Introduction to the Country
The inability of those in power to still the voices of their own consciences is the great force leading to change. Kenneth Kaunda, President of Zambia 1964-1991
Constitutional democracy with an elected President
Common Law, based on the English system
GDP of approximately US$16 billion and GDP growth of 6% per annum, per capita income of about US$ 1,400. Inflation is at approximately 13.8%. Main industries are copper mining and processing, construction, foodstuffs, beverages, chemicals, textiles, fertilizer, horticulture.
Finance and Tax matters
(a) Financial assistance
(i) Does the concept of financial assistance exist
Yes but the âwhite wash procedure can be used.
(b) Lending restrictions/banking monopolies
(i) Any restrictions applicable to the importation of capital by lenders?
(ii) Requirement for the lenders/security agent to be registered in the jurisdiction?
(iii) Can foreign lenders lend into the jurisdiction?
(c) Restrictions relating to repatriation of dividends
(i) Are there any restrictions relating to repatriating dividends?
(i) Are there any restrictions on the convertibility of the jurisdictions currency?
(e) Interest payments
(i) Are there any restrictions on the payment and compounding of interest? If so, does this also affect both local and foreign lenders?
Compound interest is legal provided the parties expressly agree to it. However, penal interest is illegal under the law.
(i) Are there any withholding tax issues in relation to interest payments and fees to foreign lenders or payments received under any agreements?
There is withholding tax on interest payments, management fees/consultancy fees.
(ii) List of double taxation treaties.
Several countries have signed a Double Taxation Agreement with Zambia that have been included in the Income Tax Act as subsidiary regulation which includes:
- South Africa
- United Kingdom
(iii) Lender risks in respect of tax liabilities/tax domiciliation as a result of providing debt and/or taking/enforcing security interests
(iv) Can loan repayment / enforcement proceeds be treated negatively from a tax perspective for the lenders?
(g) Stamping costs
(i) Details of stamp duty costs
No stamp duty is payable in Zambia
Security, Enforcement and Insolvency
(a) Overview of security regime
(i) Can a security interest be obtained over a companys assets, e.g.:
(A) accounts receivable (book debts); Yes
(B) inventory (stock in trade); Yes
(C) shares of a company (issued and authorised); Yes
(D) equipment; Yes
(E) real property; Yes
(F) insurances; and Yes
(G) project contracts. Yes
(ii) Can shares of a project company validly be pledged and enforced under an English law share charge?
(iii) Can a company grant a security interest in order to secure its obligations (i) as a borrower under a credit facility, and (ii) as a guarantor of the obligations of other borrowers and/or guarantors of obligations under a credit facility?
(iv) If the borrowings to be secured are under a revolving credit facility, are there any special priority or other concerns?
Priority will be accorded by registration of the security
(v) Can the relevant security interests be granted to a security agent or trustee on behalf of the lenders from time to time?
(vi) Please indicate the claims that would have priority over the relevant security interests.
The payment to preferential creditors in priority in event of liquidation or the appointment of a receiver under a floating charge as provided by s.346 of the Companies Act is as follows:
(A) Liquidation costs: the costs and expenses of the winding-up or receivership and the remuneration of the liquidator or receiver;
(B) All amounts due:
- by way of wages or salary accruing to any employee within the period of three months before the commencement of the winding-up or receivership;
- leave pay accruing to any employee within the period of two years before the commencement of the winding-up or receivership;
- any paid absence (not being leave) accruing to any employee within the period of three months before the commencement of the winding-up or receivership;
- recruitment expenses or other amounts reimbursable under any contract of employment;
- an amount equal to three months wages or salary, by way of severance pay, to each employee;
- all amounts due in respect of workers compensation under any written law relating to workers compensation accrued before the commencement of the winding-up or receivership;
- any tax, duty or rate payable by the company in respect of any period prior to the commencement of the winding-up or receivership, whether or not payment has become due after that date;
- all Government rents not more than five years in arrears at the commencement of the winding-up; and
- all rates from the company to a local authority having become due and payable within the period of three years before the date of commencement of the winding-up.
