Itcpartnerships

A partnership is a contractual business relationship between two or more persons joining resources or skills to earn profit jointly. In Zimbabwe, partnerships are a common structure for SMEs, informal sector joint ventures, and professional firms (e.g. law or audit firms) where individuals collaborate without forming a limited company. Under Zimbabwean law, a partnership is not a separate legal person – it exists as an agreement among partners and not as an independent entity. This has important implications: the partnership itself doesn’t pay income tax; instead, tax falls on the individual partners. In this lesson, we explore the taxation of partnerships from first principles, drawing on the Income Tax Act [Chapter 23:06], the Finance Act No. 7 of 2025, and ZIMRA’s practice, following the TaxTami A–I structured approach.

A partnership in Zimbabwe is defined by key elements grounded in common law. These include:

• a voluntary contract between two or more persons
• a contribution by each partner (money, property, labor, or skill) to a common enterprise
• an intention to carry on a business for joint profit
• a mutual understanding to share profits (and losses) amongst the partners

This lesson will cover the full scope of partnership taxation in Zimbabwe. We begin by outlining the legislative framework governing partnership taxation. We will then provide a detailed conceptual explanation of how partnership income and losses are handled for tax purposes, including allocation of profits/losses and the differing treatment of the partnership “entity” versus individual partners. Real-world examples (such as an informal retail venture or a law firm partnership) will illustrate these concepts in practice. We will examine the impact of changes in partnership composition (new partners, retirement, or death of a partner) on tax obligations, as well as the tax implications when a partnership dissolves. Special attention is given to scenarios involving non-resident partners, touching on permanent establishment risk and cross-border tax issues (like source rules and double taxation agreements). We also compare partnership taxation with company taxation in Zimbabwe – highlighting differences in tax rates, capital allowances, and compliance duties. Throughout, references to the Income Tax Act [23:06] (notably specific sections and schedules) and the latest Finance Act 2025 provisions are provided, along with relevant case law and ZIMRA practices. The tone is formal and didactic, aimed at intermediate to advanced tax students and professionals seeking a comprehensive understanding of partnership taxation in Zimbabwe.

Primary Legislation: The taxation of partnership income in Zimbabwe is governed by the Income Tax Act [Chapter 23:06]. A foundational point in the Act is the definition of “person” for tax purposes. section 2 of the Income Tax Act excludes partnerships from the definition of a taxable “person”. This means that, unlike companies or trusts (which are treated as persons/taxpayers), a partnership itself is not recognized as a taxpayer. The Act’s intent is that partners are taxed directly, aligning with the legal reality that a partnership has no separate persona. In practice, the partnership is treated as a pass-through or flow-through vehicle for tax: it computes its income, but tax is levied on the partners individually.

Several key provisions of the Income Tax Act outline how partnership income is handled:

section 10(2) – Accrual of Partnership Income: This section stipulates that any income received by or accrued to a partnership during an accounting period is deemed to be received or accrued to the partners on the partnership’s accounting date, in the proportions in which they share profits. At the end of the financial period, the law automatically attributes the partnership’s income to the partners according to the agreed profit-sharing ratio. This holds true regardless of whether the income was actually distributed to the partners or left in the partnership accounts.

section 37(15) – Joint Tax Return and Partner Liability: The Act requires persons carrying on any trade in partnership to make a joint return of income for each year of assessment, detailing the partnership’s results. Each partner is “separately and individually liable” to ensure the joint return is submitted, but importantly, partners are liable to tax only in their individual capacities. In other words, the tax authorities expect one combined declaration of the partnership’s income (encompassing all partners), yet any income tax is ultimately assessed on each partner, not on the partnership as an entity.

Death of a Partner (section 37(15) proviso): The law provides a specific rule for when a partner dies during a year. If accounts are drawn up from the last accounting date to the date of death (to determine the deceased’s share of profit), the surviving partners are not required to include that interim period’s income in a separate return. Instead, the surviving partners report their shares of that income in the return for the year in which the first anniversary of that accounting date falls. This effectively means that the deceased partner’s final profits are taxed in the normal cycle, preventing the administrative burden of filing a short-period return for the survivors.

Tax Recovery Provisions: The Income Tax Act contains provisions to secure tax payment from partnerships in certain cases. section 77(5) (as amended) empowers ZIMRA to recover unpaid tax from the partnership if a partner’s share of tax cannot be recovered from that partner personally. For instance, if a partner’s tax on partnership income remains unpaid and the partner has no assets in Zimbabwe aside from their partnership interest, the partnership can be deemed liable for that tax to the extent of the value of that partner’s interest. This provision is often relevant for non-resident partners who might leave Zimbabwe without settling their taxes – ZIMRA can pursue the partnership’s assets (up to the departing partner’s stake) to satisfy the tax debt.

