EXPLORE CENTURION

AFCFTA

NAVIGATING LOCAL CONTENT REGULATIONS: A GUIDE FOR FOREIGN INVESTORS IN ZAMBIA

Zambia is a land-linked country located in the Southern Africa sub-region, surrounded by eight neighboring countries. It is bordered by Tanzania in the North East, Malawi in the East, Mozambique in the South-East, Zimbabwe in the South, Botswana and Namibia in the South-West, Angola in the West, and the Democratic Republic of Congo in the North. The country’s ‘land-linked’ geography means that regional integration and cooperation is crucial to the development of its economy. Zambia’s neighbors represent an estimated market of over 320 million people and preferential access is assured through its membership of the COMESA and SADC.

Establishing a foreign company in Zambia presents a world of promising opportunities, but also requires a deep understanding of the country’s local content regulations. These regulations are designed to foster economic growth, create employment opportunities, and guarantee compliance to national guidelines. The procedure for incorporation of companies in Zambia is primarily regulated by the Companies Act Zambia 2017 and the Patents and Companies Registration Agency (PARCA), the key regulatory body charged with the responsibility to oversee company formation and regulation. Foreign enterprises seeking to operate in Zambia can opt for various approaches to establish their presence. The most common ways involve registering a company as a foreign company or a subsidiary company. Nonetheless, it is not uncommon for entities incorporated in different jurisdictions to set up partnerships and joint ventures with local entities or to appoint local agents or engage in franchise agreements to solidify their structure .

When embarking on the establishment of a business in Zambia, careful consideration of various factors is essential. These include determining appropriate business structure, addressing prerequisites for local partners or shareholders, ensuring compliance with laws and regulations, navigating industry specific regulations, devising effective business management strategies, allocating share capital, managing applicable taxes, securing necessary permits, licenses and approvals required, and abiding by labor and intellectual property laws. For instance, local content regulations impose a minimum Zambian shareholding threshold ranging from 51% to 75%, depending on the type of proposed activity – trade and registration of heavy vehicles would require Zambian shareholding of 51% while mining and land holding/real-estate activities would require 75% Zambian shareholding.
Investors looking to navigate such local content requirements may take advantage of setting up a wholly foreign-owned entity subject to meeting the following qualifying conditions to obtain an investment license. Foreign-owned entities are required to designate at least one local qualified director who must be a resident of Zambia. If the company has more than two local directors, half of them are required to be residents of Zambia . Additionally, the appointment of a documentary agent whether a registered firm, corporate entity in Zambia or an individual resident in Zambia is essential . Foreign-owned entities wishing to apply for and operate with an investment license must pledge to invest at least USD 250,000 in the Zambian economy by way of their intended business activity. Moreover, foreign-owned entities investing at least USD 500,000 may enjoy additional fiscal incentives such as accelerated depreciation on capital equipment and machinery (fixed assets) and zero percent import duty rate on capital equipment and machinery for five years. It is worthy to note that, in comparison to other jurisdictions allowing wholly foreign-owned entities, the minimum investment required from investment licensees in Zambia may be used for any operational and business purposes, including payment of salary to employees and directors and therefore does not need to be maintained throughout the life of the entity.

One of the most potent investment opportunities in Zambia lies in the mining sector. Indeed, it accounts for over 14% of the country’s GDP with copper accounting for the largest share of the country’s export earnings. Zambia is endowed with various mineral resources including copper, cobalt, lead and zinc which are the most developed. Other minerals found in Zambia include gold, nickel, iron and magnesium. There are also gemstones such as emeralds, amethyst, aquamarine, rubies, garnets and diamonds. The abundance of mineral resources provides great investment opportunities in the mining sector especially in the areas of exploration for new mineral deposits, gemstone cutting and polishing, establishment of new mines, and reclaiming copper from slug tailing dumps. Also, Zambia has high grade copper deposits compared with other mining countries with its grades averaging between 2% and 3% in comparison to the global average of 0.8%.

In successfully navigating local content regulations in Zambia, it is essential for prospective foreign businesses to diligently adhere to the rules and regulations governing these processes while seeking guidance from legal and business experts. As Zambia continues to enhance its business landscape and solidify global economic stance, foreign enterprises can seize the array of prospects offered within its borders. By embracing and navigating local content requirements, businesses can contribute not only to their own success but also to the broader economic advancement in Zambia.

Reach out to our team of lawyers and business advisors at Centurion Law Group who can seamlessly guide you through Africa’s abundant investment opportunities and provide you with tailored advice based on your specific business goals and industry.

Leon Van Merwe – leon.vdmerwe@centurionlg.com
Keseena Chengadu – keseena.chengadu@centurionlg.com

Authors: Ariteshoma Etete and Ashiv Parianen

Read More