ZIMBABWE: An Introduction to General Business Law

Navigating the Business Landscape in Zimbabwe: Prospects and Challenges in 2024

Incorporation of legal entities and investment framework

Zimbabwe’s process for incorporating legal entities is governed by the Companies and Other Business Entities Act [Chapter 24:31], typically taking up to six weeks. The Zimbabwe Investment and Development Agency (ZIDA) is pivotal, particularly for foreign direct investments, facilitating greenfield investments and managing necessary approvals. For investments in pre-existing companies or projects, it is necessary to obtain exchange control approval from the Reserve Bank of Zimbabwe, which covers both inflows and outflows of funds. Subsequently, the investment process advances to tax registration, setting the stage for the customary Know Your Client procedures and the opening of banking and additional accounts.

National development strategy and economic focus

Zimbabwe’s National Development Strategy 1 (NDS1), covering 2021–2025, seeks to spearhead the process to uplift the country to an upper-middle-class economy by 2030. The strategy focuses on macroeconomic stability, improving the business environment, and enhancing sectors such as commodity trade, agriculture, local industrial investments, and tourism. NDS1 will be succeeded by NDS 2 (2026–2030), continuing the focus on economic stabilisation, wealth creation, production boost, social protection enhancement, sustainable education and health facilities, devolution, food security, and infrastructure development.

Current Economic Conditions Affecting Clients and the Legal Profession in Zimbabwe

Economic volatility 

Clients in Zimbabwe are currently navigating an economy characterised by multicurrency dynamics and fluctuating inflation rates. High inflation, which peaked in 2022 but showed signs of easing, impacts the cost of legal services and the overall financial planning for businesses and individuals.

Foreign currency and repatriation issues

The challenges in repatriating dividends and dealing with capital outflows due to the multicurrency system create complex legal scenarios for clients, particularly those involved in international trade or investments.

Economic Outlook 

Challenges and reforms 

Since 2019, Zimbabwe’s economy has grappled with a multicurrency system and complex tax regulations. Ongoing disputes between the Zimbabwe Revenue Authority (ZIMRA) and taxpayers, difficulties in repatriation of dividends and capital outflows due to heavy debt, and governance challenges have created a level of uncertainty. However, the three pillars of the state, namely: the legislature; the executive; and the judiciary, as well as other ancillary structures, continue to support the rule of law.

Detailed economic indicators 

The World Bank anticipates a 3.6% GDP growth in 2023/2024, driven by a strong agricultural season and controlled inflation. The mining sector has seen significant growth, especially in gold, bolstered by new incentive schemes and policies. However, the energy sector is facing challenges, operating below capacity, and presenting opportunities in renewable energy.

Activity, trends and developments in legal and business sectors

Increased Focus on Compliance 

With the introduction of various tax reforms and regulatory changes, there is a growing demand for legal services related to compliance, tax advisory, and corporate restructuring.

Growth in Specific Sectors 

Sectors such as mining, agriculture, and renewable energy are experiencing growth, leading to increased legal activity around investments, environmental regulations, and contractual agreements in these areas.

New Policies Impacting Clients 

Tax reforms 

The 2024 Budget Statement’s tax reforms, including changes in personal income tax, corporate income tax, and VAT, will significantly affect business operations and individual finances, necessitating legal advice for compliance and optimisation.

Renewable energy policies 

New incentives and policies in the renewable energy sector will lead to an uptick in green investments, requiring legal expertise in environmental law and energy regulations.

2024 Budget Statement highlights 

The Finance Minister’s 2024 Budget Statement introduced critical tax reforms:

Personal income tax 

Raised monthly tax-free threshold and revised tax bands.

Corporate income tax 

Increased to 25%.

VAT changes 

Lowered registration threshold and revised zero-ratings and exemptions.

New tax measures 

These include a domestic minimum top-up tax, changes in VAT deferment for capital goods, increased surcharges on high-value vehicles, a new levy on selected minerals, a sugar content levy in beverages, and the introduction of a wealth tax on certain residential properties.

These reforms aim to enhance revenue collection, fiscal responsibility, and align with global tax standards, impacting various sectors and individuals.

Payroll and taxation requirements 

Payroll – tax brackets are annually reviewed. The highest tax bracket for 2024 is 40%.

Corporate tax – charged at 25%.

Value added tax – levied at 15%.

Withholding tax – levied at 15%, applicable on dividends, interests, management fees, and services rendered from abroad.

National Social Security Authority (NSSA) – mandatory, with a 9% contribution based on the Poverty Datum line, split equally between employee and employer.

Capital gains tax – levied at 5%.

Security Registration 

The law applicable to commercial transactions in Zimbabwe is a combination of statute and common law. Where statute is silent on a particular aspect, we refer to common law.

Different forms of security which a creditor can take are recognised under Zimbabwean law and the perfection of each security varies depending on the form of security. The Deeds Registries Act [Chapter 20:05], (the “Deeds Registries Act”) provides for the perfection of certain specified securities by way of stamping and registration. In particular, Part V of the Deeds Registries Act regulates the passing of security over immovable property. This is done in the form of mortgage bonds which are perfected by registration and stamping. In the event of liquidation, bonds rank according to the sequence of their registration. Accordingly, bonds that are registered first rank higher.

The Movable Properties Security Interests Act [Chapter 14:35] regulates the perfection of security registered over movable property. This is done by registration on the Collateral Registry, which is an online registry housed at the Reserve Bank of Zimbabwe. All types of security registered over movable property, including notarial bonds, which were previously registered in terms of the Deeds Registry Act, are to be registered with the Collateral Registry in terms of this Act.

Security documents executed and governed by other jurisdictions, such as English law, remain valid and enforceable in Zimbabwe and are not required to be stamped or registered to complete perfection.

Political Context 

President Mnangagwa secured 52.6% of the vote in the recent harmonised elections, against 44% for Nelson Chamisa, his main challenger, as per the official results announced by the Zimbabwe Electoral Commission (ZEC).

Potential Hurdles for Clients and Solutions 

Navigating multicurrency complexities 

Clients may face challenges in financial transactions and investments due to the multicurrency environment. Legal professionals can provide crucial guidance in managing these complexities, ensuring compliance with foreign exchange regulations.

Dealing with tax reforms 

The new tax measures could pose challenges in financial planning and compliance. Legal advisers can assist clients in understanding these reforms, providing strategies for tax efficiency, and ensuring adherence to the new laws.

Investment in volatile sectors 

While sectors like mining and agriculture offer opportunities, they also come with risks due to economic instability and regulatory changes. Legal counsel can help clients navigate these risks, offering advice on contracts, due diligence, and regulatory compliance.

Conclusion  

Zimbabwe’s business environment in 2024 is a complex blend of opportunities and challenges. The government’s strategic initiatives and policy reforms are geared towards creating a more stable and growth-oriented economy. Businesses operating in Zimbabwe must navigate a landscape marked by changing tax laws, a multicurrency system, and varying economic indicators. However, sectors such as mining, agriculture, and renewable energy offer substantial opportunities for investment and growth. With strategic planning and adherence to the evolving regulatory framework, businesses can tap into the potential of the Zimbabwean market, keeping in mind the dynamic political and economic context.

In the same vein, the economic volatility, tax reforms, and sector-specific developments create a complex environment for clients. In 2024, legal professionals will play a crucial role in guiding clients through these challenges, offering expertise in compliance, investment strategies, and navigating the dynamic economic and regulatory landscape. With informed legal support, businesses and individuals will effectively adapt to and capitalise on the evolving conditions in Zimbabwe.