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Globalization and digitalization exacerbated by covid 19 has made it easy for people to work and live in any country of their choice. A person can therefore work for an employer based in another country whilst he/she is in his/her home country or be assigned or seconded on short-term projects or for training and development to another country. Some personnel, known as frontier workers, cross the border every day to work in another country, whilst others travel to live and work permanently in another nation, severing their pecuniary ties with their home country. Additionally, the global trend of remote working, which has surged since the Covid-19 lockdowns, allows employers at one end of the world to employ Zimbabweans whom they may never have met face-to-face. These arrangements benefit both employers because they may be able to employ highly skilled workers more cheaply than in their own countries and employees who may broaden their opportunities to earn income. All these scenarios present an array of tax problems which employees and employers should be aware of. This is because each host country may have its own tax rules, rates, and treaties, which may impact on the employer and employee’s specific circumstances.
The hallmark of employment tax in Zimbabwe is anchored on the concept of source underpinning the place or location the services are rendered. The concept of source is supported by the widely recognized tax case of CIR v Lever Brothers and Unilever Ltd 14 SATC 1, which defined the term source as consisting of two parts: finding the originating cause of the income and determining the location of the originating cause. This makes income for services rendered by employees to employers who are in Zimbabwe or by employees who are resident in Zimbabwe for employers who are outside Zimbabwe subject to tax in Zimbabwe. Every employer is therefore required to withhold employees’ tax from any remuneration paid or payable to an employee who performs services in Zimbabwe during a tax year, even if the employee is not a Zimbabwean resident. Nonresident persons or expatriates are equally taxed in Zimbabwe as long as they have rendered services in Zimbabwe unless the person has spent less than 183 days in Zimbabwe, and he/she is resident of a country which has a concluded double taxation agreement i.e., a tax treaty with Zimbabwe and the economic employer of that person is not in Zimbabwe. The country also deems income for services rendered outside Zimbabwe by an employee who is a resident of Zimbabwe during his/her a temporary absence in the country income subject to tax in this country. A period of temporary absence is a period or periods not exceeding in aggregate 183 days in a year of assessment. Income for services rendered for a trade undertaken in Zimbabwe wherever the services are rendered is also income subject to tax in this country.
Once a business hires an employee will render services in Zimbabwe as aforesaid and pays an amount in excess of the tax-free threshold in a tax year it should register with the ZIMRA within 14 days of becoming an employer. This includes non-resident employers who are then further required to appoint a resident representative for purposes of registration for PAYE and administration of this tax. The foreign employer should give a notice to the Commissioner in writing of the appointment of a resident representative. Hence registration to withhold employees’ tax applies to all employers whether local or foreign. The Commissioner-General of ZIMRA can appoint a resident representative employer where one has not been appointed by the employer, and such person shall be responsible for tax registration and administration of employees’ tax. The Commissioner can also cause any work permit held by the employer or any director or employee of the employer to be forthwith cancelled upon the written request of the Commissioner to the Chief Immigration Officer if a non-resident employer has failed to register or comply with employment tax rules.
A non-resident employer is an individual who is not ordinarily resident in Zimbabwe or a company, partnership or organisation which does not have its head office or principal place of business within Zimbabwe. A company is considered as a resident of Zimbabwe if it has its central management and control situated in Zimbabwe (a place where the controlling power and authority abides – i.e., where the board of directors resides). This makes a company is resident in the country where its head office is situated because the law has always recognised that central management and control is found at head office.
In a scenario where a foreign based employer engages local employees to work remotely there may be a host of tax issues arising from such an arrangement. Besides employment tax being required to be paid in the country the employee is resident and the country the employer is physically located, income tax and VAT issues may also arise. The employer may be deemed to be carrying on trade through a permanent establish or fixed place of business in Zimbabwe as represented by the employees who may be deemed agents of the employer, or the office of the employee being deemed a place of business in Zimbabwe. In the modern world this risk can be mitigated by engaging a resident person who will act as an employer of record company. The Zimbabwean employer of record company is the legal in-country employer responsible for complying with all Zimbabwean employment legislation. The employee will be on the Zimbabwean employer of record company’s payroll and this company will account for all payroll taxes due to ZIMRA.The employer of record arrangement is useful for multinationals to contract and deploy individuals wherever necessary in a matter of days without needing to go through the process of registering a subsidiary or branch in the country of deployment and any related registrations with revenue authorities in those countries.
In conclusion the article outlined various options which may trigger employees’ tax in the country, and it is important employers and employees to familiarise with rules so as not to fall into a tax trap.