Finance Act No. 7 of 2025: This Finance Act (effective from 1 January 2026) is the latest fiscal law updating tax rates and other provisions. It amended the Income Tax Act’s schedules to set out current tax rates and thresholds. According to the Finance Act 2025, income tax rates for trade income are standardized across individuals and companies: the basic tax rate on business (trade or investment) income is 25% for both individuals and companies. Additionally, an AIDS levy of 3% of the tax payable is imposed, resulting in an effective rate of about 25.75% on taxable income from trade. This means that an individual partner’s share of partnership profits is taxed at roughly the same flat rate as a company’s profits. (By contrast, employment income is taxed under a progressive rate schedule up to a top marginal rate around 40% – but that progressive scale does not apply to partnership business profits.) The Finance Act 2025 changes essentially ensure parity between unincorporated business income and corporate income taxation. It’s worth noting that Zimbabwe’s tax system remains primarily source-based, and the Finance Act also introduced provisions like a Domestic Minimum Top-Up Tax (15% on multinationals, per OECD Pillar 2), though such measures affect mostly corporate groups and are beyond our partnership focus.

In summary, Zimbabwe’s legislative framework establishes that a partnership is fiscally transparent: the Income Tax Act attributes all partnership income to partners, who then are taxed at the applicable rates (guided by the latest Finance Act). The partnership must still comply with filing requirements (joint returns) and maintain proper accounts, but it is not a taxpayer in its own right. We will now delve deeper into how these rules operate conceptually.

Entity vs. Partner Taxation: The core concept in partnership taxation is that the partnership is not taxed as an entity – instead, its profits “flow through” to the partners. In practice, the partnership will calculate its taxable income much like a company or sole trader would: by taking gross income and subtracting allowable deductions and allowances. This computation is done as if the partnership were a separate taxpayer to determine a single net profit or loss for the year. However, once the net partnership profit is determined, it is apportioned among the partners according to the profit-sharing ratios in the partnership agreement. Each partner is then taxed on their share of that profit, and any tax is paid by the partners individually, not by the partnership. As ZIMRA explains, the partnership is treated as a “pass-through” entity: the income “generated by the partnership is taxed at the individual partner level rather than at the partnership level,” and each partner must include their share of the partnership income in their personal or corporate tax return.

Joint Return and Individual Returns: Although a partnership doesn’t pay tax itself, Zimbabwe’s rules require a joint tax return to be filed for the partnership’s activities. This joint return is essentially an information return consolidating the partnership’s financial results (income and deductions) for the year. It should be accompanied by financial statements showing the business’s profit or loss. All partners are responsible for ensuring this return is submitted (failure to file can expose each partner to penalties). After filing jointly, each partner also reports their share of the partnership profit or loss on their own tax return (be it an individual income tax return or a corporate return, if the partner is a company). The Act explicitly notes that partners are liable to tax only in their separate capacities – meaning ZIMRA will assess and collect tax from each partner for their portion of income. In effect, the partnership return serves to reconcile the total income and its allocation, while the actual taxation happens through the partners’ self-assessments.

Computation of Partnership Profit: The process of determining the taxable profit of a partnership follows normal tax rules, with a few special considerations:

Income Recognition: All revenue the partnership earns (trading income, fees, interest, etc.) in a year is the partnership’s gross income. The timing of accrual follows general rules, but section 10(2) ensures that by year-end, any income belonging to the partnership is deemed accrued to the partners. This means partners are taxed on accrued profits at the accounting date even if those profits have not yet been physically paid out to them. For example, if a law firm partnership’s financial year ends December 31, 2025, each partner is taxed on their share of the firm’s profit for 2025 even if some cash will only be distributed in 2026 (the accrual on the accounting date suffices for tax purposes).

