VAT Registration and Responsibilities in Zimbabwe

Value Added Tax (VAT) is a crucial aspect of Zimbabwe’s tax system, and understanding its implications is essential for any business operating in the country. This comprehensive guide provides a detailed overview of VAT registration, responsibilities, and compliance strategies, ensuring that your business stays on the right side of the law and maximizes its financial efficiency.

What is Value Added Tax

VAT is an indirect tax levied on the value added to goods and services at each stage of production and distribution. In Zimbabwe, VAT is governed by the Value Added Tax Act [Chapter 23:12] and administered by the Zimbabwe Revenue Authority (ZIMRA). VAT is charged on taxable supplies and is ultimately borne by the final consumer.

Who is Liable to Register for VAT in Zimbabwe

Any person who trades in taxable supplies and whose annual taxable turnover:

• Exceeds or is likely to exceed US$40,000.00 (or ZWL equivalent) within a period of 12 months

is required to register for VAT. This threshold is a key trigger for VAT registration.

Exempt Supplies

Certain supplies are exempt from VAT in Zimbabwe. These include:

• Financial services, such as banking and insurance.
• Education services provided by registered educational institutions.
• Healthcare services provided by registered medical practitioners.
• Basic foodstuffs.
• Accommodation and tourism related services offered directly to tourists and exports of goods and services.

Understanding which supplies are exempt is crucial for accurately determining your VAT obligations.

How to Register for VAT in Zimbabwe?

VAT registration can be done either online via the ZIMRA e-services portal or manually by submitting a completed REV 1 form to a ZIMRA office. Here’s a step-by-step guide:

Gather Required Documents:

1. Complete the REV 1 form.
2. Bank Statement showing trade.
3. A valid lease agreement or title deed.
4. Sales invoices for the period from commencement of trade to the application date.
5. A sales schedule for the period from commencement of trade to the application date.
6. Sales projections schedule for the next 12 months.
7. A letter appointing a public officer.

Choose Registration Method:

1. Online Registration: Access the ZIMRA e-services portal and follow the instructions to upload the required documents.
2. Manual Registration: Download the REV 1 form from ZIMRA’s website, complete it, and submit it along with the required documents to the nearest ZIMRA office.

Submit Application:

1. Ensure all documents are accurately completed and submitted to ZIMRA.

Processing Time:

1. ZIMRA will process the VAT registration application within 14 days of receiving all the required documents.

VAT Registration Categories

VAT registered businesses will fall into one of the following registration categories:

• Category A: Businesses that are required to submit VAT returns monthly
• Category B: Businesses that are required to submit VAT returns after every two months
• Category C: Businesses that are required to submit VAT returns after every three months

ZIMRA will consider the size of the company and the nature of business to determine which VAT category a company will fall into.

Upon VAT Registration

Once registered for VAT, a business will be issued with a VAT number and advised of its VAT category. The business will also be required to start charging VAT on its taxable supplies and filing VAT returns with ZIMRA according to its registration category.

Once VAT registered, one needs to acquire a fiscal device and interface with ZIMRA.

Responsibilities of VAT Registered Operators

Once registered for VAT, businesses have specific responsibilities to fulfill:

• Charging VAT: Charging the correct VAT rate on all taxable supplies. The standard VAT rate in Zimbabwe is currently 14.5%, though this is subject to change.
• Issuing Tax Invoices: Providing valid tax invoices that include the supplier’s VAT registration number, date of issue, description of goods or services, and the amount of VAT charged.
• Filing VAT Returns: Submitting VAT returns to ZIMRA within the prescribed timelines. VAT returns detail the VAT collected on sales (output tax) and the VAT paid on purchases (input tax).
• Maintaining Records: Keeping accurate records of all VAT-related transactions, including invoices, receipts, and VAT returns.
• Remitting VAT: Paying the net VAT amount (output tax minus input tax) to ZIMRA by the due date.
• Interface with ZIMRA: Ensuring VAT returns are accurately submitted to ZIMRA via integration with ZIMRA’s online portal.

VAT on Imports and Exports

• Imports: VAT is levied on imported goods at the point of entry into Zimbabwe. This is typically handled by ZIMRA’s customs division.
• Exports: Exported goods are generally zero-rated for VAT purposes, meaning no VAT is charged on the sale. However, exporters must maintain proper documentation to support the zero-rating.

Input Tax Credits: Claiming Back VAT

One of the key benefits of VAT registration is the ability to claim input tax credits. This means you can deduct the VAT you’ve paid on business purchases from the VAT you’ve collected on sales. However, there are rules and restrictions:

• Valid Tax Invoices: You must have valid tax invoices to support your input tax claims.
• Business Purpose: The purchases must be directly related to your business activities.
• Exclusions: Certain expenses, such as entertainment, may not qualify for input tax credits.
• Three month rule: Input tax credits may not be claimed after three months has elapsed from the date of the invoice.

Accurate record-keeping is essential for maximizing your input tax credits.

Failure to Register for VAT

Failure to register for VAT when required to do so is an offence and may result in penalties and interest being charged by ZIMRA.

Common VAT Errors and How to Avoid Them

• Incorrect VAT Rates: Always use the correct VAT rate.
• Missing Invoices: Ensure all invoices are valid and complete.
• Late Filing: Submit VAT returns on time to avoid penalties.
• Inaccurate Records: Maintain accurate records of all transactions.
• Claiming Ineligible Input Tax: Claiming ineligible input tax is one of the most common mistakes.

VAT Audits

ZIMRA conducts VAT audits to ensure compliance. If your business is selected for an audit, here are some tips:

• Cooperate Fully: Provide all requested documents promptly.
• Seek Professional Advice: Engage a tax consultant to assist you.
• Address Issues Promptly: Rectify any errors or omissions.

Conclusion

Understanding VAT is more than just a legal requirement; it’s a tool that can help your business grow and thrive. By staying informed, maintaining accurate records, and working with professionals, you can navigate the VAT landscape with confidence and unlock the full potential of your business in Zimbabwe.