By Florence Jambwa
Comparing two of Zimbabwe’s key DTAs provides valuable insights for organising cross-border investments. This is because Zimbabwe’s tax treaty network is not uniform. The specific terms differ considerably between partners, reflecting varying negotiating priorities and economic ties. A side-by-side comparison of the treaties with the United Arab Emirates (UAE – 2020) and South Africa (2016) reveals intriguing nuances that directly influence business decisions, for Example.
- The “Permanent Establishment” (PE) threshold
Both treaties shield businesses from unintentionally establishing a taxable presence. However, the timelines for creating a PE through service or project activities vary. - Zimbabwe-UAE Treaty (Article 5)
A building site or service project constitutes a PE only if it lasts more than six months. - Zimbabwe-South Africa Treaty (Article 5)
The threshold for service activities is stricter, creating a PE if services continue for a period or periods exceeding 183 days in any 12-month period.
The key point is that a project lasting seven months could be taxable in Zimbabwe under the UAE treaty but might not yet establish a PE under the South Africa treaty, depending on the specific 12-month period. Planning around these timelines is crucial.
Withholding taxes & the cost of capital and IP
The headline rates on cross-border payments are a primary focus of any DTA.
| Payment Type | Zimbabwe-UAE Treaty Rate | Zimbabwe-South Africa Treaty Rate |
| Dividends | 5% (General) | 5% (if owning ≥25% capital) &10% (All other cases) |
| Interest | 0% (in the source state) | 5% (General) |
| Royalties | 9% | 10% |
| Technical Fees | 6% | 5% |
The key point is that the UAE treaty is remarkably favourable for financing, offering a 0% withholding rate on interest. For dividends, the South African treaty incentivises substantial shareholding. This demonstrates that electing the optimal holding or financing structure requires a careful analysis of these rates.
Anti-abuse and modern provisions
The newer UAE treaty includes clear, modern language aimed at preventing “treaty shopping”, where residents of a third country try to access treaty benefits through a conduit company. Articles 11(6), 12(6), and 13(6) all contain a “Principal Purpose Test” (PPT), denying benefits if one of the main purposes of a transaction was to secure a treaty advantage.
The main point is that the era of using treaties solely for tax arbitrage has come to an end. The principle now emphasises substance over form, and your business structures must have a genuine commercial rationale to benefit from these fiscal arrangements.
Our take
Our take on this subject is that one size does not fit all. The differences outlined above underscore a fundamental truth: that a strategy that works for a South African investment may be suboptimal for a UAE-based one.
Success hinges on a treaty-specific, article-by-article analysis of the tax treaties conducted with an expert, and we are able to provide that guidance.