The national budget mid-term review, announced 1 August 2019, reflects a clarification to the thin capitalisation measures under the transfer pricing rules in Zimbabwe.
The transfer pricing rules in Zimbabwe apply for taxpayers that operate in more than one tax jurisdiction and that have cross-border transactions with related parties or entities, as well as for taxpayers that are part of a domestic group of companies and that have intercompany transactions with local (domestic) related parties. Read TaxNewsFlash
The transfer pricing rules in Zimbabwe include thin capitalisation measures—in general, under these measures, interest expenses are disallowed on the portion that causes the debt-to-equity ratio to exceed 3:1 (three to one).
With the budget mid-term review, clarifications were provided concerning application of the thin capitalisation rules. With this clarification, these rules (that is, the interest expense restriction) do not apply with regard to interest on debt with a Zimbabwe domestic financial institution that is not associated with the taxpayer, when they have not colluded to avoid tax, or with regard to debt contracted through a government credit facility by a public entity (as defined under the Public Entities Corporate Governance Act).
Read an August 2019 report [PDF 2 MB] prepared by the KPMG member firm in Zimbabwe
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