Deductions and Expenses: The partnership may deduct all expenses incurred in the production of income that are allowable under the Act (rent, salaries of employees, office expenses, etc.). Since a partnership is not a separate taxpayer, one might wonder how certain expenses paid to partners are treated. A partner is not considered an “employee” of their own partnership. Thus, any “salary” or drawings a partner takes is not a normal deductible wage expense; it is viewed as an advance distribution of profits. In computing the partnership’s profit, such partner remuneration is usually excluded from deductions (or added back) because it’s part of profit allocation. However, there is a nuance: if the partnership agreement provides for a partner’s salary or interest on capital as a priority share of profit, the common practice is to deduct it in calculating the residual profit, then include that amount in that partner’s share of taxable income. For instance, if Partner A receives a fixed monthly draw (salary) from the partnership, that amount is ultimately taxable to Partner A as part of their partnership income share. Likewise, if a partner charges the partnership rent for using a property the partner owns, that rent is deductible to the partnership business, but it is taxable income in that partner’s hands (outside the partnership share). Transactions between a partner and the partnership (rent, interest on a partner’s loan to the firm, etc.) are generally allowed as business expenses for the partnership, with the corresponding income taxed to the partner. This prevents double counting and aligns with the idea that you cannot make a profit from yourself – such payments are simply a method of dividing profit.

Taxable Income Allocation: After accounting for all income and deductions, the partnership’s taxable income (or loss) is determined. Pursuant to section 10(2), this taxable income is allocated to the partners in the profit-sharing ratios in effect at the end of that period. Each partner’s share of taxable income is then combined with any other income they have and taxed accordingly. It’s important to note that if the partnership agreement specifies different sharing ratios for different types of income or for different periods in the year (for example, if the ratio changed when a new partner was admitted), the allocation should reflect those terms. Generally, the profit share arrangement on the accounting date governs the split for the year’s income, unless special arrangements or part-year allocations are needed due to a partner joining or leaving mid-year.

Assessed Losses: If the partnership incurs a tax loss for the year (i.e. deductions exceed income), that loss is apportioned to the partners in the profit-sharing ratio as well. Each partner’s share of the loss is treated as their personal assessed loss. According to practice, the partner carries that loss forward for offset against future income (subject to the usual rules on loss carry-forwards). The assessed loss attaches to the individual partner, not to the partnership entity – so even if the partner leaves the partnership or the partnership dissolves, the portion of loss remains with that partner to potentially use against other income in subsequent years. (For example, if a partner had a $5,000 loss allocated and later starts a new business, they may offset that $5,000 against the new business profits, since it’s their carried loss). This is a significant difference from a company: in a company, tax losses remain in the company and cannot be transferred to shareholders, but in a partnership, losses flow out to the partners personally.

Changes in Partnership Composition: Partnerships are dynamic and the tax system accommodates changes such as a new partner joining, a partner retiring, or a partner’s death:

Admission of a New Partner: When a new partner is admitted, typically the partnership’s profit-sharing ratios will change from that date. There is generally no tax on merely adding a new partner – no “entry” tax – as no income is realized by the partnership from this event. However, practical complexities arise in allocating that year’s profit. The partners may decide to split the accounting year into two periods (before and after the new partner’s entry) and allocate profits accordingly, or use an average for the year. The Income Tax Act does not mandate a specific method in this scenario; it relies on the partnership agreement. Most partnership agreements have clauses on how to allocate profits for a partner who is only a member for part of the year. For tax purposes, as long as the allocation is per the legal agreement and reflects economic reality, ZIMRA will accept it. The new partner will be taxed on their share of profits from the date of joining, and the existing partners’ shares adjust downwards. (If any capital was paid by the new partner to old partners for buying into the partnership, that is a separate capital transaction – not taxable as income to the partnership, though it could have Capital Gains Tax implications for the outgoing portion if it involved sale of a partnership interest or goodwill).

Retirement or Exit of a Partner: When a partner retires or otherwise leaves the partnership while others continue, the tax treatment depends on the terms of withdrawal. Often, the partnership will dissolve and immediately reform among the continuing partners (in legal theory, a partnership “dissolves” whenever the constitution changes, unless there’s an agreement to continue). For tax purposes, if at least one of the original partners remains and the business continues without interruption, ZIMRA tends to treat the business as continuing. The departing partner is allocated their share of profits up to the departure date (again, often via interim accounts or a pro-rata allocation) and is taxed on that. The remaining partners pick up the business thereafter. There is no immediate tax on the departing partner’s capital withdrawal per se under the Income Tax Act, since that is usually a realization of their capital stake (which could trigger Capital Gains Tax on any goodwill or asset appreciation paid out to them, but not income tax). Important: if the partnership had any assessed losses not yet used, the departing partner keeps their portion of those losses (to use against future income of their own), and the remaining partners keep their portions. They do not get to reallocate the leaver’s loss to themselves. A practical pitfall here is that the retiring partner might lose the ability to use the loss if they cease to have any income from trade going forward – but the tax law does not reassign it to others.

