FUNGAI CHIMWAMUROMBE/ PLAXEDES TAVIRAI
In the effort to attract investments in particular regions of a country, Zimbabwe reserved some areas of the economy as Special Economic Zones (hereinafter referred to as SEZs). Special Economic Zones in Zimbabwe are governed by the Zimbabwe Investment Development Agency Act [Chapter 14:37] (hereinafter referred to as ZIDA Act) which repealed the Special Economic Zones Act. The Agency established by the ZIDA act may, by notice in the Gazette, declare any area or premises to be a special economic zone, the geographical area of which shall be defined in the notice.
SEZs therefore represent designated geographical areas within an economy, where business activity is subject to different rules from those prevailing in the rest of the economy. These rules can pertain to investment conditions, trade, customs, and taxes. SEZs are provided for under part V of the ZIDA Act. The most common objective around SEZs is to attract foreign direct investment (FDI), as a means of boosting exports, links to global value chains and structural transformation of the economy. There are special incentives that apply to business operating in the SEZs.
Special Economic Zones have been used to boost job creation by attracting investment in highly labour-intensive industries. Moreover, Special Economic zones have also been created to support wider economic reforms such as export diversification and upgrading as well as to serve as laboratories for experimentation with new policies and approaches that could, if the outcomes are satisfactory, be scaled up to the entire economy.
Business operations in Special Economic Zones are different from those that operate in well-known industrial sites or business complexes because domestic trade and business law does not apply to Special Economic Zones whereas, companies operating outside these zones must comply with the laws.
In trying to promote the development of SEZ, Zimbabwe established Zimbabwe Investment and Development Agency (ZIDA) that addresses challenges such as bureaucracy and lack of coordination in investment approval processes, excessive and overlapping legal instruments, as well as exorbitant fees for permits and licenses. These reforms will reduce the time for investment licensing and enhance facilitation of personnel to live and work in Zimbabwe which is a source of competitive advantage.
This article shall provide some of the incentives that are accorded to those that invest in special economic zones. Below is a list of some of the incentives that are available in Zimbabwe for investing in SEZs.
CORPORATE TAX- there is a Zero-rated Corporate Income Tax for the first 5 years of operation with a corporate tax rate of 15% applying thereafter
CUSTOMS DUTY ON CAPITAL EQUIPMENT- there is no duty that is charged on the importation of capital equipment to be used in the special economic zones.
SPECIAL INITIAL ALLOWANCE- there is a Special Initial allowance of 50% of cost from year one and 25% in the subsequent two years
EMPLOYEES TAX- there is an exemption from Non-residents tax on fees for services that are not locally available.
NON-RESIDENTS WITHHOLDING TAX ON FEES- there is an exemption from Non-residents tax on fees for services that are not locally available
NON-RESIDENTS WITHHOLDING TAX ON ROYALTIES- there is an exemption of Non-residents tax on royalties
CUSTOMES DUTY ON RAW MATERIALS- Inputs which include raw materials and imported for use by companies set up in the SEZs be imported duty free. The duty exemption will, however not apply where such raw materials are produced in Zimbabwe.
CAPITAL GAINS TAX- there is also Zero-rated Capital Gain
Fungai Chimwamurombe is a registered legal practitioner and Senior Partner at Chimwamurombe Legal Practice and can be contacted for feedback at email@example.com and WhatsApp 0772 997 889. Plaxedes Tavirai is an intern and can be contacted on firstname.lastname@example.org