(vii) Is there a public security registry?
There is a Companies Registry and a Lands and Deeds Registry
(viii) Formalities in respect of security creation:
(A) Statutory perfection requirements;
The security documents must be registered with the relevant Public Registry for them to be legally enforceable and for purposes of priority.
(B) Any other formalities.
Under the Authentication of Documents Act Chapter 75 of the laws of Zambia (âAuthentication Act) before a document signed outside of Zambia can be used in Zambia it must be authenticated in accordance with the Authentication Act.
(C) Steps for perfection and length of time taken
Apply for registration with either the Companies Registry or the Lands Registry must be made and filed together with the necessary fees. Registration will take between one to two weeks.
(D) Any significant financial costs or significant time delays required to create and perfect the relevant security interest?
(b) Insolvency and enforcement regime
(i) Is there a court or similar register that can be searched in respect of proceedings and insolvency actions ?
The Principle or Commercial Registry of the High Court of Zambia
(ii) Summary of the different options for an insolvency related process.
(A) Voluntary winding up(creditors)- this is a winding up of a company at the instance of the companies creditors
(B) Voluntary winding up(members)- this is a type of winding up of a company at the instance of the members of the company
(C) Involuntary winding up- this is a winding up of a company by the Court.
(D) Receivership- this is a remedy for a secured creditor to allow for the realisation of company assets subject to security
(E) Composition or Scheme of arrangement- this is a Court sanctioned procedure where a compromise or other arrangement with creditors or members is made, which is binding if the appropriate majorities of each class of creditors/members agree
(iii) Are summary or expedited proceedings available?
There are no expedited proceedings available. However, the judiciary has a Commercial registry which was designed to be a fast track court to deal only with matters of a commercial nature.
(iv) Are any governmental or other consents required in connection with:
(A) the enforcement of a security interest in shares;
(B) the enforcement of a security interest in other assets; or
(C) the enforcement of a guarantee (sovereign or otherwise)?
No. The State Proceedings Act provides that you cannot execute against the State
(v) Do lenders inherit all environmental liabilities when they become owner of the shares upon enforcement (or at any other time)?
(vi) Can security interests be enforced by both private sale and public auction, and is it necessary to appoint a court or other official to carry out the enforcement?
Security interest can be enforced both publicly and privately. A company can appoint a person of its choice to carry out the enforcement. It is not necessary to appoint a Court receiver.
Corporate, Insurance and Employment matters
(a) Corporate vehicle
(i) Project company incorporation:
(A) Type of corporate vehicle
A limited liability company is more appropriate. There are no shareholding restrictions. The minimum capital should be K5, 000,000 (with the current dollar/kwacha rate at US $1 to K4700
(B) Issues relating to thin capitalisation
(C) Requirement to have indigenous shareholdings
No such requirement compelling companies to have a certain amount of equity to be held by indigenous Zambians. However under the Citizen Economic Empowerment Act (the Act), companies that meet a particular threshold of Zambian shareholding stand to benefit from various incentives provided under the Act. Companies that fall in any of the following categories as defined by the Act stand to benefit;
Citizen Empowerment Company means a company where twenty-five to fifty percent of its equity is owned by citizens;
Citizen influenced company means a company where five to twenty-five percent of its equity is owned by citizens and in which citizens have significant control of the management of the company;
Citizen owned company means a company where at least fifty point one percent of it equity is owned by citizens and in which citizens have significant control of the management of the company;
(I) Thin capitalisation requirements
No such requirement
(II) Can a limited liability company be established?
(III) Is it possible to use a foreign company or a branch of a foreign company to act as project company?
(D) Estimated timescale for incorporation in the country. Are there any specific fees or other costs payable to governmental authorities in respect of incorporation?