Death of a Partner: A partner’s death customarily dissolves the partnership by law (unless a partnership agreement provides otherwise). The Income Tax Act’s special rule (noted above under section 37(15) proviso) prevents any immediate additional tax filing burden on the surviving partners. Typically, accounts will be drawn up to the date of death to ascertain the deceased’s share of profit (for estate and settlement purposes). For tax, the deceased partner’s income up to that date will form part of their final year income (taxable in the year of death via their estate). The surviving partners’ shares for that partial period are not taxed separately immediately; instead, they roll into the normal full-year taxable income for the survivors. The surviving partners often continue the business as a new partnership (perhaps with the deceased’s heirs being paid out). If the business continues, the survivors will include the full year’s results (which include that interim period) in their taxable income for the year. If the business does not continue (i.e. it ceases upon death), then the final period’s income is still taxed to each partner or their estate as appropriate. In dissolution due to death, any asset transfers to remaining partners or heirs should be examined for capital gains or transfer taxes (e.g. if a deceased partner’s interest in a property passes to others, that might trigger Capital Gains Tax under the Capital Gains Tax Act [Chapter 23:01] unless an exemption applies).

Change in Profit-Sharing Ratio: Sometimes partners remain the same but agree to alter their profit and loss sharing ratios (for example, one partner’s share increases from 30% to 50% and the other’s drops). This is conceptually similar to admitting a new partner or a partial exit – it’s a reallocation of future profits. There is no tax event at the moment of change (no income is realized by just changing ratios), but it affects how profit is split going forward. For the year of change, an appropriate time-based or accounts-based allocation should be done if the change occurs mid-year. Tax is then assessed on each partner’s actual share for that year as per the new agreement.

In all these scenarios, the guiding principle is that tax follows the economic income allocation. Partners are taxable on what they ultimately earn from the partnership for the period they are partners. The law and ZIMRA practice allow reasonable methods to split profits for part-year partners. It’s advisable that partnership agreements explicitly cover these situations to avoid ambiguity. ZIMRA’s own guidance enumerates changes like new partners, death, or retirement as common scenarios but does not impose additional tax on the change itself – the primary obligation remains that the correct share of income is taxed in the hands of whoever was the partner when that income accrued.

Ownership of Assets and Capital Allowances: Because a partnership cannot own assets in its own name (assets are jointly owned by the partners in undivided shares), tax depreciation (capital allowances) on partnership assets are handled at partner level. In practice, when the partnership business buys a depreciable asset (e.g. equipment or a vehicle), the asset is treated as owned proportionally by the partners. The partnership accounts will typically claim the capital allowances (wear-and-tear, etc.) in determining the profit, which effectively means each partner gets their share of the allowance. The Income Tax Act’s Fifth Schedule (which governs capital allowances) doesn’t explicitly name partnerships, but by interpreting in line with section 10(2), each partner is entitled to claim allowances in proportion to their ownership/share of the partnership asset. ZIMRA’s practice confirms this: any capital allowances or balancing charges (recoupments on asset disposal) on partnership property are apportioned between the partners according to the partnership profit-sharing ratio. For example, if a farming partnership (50/50 partners) buys a tractor, the tractor would be listed under the partnership’s assets, but each partner can effectively claim 50% of the allowable depreciation on that tractor against their share of income. If an asset is sold resulting in a balancing adjustment, the income or loss from that is also split between partners.

If a partner contributes an asset for use in the partnership but retains title (i.e. it’s not intended to become partnership property), then the allowances and any eventual balancing charge remain with that contributing partner alone. In other words, partners can individually own assets used by the partnership (similar to leasing it to the partnership). They would then claim depreciation on their own tax and perhaps charge the partnership rent or usage fees (the partnership deducts those, and the partner includes that income). This flexibility is sometimes used in professional firms – e.g. a partner may let the partnership use a personal car or building and handle the tax consequences individually.

Profit Distributions vs. Drawings: It is important to clarify that for tax purposes, partners are taxed on their share of profits as determined in the accounts, not on the cash they withdraw. A partnership may decide to leave some profits undistributed as working capital. Nonetheless, section 10(2) deems those profits accrued to the partners, so they must pay tax on the full profit share even if they did not actually take the cash. This contrasts with a company, where undistributed profits generally do not immediately tax the shareholders. In a partnership, there is no concept of retained earnings sheltering from current tax – all profits are passed through. Partners often mitigate this cashflow issue by drawing funds through the year in anticipation of profits (called drawings). Drawings are not additional income; they are prepayments of the partner’s expected profit. From a tax view, drawings have no effect other than reducing what’s left to withdraw after year-end. What matters is the profit allocation at year-end – that amount will be taxed to the partner whether or not it was drawn out.

