Zambia’s Presence on the Auditing and Accountancy Landscape
Below is an excerpt of an interview held with KPMG Zambia’s Senior Partner and CEO, Jason Kazilimani:
Traditionally, KPMG has focused on financial services clients, however, here in Zambia our clients hail from all sectors of the economy (including agriculture, mining, manufacturing, government, NGOs). The difficulties they face from a business perspective can be equally varied, but common themes include issues with dealing in a volatile currency (the Zambian kwacha has depreciated significantly over the past year), significant and unpredictable changes in the tax and regulatory regimes, and difficulty with sourcing reliable local supply chains. In all of these areas, knowledge of the local political and business environment can be essential to proactively manage these areas, and we at KPMG try to provide that in-depth understanding.
How big is KPMG’s client base in Zambia? How competitive is the auditing and accountancy landscape in Zambia?
KPMG has a wide client base in Zambia, including a number of blue chip clients and clients listed on the Lusaka Stock Exchange. The auditing and accountancy landscape is competitive, all of the Big 4 are active in Zambia and are well established.
What is the process associated with conducting an audit? When do you recommend that companies conduct an audit? Are there any mandatory audits?
We typically follow International Standards on Auditing, but for those with a US nexus we will use the US framework. Strictly, all companies incorporated under the Zambian Companies Act are required to have an audit. However, in practice we are aware that many companies do not adhere to this requirement. We would recommend that they do. Even entities that are not established as Zambian incorporated companies often request an audit to be done, either because external financiers require this, or in order to enhance corporate governance within the organisation.
What compliance and regulatory issues typically arise for foreign companies in Zambia? What are the consequences facing companies that do not comply with the regulations in Zambia?
The regulatory regimes applicable to foreign companies obviously depend on the sectors they operate in. However, the biggest issues currently facing all companies in our experience relate to tax, social security, and employment permits. In particular, at the moment it can be difficult for foreign businesses to obtain employment permits for skilled expatriate staff. There can be challenges in finding Zambian staff with certain specific skills locally and therefore depending on the industry in which a business operates this restriction on employment permits can be problematic. Otherwise, Zambia has a system of company law based on the UK system, and it is relatively simple to establish and operate a limited liability company. In addition, Zambia has no onerous foreign exchange control regulations, save for a brief period after short-lived rules introduced in 2013.
What tax disputes do you commonly advise our clients on? How can clients avoid disputes regarding tax?
The Zambia Revenue Authority (‘ZRA’) is active and large businesses can find themselves audited relatively frequently (e.g. every three years). Whilst these audits are conducted fairly they can require significant time and resources from local management, especially since issues arising therefrom can take several years to resolve in some instances. Common areas of compliance failure include withholding tax failures, failure to account for reverse VAT (which should arise on imported services and is irrecoverable unless the foreign supplier has appointed a tax agent), failures with PAYE (especially regarding expatriate staff and benefits provided to employees), and VAT Rule 18 (which sets out stringent documentation requirements for exporters of goods). If the ZRA do uncover such errors, then the penalties and interest imposed can be significantly larger than the original tax underreported.
Zambian social security (‘NAPSA’) is relatively simple to operate, but the penalties for compliance failures are very large so it is also important to ensure that NAPSA is dealt with appropriately.
I would always suggest that clients seek practical advice early on, especially to understand how the ZRA are likely to view any unusual transactions or scenarios. Clients should also review their internal systems and tax filings periodically. If issues are uncovered they should engage with the ZRA as much and as early as possible since this can mitigate penalties.
For those starting a company in Zambia, what advice would you give them to help them avoid any pitfalls they may encounter regarding the regulations in Zambia?
It is worth investing time upfront to ensure that you fully understand all regulations and how they apply to your circumstances. The Zambia Development Agency is keen to encourage investment into Zambia and can be a useful starting point, and they can put you in touch with relevant government stakeholders if appropriate. Once you understand the regulatory regime then it is key that local staff are fully trained, especially more junior staff who may have less practical work experience. I would then suggest a review after 6 months to a year of operations to ensure that everything is functioning correctly and to identify and resolve problems quickly. Given that any potential penalties are time-based and can build up quickly it is important to start off correctly from the onset.
Zambia has great investment potential and despite the comments above, the regulatory regime and general ease of doing business is considerably more suited to foreign investors than a number of the regimes in neighbouring countries. The population, especially in the big cities, have a good level of education and generally speak English fluently.