Notice of Group Structure

In line with Section 54 of the Income Tax Act and the Zambia Revenue Authority (ZRA) guidelines, we wish to advise that it is a requirement for you to inform the ZRA of the establishment of group relationships’ including your Head Office and other related companies located outside Zambia. There are penalties for failure to notify ZRA of the group formation. In the absence of any existing engagement for this assignment, we could handle this requirement on your behalf at a fee acceptable to both parties.

What is transfer pricing

Transfer price is the price at which transactions are carried out between companies part of the same group (i.e. related companies or related parties).

The transactions carried out between related companies must comply with the arm’s length principle, which is at the heart of any transfer pricing analysis. This means that the prices applied in transactions between companies from the same group must be the same with the prices charged by independent companies in comparable economic conditions. Otherwise, profits will not be correctly reflected in the jurisdiction of each related company involved in the transaction.

Transfer pricing is a system of laws and practices used by countries to ensure that goods, services, intellectual property and resources transferred or shared between affiliated companies are appropriately priced based on market conditions. This is important as transfer pricing may inflate profits in low tax jurisdictions and decrease profits in high tax countries – the so called “base erosion and profit shifting” concept.

Who is subject to transfer pricing regulation?

Generally, most companies being part of a group and carrying out business transactions with other entities of the same group in two or more countries are required to prepare a transfer pricing documentation file.

Section 97A of the Income Tax Act, Chapter 323 of the Laws of Zambia, as read together with the Transfer Pricing Regulations and the Transfer Pricing Rules, as amended, and in line with the OECD Transfer Pricing Guidelines and the UN Practical Manual on Transfer Pricing, require a person (company), whose annual turnover is at least K20 million per annum, if incorporated as an independent company in Zambia to prepare and, on request from the Commissioner General of the ZRA, submit the documentation relating to transactions between associated persons. For a person (company) incorporated as part of a group of companies with one party in Zambia and the other related party incorporated outside Zambia (either Parent Company or Subsidiary Company) the regulation applies regardless of the annual turnover not exceeding K20 million per annum. There are penalties for failure to comply, currently at K24 million, and subsequently the documentation would still be required to be submitted to ZRA. This Transfer Pricing Documentation be prepared by 21 June for each tax year.