To summarize the conceptual framework: Zimbabwe treats partnerships as transparent for tax. The partnership business calculates its income similarly to any business, but the resulting profit or loss is immediately attributed to the partners by law. Each partner is responsible for declaring that share and paying the tax due. The partnership does not pay income tax itself (it might, however, have other tax obligations like VAT or PAYE as an employer – those are separate compliance matters). This flow-through approach ensures no double taxation at partnership level. It aligns with the legal nature of partnerships and is codified in the Income Tax Act provisions we’ve discussed.

To ground these concepts, let’s consider several Zimbabwe-specific examples and scenarios involving partnerships:

Example 1: Informal Sector Partnership (SME): Suppose Tendai and Chipo form an informal partnership to run a clothing stall in Mbare Musika (a bustling marketplace in Harare). They have no registered company – just an oral agreement to share profits 50/50. During the year, their business earns ZWL 10 million in revenue and, after expenses (market fees, inventory costs, etc.), they have a taxable profit of ZWL 2 million. Even though Tendai and Chipo did not formally register a company, from ZIMRA’s perspective they are operating a partnership. They should register with ZIMRA for tax purposes (each as a self-employed person in partnership). At year-end, they must prepare accounts and submit a joint partnership return showing the ZWL 2 million profit. That profit is then split: ZWL 1 million each. Tendai will include ZWL 1 million in his individual tax return; Chipo will do likewise. Each will be taxed at 25% on this business income (about ZWL 250k tax each, ignoring levies). If Tendai also has formal employment elsewhere, the partnership income is still taxed separately at the flat rate for trade income. If Tendai and Chipo do not incorporate, they avoid any corporate tax layer – only a single layer of tax occurs. However, they remain jointly liable for any tax due. If Chipo fails to pay her portion, ZIMRA could ultimately recover it from partnership assets (which effectively comes out of their business or Tendai’s share). This example shows that even small informal joint ventures are within the tax net as partnerships, and they should maintain records to determine profit for tax. Many SMEs in Zimbabwe operate as partnerships (or de facto partnerships) without realizing the tax implications; they should note that “My Taxes, My Duties: Building my Zimbabwe” applies to them too.

Example 2: Professional Firm Partnership: Consider “Dube & Katsande Chartered Accountants”, a partnership of two auditors. Professional service firms in Zimbabwe (law firms, accounting firms, etc.) commonly use partnerships. Dube and Katsande share profits 60:40. The firm’s profit for 2025 is USD 100,000. The partnership will file a joint return declaring this income. Then Mr. Dube will include USD 60,000 in his personal tax return, and Ms. Katsande USD 40,000 in hers. They will each pay tax on these amounts (if they have no other trade income, at the flat 25% business rate). Differences from a company scenario: If Dube & Katsande had incorporated a company instead, the company would pay 25% corporate tax on the USD 100,000 (i.e. $25k). If the remaining profits were paid out as dividends, a further withholding tax on dividends might apply (for local individuals, currently 10% on dividends, subject to exemptions) – causing a second layer of tax. By using a partnership, Dube and Katsande pay tax once on their shares and there is no dividend tax on drawings. However, the partnership structure means unlimited liability – a trade-off often accepted in exchange for simpler taxes and regulatory compliance. From a tax compliance perspective, Dube & Katsande must each ensure they register with ZIMRA and file returns; the partnership itself is not a taxpayer but must submit the joint return and possibly register for VAT if their fees exceed the VAT threshold (e.g. USD 60,000 per year). If the firm buys equipment (computers, furniture), it will allocate depreciation between Dube and Katsande 60:40. Should Katsande retire and the firm dissolve, each will take their share of any remaining work-in-progress or debtors as per agreement, and the tax on final profits will be split accordingly. This illustrates how partnerships for professionals are taxed in a straightforward manner: profits taxed at partner level, no corporate tax, no PAYE on partner draws (since partners are not employees of the firm).

Example 3: Change in Partnership Composition – Admission of Partner: Continuing the above scenario, suppose in 2026 Dube & Katsande admit a new partner, Ndlovu, who brings in capital and expertise. The profit-sharing changes to Dube 50%, Katsande 30%, Ndlovu 20% from July 1, 2026 onwards. For the 2026 tax year, they decide to draw up accounts for the full year and allocate the annual profit by weighting the two periods (6 months at 60:40 between Dube and Katsande, then 6 months at 50:30:20 among three partners). This yields each partner’s share for tax. The partnership files one return for 2026 reflecting the total profit and an attachment showing how the split was calculated. Each partner then pays tax on their portion. There is no additional tax simply because Ndlovu joined. Ndlovu’s buy-in payment to the old partners (if any) would be a capital transaction (possibly involving goodwill). Goodwill paid in a partnership context is usually a capital receipt for the retiring or reducing partners, and not taxable as income under the Income Tax Act (and not subject to CGT unless it involves a “specified asset” sale). Zimbabwe’s tax practice treats purchased goodwill as non-deductible and non-taxable (it’s a capital element), except in special cases like the lease premium context. Thus, Ndlovu’s admission may have CGT implications if she effectively buys part of a building or other specified asset, but no income tax. The key tax change is simply the new allocation going forward.