A company can be incorporated within 2-7 days. The fees for incorporating a company with a minimum capital of K5, 000,000 are K245, 000 or 2.5 % of the capital plus K120, 000 where the capital is above the minimum.
(b) General corporate issues
(i) Is a private company free to lend and/or issue guarantees?
(ii) Are there any restrictions on dividend distribution?
None except it must be out of profits
(i) Mandatory insurance: are there any insurances which the project company or the Project is required to have by law (or regulations or similar)?
(ii) Is there any minimum requirement to place the insurance with local insurers or any other similar restrictions? If so, can reinsurance be lawfully placed internationally?
The law requires that all assets in Zambia must be insured by an Insurance Company registered in Zambia. However, reinsurance is lawful where the risk involved cannot be covered by the local insurance companies and approval of the Pensions and Insurance Authority.
(iii) Are there any restrictions in respect of granting security rights over the insurances or reinsurances?
No such restrictions
(i) Legislative/regulatory issues: is there any legislation or regulation impacting on foreign employees, in particular the conditions relating to work and residence permits? Please give an indication of the process and costs in relation to obtaining work and residence permits.
Under the Deportation and Immigration Act, foreign employees must obtain a work permit and the number of foreign employees to be issued with permits will depend on the size investment made as under the Zambia Development Agency, an investor who makes an investment of over $500,000 will get additional incentive to bring more foreign employees into the country .
(ii) Foreign restrictions: are there any restrictions that apply to foreign employees and foreign contractors/subcontractors and if so what do they need to do in order to comply with local legislation?
There are no restrictions applying to foreign employees provided they meet the conditions under the Immigration and Deportation Act. Further foreign contractors are also required to register with the National Construction Council of Zambia for them to participate in any public project.
(a) Land registry: is there a land registry (or similar) in the country that can be searched to confirm whether a project company has granted of any mortgage, charge, option assignment, lien or other encumbrance over the whole or part of the properties or assets of a company?
There is a Lands and Deeds Registry.
(b) Landlords rights: please indicate whether there are any rights which accrue to the landlord (or the government or any other bodies) that may override the terms of a land lease or threaten the rights of a project company particularly any right of repossession or acquisition.
The only risk of acquisition is under the Lands Acquisition Act where the President has power to compulsorily acquire land provided the necessary market compensation is made.
(c) Direct agreement: are you aware as to whether a direct agreement in respect of a lease has been previously been provided to lenders on other transactions?
Not any we are aware of.
(d) Forfeiture rights: do relief from forfeiture rights exist and would the lenders be entitled to rely on such rights?
Yes they exist. Lenders will only be able to access such rights through a receiver over the company.
(e) Is there any additional legislation governing property rights?
The Lands Act states all land is owed by the President. The President can grant a term of up to a maximum of 99 years.
(f) Are there any formalities with which lenders need to comply when enforcing security over land?
There are no specific formalities provided as this is dependant on the security contract.
International law and arbitration
(a) Supra-national treaties
(i) List all Bilateral Investment Treaties to which the country is party.
Germany and Switzerland (in force); Belgium, Luxembourg, China, Croatia, Cuba, Egypt, Finland, France, Ghana, Italy, Netherlands signed but not in force.
(ii) Is the country a signatory to the Energy Charter Treaty?
No. However, Zambia is a member of the Southern Africa Power Pool which is intended for the strengthening of regional power cooperation. The members include; South Africa, Zimbabwe, Zambia, Democratic Republic of Congo, Malawi, Botswana, Tanzania, Swaziland, Namibia, Lesotho, Angola & Mozambique.
(i) Requirements and restrictions applicable to the choice of arbitration roles and place of arbitration
No such restrictions
(ii) Are foreign arbitral awards / decisions are enforceable in the country (i.e. is the country a party to the New York Convention on the Recognition of Foreign Arbitral Awards (the Convention)?
Zambia is a party to the Convention and foreign awards are enforceable upon registration with the High Court of Zambia.