Introduction
Withholding tax on interest is one of the mechanisms the Zimbabwe Revenue Authority (ZIMRA) uses to ensure efficient tax collection and compliance. It is a form of tax deducted at the source—meaning before an interest payment reaches the recipient, a portion of it is retained and remitted to the government.
For both individuals and corporate entities, understanding how this tax functions is essential to remaining compliant, avoiding penalties, and planning financial activities more accurately.
What is Withholding Tax on Interest?
Withholding Tax on Interest is a tax deducted from interest income before it is paid to a recipient. This applies to interest earned from savings accounts, fixed deposits, treasury bills, corporate bonds, and other interest-bearing instruments.
The responsibility of deducting and remitting this tax lies with the payer of the interest—usually banks, financial institutions, and government entities—who act as withholding agents on behalf of ZIMRA.
Legal Framework
Withholding Tax on Interest in Zimbabwe is governed under:
- The Income Tax Act [Chapter 23:06]
- Finance Acts (as amended annually)
- ZIMRA regulations and guidelines
The law mandates withholding at a specified rate unless exemptions or special rules apply.
Who is Liable?
The tax affects residents and non-residents who receive interest income from Zimbabwean sources. Here are the key categories:
1. Individuals
Residents who earn interest from savings and fixed-term deposits.
2. Corporate Entities
Businesses that hold interest-bearing investments.
3. Non-Residents
Foreign entities or individuals receiving interest income from Zimbabwe.
4. Financial Institutions
Act as withholding agents by deducting tax before crediting interest.
Current Withholding Tax Rate on Interest
As of 2025, the withholding tax on interest in Zimbabwe is:
- 15% for residents
- Non-residents are subject to a rate of 15% to 25%, depending on double taxation agreements (DTAs) between Zimbabwe and the recipient’s country.
Note: The Ministry of Finance may adjust rates annually. Always confirm the latest figures with ZIMRA.
Examples of How It Works
Let’s break it down with a practical example:
Example 1: Resident Individual
- You earn ZWL 1,000,000 in interest from a fixed deposit.
- Withholding tax = 15% of 1,000,000 = ZWL 150,000
- You receive ZWL 850,000 in net interest.
Example 2: Non-Resident Entity
- A foreign investor earns USD 100,000 interest from a Zimbabwean bond.
- Withholding tax (at 25%) = USD 25,000
- Net interest = USD 75,000
When and How the Tax is Deducted
The withholding tax must be deducted at the time the interest is either:
- Paid to the recipient, or
- Credited to their account
The payer (e.g., a bank) must remit the deducted tax to ZIMRA within 10 days of the end of the month in which the deduction was made.
Payment Process:
- Deduct tax at the applicable rate
- Issue a Withholding Tax Certificate to the recipient
- Remit payment using a Business Partner Number (BP Number)
- Submit a return (WHT1 Form) to ZIMRA
Institutions Responsible for Withholding
The following institutions typically serve as withholding agents:
- Commercial Banks
- Building Societies
- Microfinance Institutions
- Government Treasury Departments
- Bond Issuers
- Corporate Lenders
Failure by any of these entities to withhold or remit taxes can lead to legal penalties.
Exemptions and Special Cases
While the tax is broad, several categories are exempt under Zimbabwean law.
1. Pension Funds and Retirement Schemes
Interest earned by approved pension and retirement funds is exempt.
2. Charitable Organizations
Registered charities may be exempt if interest is used for charitable purposes.
3. Tax-Exempt Government Bonds
Certain government-issued instruments are exempt from withholding tax.
4. Exemption Certificates
Entities can apply to ZIMRA for exemption if they meet specific criteria (e.g., non-profit status or special development mandate).
Tax Credits and Double Taxation Agreements (DTAs)
Double Taxation Agreements
Zimbabwe has DTAs with countries like South Africa, China, and the UK. These treaties often reduce withholding tax rates for non-residents.
For example:
- South African residents may be taxed at 10% instead of 15% or 25%
To claim the reduced rate:
- The recipient must provide a certificate of residence from their home country
- Submit an application to ZIMRA for approval
Tax Credits
If the interest is also taxed in another jurisdiction, the Zimbabwean taxpayer may be eligible for a foreign tax credit under applicable laws.
Impact on Taxpayers
For Individuals
Withholding tax is final for individuals—it does not require the individual to file additional tax returns related to that interest income.
For Companies
Corporates may still need to declare interest as income, but the withholding tax is credited against their overall tax liability.
Penalties for Non-Compliance
For Withholding Agents (e.g., Banks)
| Offense | Penalty |
| Failure to withhold tax | 100% of the unremitted amount |
| Late remittance | Interest at 10% per annum + penalties |
| Failure to submit returns | ZWL 30,000 or more depending on duration |
For Recipients
- Making false declarations may lead to fines or prosecution
- Failure to present exemption certificates leads to full taxation
ZIMRA conducts periodic audits and may impose interest and penalties retroactively for non-compliance.
Role of Technology and E-Filing
To streamline processes, ZIMRA has adopted an e-services platform for withholding tax remittance:
- Online submission of WHT1 returns
- Electronic payment integration with local banks
- Real-time tax certificate generation
This digital approach aims to reduce manual errors and increase compliance.
Strategic Tax Planning Tips
- Know Your Status: Understand if you qualify for an exemption or reduced rate under DTAs.
- Use Tax-Free Instruments: Opt for interest-bearing investments exempt from withholding tax.
- Keep Records: Always retain your withholding tax certificates.
- Consult a Tax Advisor: Especially for complex scenarios involving cross-border investments.
Future Developments
As Zimbabwe continues to reform its tax system under the National Development Strategy 1 (NDS1), we can expect:
- Broader digital integration with ZIMRA’s systems
- Stricter enforcement of tax remittance timelines
- Increased coordination with foreign tax authorities
- Revisions in applicable rates depending on economic needs
These developments aim to balance revenue collection with investor confidence.
Conclusion
Withholding tax on interest is a critical component of Zimbabwe’s tax infrastructure. It provides an efficient way for the government to collect revenue while ensuring that interest income—especially from passive investments—is taxed appropriately. Whether you’re an investor, a bank, or a multinational firm, staying compliant with this tax is essential.
By understanding the obligations, exemptions, and procedures involved, you can avoid penalties, make informed financial decisions, and potentially reduce your tax burden through legal channels like DTAs and exemptions.
For more information, consult the ZIMRA official website or speak to a qualified tax advisor.