Example 4: Partnership Dissolution: Imagine a partnership of three individuals operating a manufacturing business as “ABC Manufacturers (Partnership)”. They decide to dissolve the partnership on 31 December and not continue the business (due to retirement). On dissolution, the partnership will likely sell off its machinery, inventory, etc., and settle liabilities. Tax-wise, the final year’s trading income up to dissolution is calculated and split among the partners as usual. Any recoupment on selling depreciated machinery (i.e. selling price above tax value) is treated as income and likewise allocated to partners. Any capital gains on sales of factory buildings or land will be handled under the Capital Gains Tax Act – the partnership (though not a person) is an association of persons, so ZIMRA may treat the partners as having disposed of their proportional interests in the asset. Typically, the partners would each report their share of the capital gain on their CGT returns (and any CGT due is paid by them or from the partnership’s winding-up proceeds). After dissolution, if some assets are distributed in specie to partners (e.g. one partner takes a vehicle as part of their settlement), that is treated as a deemed sale at market value from the partnership to the partner for tax purposes. It could trigger a balancing charge or capital gains depending on the asset. Each partner would then hold that asset personally going forward. The partnership will file a final joint income tax return up to the date of dissolution. Each partner includes their share of final profits or losses on their tax return. Thereafter, the partnership ceases to exist for tax. One must also notify ZIMRA of the business cessation (and deregister any VAT or PAYE accounts) to fully close the compliance requirements. This example shows that closing a partnership involves handling income tax on final operations and potentially CGT on distributions, but there is no separate “exit tax” on the entity – everything flows to the partners.

Example 5: Non-Resident Partner and Permanent Establishment: Consider a cross-border joint venture: X (Pvt) Ltd, a South African company, and Mr. Moyo, a Zimbabwean resident, form a partnership (unincorporated) to provide mining consulting services in Zimbabwe. They agree profits 50/50. Here, X (Pvt) Ltd is a foreign corporate partner. The partnership conducts business in Zimbabwe (offices in Harare, clients in Zimbabwe), so the income is clearly Zimbabwe-source. For X Ltd, which is non-resident, this partnership business is a permanent establishment (PE) in Zimbabwe – effectively, the partnership’s presence is attributed to the foreign partner. Under any applicable Double Tax Agreement (DTA) (e.g. Zim-SA DTA), business profits attributable to a PE in Zimbabwe can be taxed by Zimbabwe. Therefore, X Ltd will be liable to Zimbabwe income tax on its share of partnership profits, just like Mr. Moyo is. The partnership will file the joint return; X Ltd will need to register with ZIMRA (typically as a taxpayer, perhaps obtaining a local tax ID) to pay its tax. There is no withholding tax on partnership profit remittances, unlike dividends – instead, X Ltd just pays income tax directly on its share. Suppose the partnership profit is USD 200k; X Ltd’s share is USD 100k. X Ltd will be taxed ~25% on that (assuming no special treaty reduction for PE profits, since it’s active business income). Mr. Moyo likewise is taxed on his USD 100k. If X Ltd fails to pay or tries to leave without paying, ZIMRA can invoke section 77(5) to recover the tax from the partnership’s assets or from Mr. Moyo, up to the value of X’s interest. This provision essentially makes the partnership a collection agent for the foreign partner’s tax if needed. From X Ltd’s home perspective, it will declare the Zimbabwe-source partnership profit in SA and likely claim a foreign tax credit for the Zimbabwe tax paid, avoiding double taxation. This scenario highlights how foreign partners are taxed equivalently to local partners on local partnership income, and how a partnership in Zimbabwe gives foreign investors a taxable presence (PE) automatically. Non-resident partners also need to be aware of Zimbabwe’s deemed source rules (e.g. certain interest or royalty income might be deemed Zimbabwean if paid by the partnership which is resident through local partners). In general, a partnership is resident in Zimbabwe if any partner is resident in Zimbabwe, and its income source is determined by where the partners perform the work or services (per the precedent Epstein v COT, discussed later).

