As an entrepreneur or a business owner, your business has been doing really well in the recent past. You’ve seen sales going up every month and suddenly, your sales are exceeding ZMW800,000, which is the minimum amount required for you to move on to the next level in terms of taxes. So, what should you do now?
We just learned that you’ve exceeded the minimum threshold of 800,000 kwacha required for you to move on to the next level of company registration. You are now required to register for corporate tax.
Currently, as a company paying turnover tax, you are still required to continue paying turnover tax and do your monthly turnover tax returns submissions to ZRA. We are in November now, and your sales have exceeded the minimum threshold for this month. Therefore, you are still required to submit your monthly turnover tax returns for both November and December. Moreover, you need to register for income tax this month. If you trade in taxable supplies, you are also required to register for value-added tax (VAT)
Let’s start by looking at the definition of VAT.
Value-Added Tax (VAT) is an indirect tax that is charged on the value added to a product or service. It is usually a tax that is transferred to the end consumer, meaning that the person who pays this tax is the end consumer, who is often not registered for VAT.
Businesses that are registered for VAT and trade in taxable supplies can claim back the VAT on their purchases, and they can also charge or transfer the VAT on their sales. As a result, they can charge VAT on their sales and transfer that VAT to the final consumer.
Entities that can register for Value-Added Tax include individuals or sole traders, groups of persons such as associations or clubs, companies limited or partnerships, as well as other entities as long as they meet the requirements for registration for Value-Added Tax. All businesses that qualify to register for VAT must complete an application form. This form can be a manual form or completed online through an e-registration process.
As a VAT-registered taxpayer, there are certain obligations required of you by the Zambia Revenue Authority. Some of these obligations include:
- Displaying your tax registration certificate in a prominent place, such as on a wall, where people can see it.
- You will also be required to charge VAT on your taxable supplies and issue tax invoices that comply with the rules laid out by the Zambia Revenue Authority.
- Additionally, you need to submit returns and pay the VAT due to the revenue authority by the 18th of the subsequent month.
- You can also submit a manual return that is due on the 5th of the subsequent month. Now, let’s take a look at
Four general definitions related to Value-Added Tax will help us understand VAT better.
A taxable supplier is a person, individual or company that is registered for vat and who supplies taxable goods or services. The supply of goods or services that are subject to VAT, known as taxable supplies, are taxed at two rates: zero-rated supplies are taxed at 0%, while standard-rated supplies are taxed at 16%. The specific items that are zero-rated are specified in the Zero Rating Order published by the Minister of Finance.
In addition, there are also exempt supplies, which are supplies of goods and services that are exempt from VAT. These exempt supplies are specified in the Exempt Order issued by the Minister of Finance. It’s important to review both orders to determine which items are exempt and which are zero-rated.
In essence, VAT is charged at three rates: 1. zero-rated, 2. standard-rated, and 3. exempt supplies. However, there’s a significant difference between zero-rated and exempt supplies that businesses need to be aware of. If a business trades in zero-rated supplies, it can claim back VAT on its inputs or purchases. If a business trades in exempt supplies, they cannot register for VAT nor can they claim back VAT on their inputs or purchases. This distinction is crucial when deciding whether to register for VAT.
Moreover, when determining whether a business should register for VAT, zero-rated supplies or sales are taken into account, whereas exempt supplies are not considered. This means that if a business has sales that exceed K800,000 but the majority of these sales are exempt supplies, they might not have to register for VAT.
Output Tax and Input Tax
Output tax is the amount charged and collected by a business that is making sales. They charge the tax on their sales, but the tax that is incurred on purchases of goods or services is referred to as input tax. As a business that is registered for VAT, you are required to compute your output tax, which is the VAT on your sales, and then deduct or claim back your input tax, which is the VAT on your purchases. The difference is either VAT payable to ZRA or VAT that you can claim back from ZRA.
If your input VAT exceeds your output VAT, you are in a refund position, meaning that ZRA is supposed to refund you the difference between your output VAT and your input VAT or tax. The VAT refund is supposed to be paid to you within 30 days of your lodgment of that tax return. However, there are a few considerations that ZRA looks at before they can actually refund you that VAT.
The claim must be for business purposes, so whatever input VAT you are claiming should be for business purposes and not personal. If a transaction or an invoice was incurred for both personal and business purposes, you need to separate the two and only claim the business aspect. Input tax cannot be claimed after 90 days or three months, so you need to ensure that you claim your input tax within three months of incurring an expense.
If you are claiming input tax, you need to have evidence that you really incurred this expense and it is an allowable expense. You need to show the evidence through invoices, documents such as the CE20, which is the Customs and Excise form 20, and any other evidence such as bank statements.
What happens if your business has different branches?
Normally, for VAT purposes, you’re only required to register your company even if it has different branches. This means that your business will only have one registration for VAT and will be required to submit only one VAT return and make one payment. However, if it’s convenient for you, you can choose to register each branch separately
If you have accounted for the value-added tax for your branch and met the obligations required by ZRA, including maintaining a separate accounting system for that branch, you are allowed to submit different returns for each branch that you operate.
In conclusion, it’s essential to understand the differences between zero-rated and exempt supplies, as well as their implications on VAT registration and reclaiming VAT on inputs or purchases.