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Property Transfer Tax for the indirect transfer of shares

8 October 2020
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It is possible to overlook property transfer tax (PTT) especially when the transaction is taking place at holding company level. This is for the simple reason that historically PTT in Zambia was only charged where there was a direct transfer of shares.

Beginning 1 January 2018, however, as Government sought to increase its tax base the position changed. Government imposed PTT on the value attributable to a Zambian company (Realized Value) where there is an indirect transfer of shares in a Zambian company.

Following this change, it has not been as easy as expected to calculate the Realized Value.

Currently, PTT payable when the transaction is taking place at holding company level is based on the consideration and the nominal value of the full value of the transaction and not the proportion of the value or consideration of the transaction attributable to the company incorporated in Zambia. This has been an obvious concern considering that 5% of the purchase consideration for a transaction which covers several countries is usually a substantial sum of money.

Further, there has been no clarity on how high-up the tax authorities, Zambia Revenue Authority, will look when there is an ‘indirect’ transfer of shares or if PTT would apply in instances where shares are being transferred in a listed company.

In 2018 and 2019 amendments were proposed and effected to the Property Transfer Tax Act (PTT Act) in an attempt to perfect the application of PTT on the indirect transfer of shares. Looking forward, the 2021 budget has proposed to refine and hopefully carry this through.

The minister of finance, Dr Bwalya Ng’andu, during his presentation of the 2021 National Budget to the National Assembly on Friday, 25 September 2020, mooted that the PTT Act would be amended to among other things,  redefine how the PTT payable on the indirect transfer of shares is determined in an attempt to capture only the Zambian proportion of the value of the consideration or the nominal value.

Specifically, PTT payable in respect of an indirect transfer of shares will either be on the proportion of the consideration for the transferred shares that relates to the value of the Zambian company, or on the proportion of the nominal value of the transferred shares that relates to the value of the Zambian company, whichever is higher.

The proposed amendments will also restrict the application of the PTT Act for an indirect transfer of shares to a transfer that represents at least 10% of the value of shares in the Zambian company. The aim of this proposal is to exempt the transfer of shares by minority shareholders of the foreign company and for shares traded on stock exchanges.

While the proposed amendments will provide some certainty on the PTT payable, other issues such as how the tax authorities will determine the value attributable to a Zambian company, remain unclear. Will the tax authorities undertake their own assessment, or will they rely on the information provided by the parties?

Further, while the value attributable to a Zambian company may be ascertained for one transaction, it may not be the case for another transaction. All this may be clear once the proposed amendments to the PTT Act are approved by Parliament. The approved amendments are expected to take effect on 1 January 2021 or as directed by Parliament.