Through these examples, we see Zimbabwe’s partnership tax principles in action: transparent taxation, allocation of profits to those who earned them, and alignment with general tax rules. Whether it’s a small informal business or a complex professional firm or a cross-border venture, the framework adapts by taxing the partners appropriately. From a planning perspective, partnerships can be advantageous in avoiding the double taxation of companies (especially given that the tax rate for business income is now unified at 25% for individuals and companies). However, partners must be disciplined with tax compliance – all partners should ensure returns are filed and taxes paid, because ZIMRA can hold any of them (or the partnership assets) accountable for the partnership’s tax debts in certain cases. Additionally, partnerships do not enjoy some corporate incentives (for example, certain tax incentives or lower rates apply specifically to companies in special economic zones or certain industries; partnerships might not qualify unless they incorporate or are expressly included). Therefore, the choice between a partnership and a company in Zimbabwe involves weighing tax simplicity vs. availability of incentives and limited liability. Many Zimbabwean joint ventures start as partnerships for simplicity and then incorporate later as they grow – tax-wise, there is no capital gains on incorporation if structured properly, but once a company exists, different tax considerations (like dividends and audited financials) come in.

The taxation of partnerships in Zimbabwe has been shaped by both statute and case law (including precedents from earlier Rhodesian and Commonwealth cases). One notable case often cited in discussions of partnership income is Epstein v Commissioner of Taxes. In Epstein, the court dealt with the issue of how to determine the source of partnership income. The case confirmed that since a partnership itself has no independent legal existence apart from its members, the source of the partnership’s income is effectively the activities of the partners. Income is considered to be earned where the partners perform the work or services that give rise to that income. Thus, if partners perform their business activities in Zimbabwe, the partnership income is Zimbabwean-source (even if the partnership agreement was signed abroad or profits kept in a foreign bank). This case entrenched the idea that one looks through the partnership to the partners’ actions when applying source rules. It complements section 12 of the Income Tax Act (source rules) by clarifying partnerships: for example, if a partner performs consultancy services in Zimbabwe, the fees earned are local income no matter that it’s labeled a partnership receipt. Epstein’s principle also means a foreign partner who never sets foot in Zimbabwe but derives profit from a Zimbabwe-partnership is considered to earn Zimbabwe-source income through the efforts of the Zimbabwean partner acting on the partnership’s behalf. This lays a foundation for the earlier example regarding permanent establishments and reinforces ZIMRA’s stance on taxing non-resident partners.

Another relevant legal principle comes from general partnership law cases (though not tax-specific) such as Muwengwa v Muwengwa (a fictitious example for illustration) or other local cases, which reiterate that a partnership dissolves upon a fundamental change unless agreed otherwise. Tax practitioners often refer to English and South African cases like Joubert v Tarry & Co. (1915) which enumerated the essential elements of a partnership, and CIR v Butcher Brothers (1945) in South Africa which dealt with allocation of partnership income and the status of partnerships for tax (South African law, like ours, treated partnerships as transparent). These cases support the interpretation that our Income Tax Act intended to follow the flow-through model. While Zimbabwe does not have a large volume of reported tax cases on partnerships (likely because the law is quite clear and undisputed on their treatment), it is accepted through practice and precedent that partners cannot escape taxation by hiding behind the firm – the Commissioner will always look through to the substance (the partners’ shares of income).

One scenario that could give rise to case law is the classification of certain partnership receipts. For instance, if partners receive a payment upon dissolution for goodwill, a dispute might arise whether that is taxable. Historically, case law (like Atherton v CIR in other jurisdictions) finds goodwill to be capital. Zimbabwe’s practice (as mentioned, goodwill is not taxed as it’s capital in nature) aligns with that view. If ZIMRA were to challenge, say, that a goodwill payment was actually disguised income, the partners could cite such cases to maintain capital treatment.

In summary, case law in Zimbabwe reinforces the statutory framework: partnerships are transparent, sources of income are traced to partner activities, and the law is interpreted in line with partnership law principles. The Epstein case stands out for source-of-income, illustrating that a partnership has no geographical source apart from where its partners operate. Knowing this case law backdrop gives practitioners confidence that, for example, structuring a partnership will not allow income to magically evade Zimbabwean tax if the work is done in Zimbabwe. Similarly, it assures that partners will receive the benefits of losses and capital items because legally those accrue to them, not to a non-person entity. Zimbabwe’s courts, if faced with partnership tax issues, would likely continue to apply these well-settled principles.

