Cross-border transactions: exchange control and currency questions to settle first

Cross-border trade is where Zimbabwean businesses most often discover that a transaction which made commercial sense is difficult to execute, account for, or repatriate. The constraints are not primarily tax constraints. They are exchange control constraints, and they need to be understood before a contract is signed rather than after an invoice is raised.

The framework

Exchange control in Zimbabwe operates under the Exchange Control Act [Chapter 22:05] and the regulations and directives issued under it. The Reserve Bank of Zimbabwe administers the framework, and much of it is implemented in practice through authorised dealers — the commercial banks licensed to process foreign-currency transactions.

This is the structural point that matters. For most routine transactions you will not be dealing with the RBZ directly. Your authorised dealer applies the rules, requires the documentation, and declines what does not comply. Your banking relationship is therefore an operational dependency for cross-border trade, not merely a payments arrangement.

Exports

Exports are documented and monitored. Exporters are generally required to declare shipments through the prescribed export declaration process, and export proceeds are expected to be received and accounted for within defined timeframes. Failure to acquit an export declaration is treated seriously — an unacquitted declaration is, on its face, value that left the country without proceeds returning.

Export receipts have historically been subject to surrender or retention arrangements, under which a proportion of foreign currency received is converted at a prescribed rate and the balance retained. These arrangements have been amended frequently, and the applicable proportions have changed more than once in recent years.

Imports and outbound payments

Outbound payments require supporting documentation demonstrating the underlying commercial substance — typically the supplier invoice, the contract, shipping and customs documentation for goods, and evidence of delivery for services. Authorised dealers apply due diligence to these before releasing funds.

Payments for services and intangibles attract more scrutiny than payments for physical goods, for the obvious reason that the evidence of receipt is weaker. Management fees, technical service fees, royalties and licence payments to related parties abroad sit at the intersection of exchange control and transfer pricing, and should be supported by a written agreement, a defensible basis for the amount, and evidence the service was actually rendered.

Currency and reporting

Zimbabwe has operated a multi-currency environment for an extended period, and the domestic unit has changed — most recently with the introduction of the Zimbabwe Gold (ZiG) currency, carrying the code ZWG. For accounting purposes this raises three questions that must be answered deliberately rather than by default:

1. What is the entity’s functional currency? This is determined by the economic substance of its operations — the currency that mainly influences its selling prices and costs — not by preference or by what the accounting system defaults to.
2. What is the presentation currency of the financial statements, and does any external requirement dictate it?
3. Which rates are applied on translation, at which dates, and what is the source of those rates? The answer must be applied consistently and documented.

Zimbabwe has been designated a hyperinflationary economy for financial reporting purposes, which brings IAS 29 into play for entities reporting under full IFRS. That is a specialist area with material consequences for reported results, and it should be scoped explicitly at the start of an engagement rather than discovered during the audit.

Tax consequences that travel with the transaction

Cross-border payments frequently attract withholding taxes in Zimbabwe. Where a double taxation agreement exists with the counterparty’s jurisdiction, it may reduce the rate — but treaty relief is not automatic. It generally requires evidence of the recipient’s residence and beneficial ownership, obtained before the payment is made.

Zimbabwe has concluded double taxation agreements with a number of countries, including partners in the SADC region. Whether one applies, and what it provides for a particular payment type, is a question to answer per transaction rather than in general.

The questions to settle before signing

• In what currency is the contract priced, and who bears the currency risk between invoice and settlement?
• Can your authorised dealer process this payment, and what documentation will it require?
• If this is an export, what acquittal obligation does it create and by when?
• What withholding tax applies, is treaty relief available, and who bears it under the contract?
• How will the transaction be recorded — original currency, rate, and rate source?

None of these questions are difficult to answer in advance. All of them are difficult to fix afterwards.