exchange controls rules. The enforcement of these rules had been relaxed due to the multicurrency system that had been in place since February 2009. This article seeks to highlight some of the key exchange control rules to be observed in Zimbabwe.
Selling in foreign currency
The use of foreign currency in domestic transactions was outlawed by SI142 except in specified cases or when one is licenced by the Reserve Bank of Zimbabwe (RBZ). Sale of commodities in foreign currency in Zimbabwe without a licence to do so is a serious offence in terms of the Exchange Control Act [Chapter 22:05] with offender liable to a fine up to level fourteen (ZW$10,000) or 5 times the value of the commodity concerned, whichever is the higher. In the event that one sells or transacts in foreign currency, the relevant taxes from such income will still be required to be paid in foreign currency because the laws requiring payment of tax in foreign currency are still in place. Tax law does not care about the legal status of a transaction but follows a transaction. Meanwhile, operators of designated tourist facilities and tourist agents; hunting safari operators and providers of: a cellular telecommunication service; a fixed line telephone service; a postal service; an electronic mail service; an Internet service; an international transit service are designated as exporters for exchange control purposes. They must ensure that services/goods provided to foreign persons/entities are paid for in foreign currency which must be received in Zimbabwe within 90 days from the last day of the month in which services/goods were provided.
Cash on the person
Mere possession of foreign currency is not illegal. However, possession of currency exceeding US$10,000 by an individual is considered hoarding and is an offence in terms of the Bank Use Promotion Act [Chapter 24:24]. Also, every trader, and parastatal shall, unless it has good cause for not doing so, deposit in an account with a financial institution no later than the close of normal business hours on the day following that on which the cash is received or on the next banking day which is surplus to its requirements or in excess of US$200, whichever is the lesser amount.
Export of Currency
The maximum amount of currency that can be taken out of Zimbabwe on the person or baggage of a person leaving Zimbabwe is a total of US$2,000 or its equivalence. Any currency in excess of the stipulated amount being exported without exchange control (RBZ) approval will be liable for seizure or detention by the Zimbabwe Revenue Authority (ZIMRA). This however does not apply to foreign currency which has been imported into Zimbabwe by a foreign resident and is being taken or sent out of Zimbabwe by that person on his person or his baggage. The non-resident person will have to show by way of the declaration they originally made of such currency when they entered Zimbabwe.
Sale of properties by non-residents
The transfer of any funds out of Zimbabwe arising from the sale of immovable properties within Zimbabwe by a non-resident person/entity requires exchange control approval. Similarly, the transfer of funds arising out of the purchase of immovable property in Zimbabwe by a foreign resident requires exchange control approval and the application must be submitted to the RBZ through a banking institution.
Management and technical fees
The remittance of fees is allowed to the extent of up to 2 percent of the applicant’s annual turnover for the last financial year. The fees must be paid under a management, technical or administration agreement approved by the RBZ. The turnover must be confirmed by an auditor’s certificate from a reputable firm of auditors. The amount of any remittance to be done will be net of withholding taxes applicable (if any).
The remittance of royalties of up to 5% of a company’s net sales may be authorised, subject to the condition that the payer of the royalties is a business organisation; and the royalties are payable under an agreement approved by the Reserve Bank. Furthermore, the amount of the company’s net sales must be proved by an auditor’s certificate from a reputable firm of auditors.
Every loan to be contracted outside Zimbabwe requires exchange control approval. The relevant provision reads in part: “… no Zimbabwean resident shall, outside Zimbabwe—(i) buy or borrow any foreign currency from any person if the transaction results in or is likely to result in a debt payable in or from Zimbabwe; or (ii) sell or lend any foreign currency to any person if the foreign currency originated from Zimbabwe or is the proceeds of any trade, business or other gainful occupation or activity carried on by him in Zimbabwe; … if— (A) the transaction results in or is likely to result in a debt payable in or from Zimbabwe…”. Upon maturity of the loan, the repayment will be done through formal banking channels subject to exchange control approval.
Dividend and capital repatriation
A company is permitted to remit dividends to foreign shareholders, up to 100 % of its net after-tax profits. An application for the remittance of a dividend must be submitted to the bank within 12 months from the end of the financial year, accompanied by a certified copy of the board resolution of the dividend declaration, audited financial statements for a final dividend and a pro-forma profit and loss account for an interim dividend, audited cash-flow statement confirming fund availability for paying dividend and an auditors’ certificate confirming that the dividend emanates from actual trading profits for the year concerned and not from retained earnings or capital profits. Capital can also be repatriated subject to payment of Capital Gains Tax (CGT) on disposal of shares. Whilst exchange controls have been in place for some time they will gain prominence going forward following the return by Zimbabwe to mono- currency in the form of Zimbabwe dollar. It is therefore advisable to examine the exchange control requirements as well as the attendant tax implications regarding any foreign currency or exchange controlled transactions in order to avoid unnecessary penalties that can arise from breaching the law.
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