Despite the clear rules, there are several common pitfalls and mistakes to watch out for in the taxation of partnerships:

Treating the Partnership as a Company: A frequent error is treating a partnership like a separate company for tax. Some taxpayers mistakenly open a tax file for the “partnership” as if it were a company and attempt to have the partnership pay income tax. This is incorrect – a partnership itself should not pay income tax; only the partners do. The correct approach is to file a joint return (informational) and then have each partner report their share. Misunderstanding this can lead to double attempts at taxation or failure to pay tax by any party (each partner assuming the partnership paid, and the partnership thinking the partners will pay). Always remember: partners are taxed in their individual capacities, not the partnership.

Failure to Submit Joint Return: Sometimes each partner files their own return including the partnership income, but the partners neglect to file the joint partnership return. While partners might assume this is redundant, it is actually required by law. The joint return serves to reconcile total profits and is used by ZIMRA to verify that the sum of parts (each partner’s income) matches the whole. Not filing it can attract penalties, and ZIMRA may raise compliance queries. All partners are responsible for this, so it’s a pitfall to assume “the managing partner will do it” without confirmation. Every partner should ensure the partnership return is lodged.

Incorrect Profit Allocation: Taxable income must be allocated according to the true profit-sharing agreement. A pitfall arises if the partners arbitrarily split income for tax purposes in a way that differs from their legal agreement (perhaps trying to shift income to a lower-taxed partner). This can be seen as tax evasion. The Income Tax Act will deem the allocation based on the partnership agreement in force, so any side arrangement to allocate profits differently for tax is not recognized. Another related mistake is not updating ZIMRA when profit ratios change – while not a formal requirement, it is wise to disclose any mid-year change in allocation in the return’s notes to avoid confusion.

Treating Partner Salaries as Deductible Wages: As discussed, a partner’s “salary” is part of profit allocation, not a deductible expense like an employee’s salary. A common accounting mistake is to deduct partner drawings or “management fees” to partners in arriving at partnership profit, thus understating taxable income. This is disallowed; ZIMRA will add back any partner remuneration when assessing partnership income. Only third-party salaries (employees who are not partners) are deductible. Partners should pay themselves via profit draws, not attempt to be on the payroll of their own partnership – issuing themselves payslips under PAYE is incorrect (and in fact, the PAYE regulations exclude payments to proprietors/partners of a firm). The correct approach: withdraw profits and pay provisional tax on them, rather than trying to run partner compensation through PAYE.

Mixing Personal and Partnership Expenses: In small partnerships, partners sometimes charge personal expenses to the “business” accounts, blurring the lines (for example, groceries or personal travel billed to partnership). For tax, only expenses incurred for the partnership’s trade are deductible. If a partner’s personal expense is paid from partnership funds, it should be treated as a drawings (reduction of that partner’s share, not an expense in profit calculation). A pitfall is failing to do this, which can lead to overstating deductions. ZIMRA may audit and disallow personal or private expenses from the partnership accounts, increasing taxable income.

Not Registering for Tax or VAT: Especially in informal partnerships, partners often don’t register with ZIMRA, thinking the small scale or lack of a formal company means they’re outside the tax system. This is risky – all partnerships should be registered for income tax (partners can register as a partnership or individually declare the source). If annual turnover exceeds the VAT threshold (currently ZWL or USD threshold as set in regulations), the partnership (through its partners) must register for VAT. Ignorance of these obligations can result in back taxes, interest and penalties if ZIMRA discovers the business later. The pitfall is assuming that an unincorporated business is invisible to ZIMRA – in fact, ZIMRA has been increasing efforts (like the TaRMS system) to capture informal sector activities.

Mismanaging Changes in Partners: When partners change, a common mistake is mishandling the tax transitions. For instance, if a partner exits mid-year and is paid a lump sum that includes undistributed profits, the partnership might try to claim that payment as an expense, which it is not (it’s a distribution of after-tax profit or capital). Or the remaining partners might forget to include the departing partner’s share of income for the final period in the tax return. Each change event needs careful accounting: do interim accounts if necessary, allocate profit properly, and ensure the departing partner’s income up to exit is taxed. Another pitfall is overlooking the carryover of losses: a new partner might incorrectly assume they can use losses that arose before they joined – Only the partners who incurred those losses (the old partners) can carry them forward. New partners start fresh with no share of prior losses.

Assuming Partnerships Always Better than Companies: While partnerships avoid the dividend tax and offer flow-through of losses, it’s a mistake to automatically assume a partnership is the best structure. There are cases where corporate taxation might be lower – for example, if partners would be high-income individuals paying 41% on other income, but the partnership income can be capped at 25% as business income (which is indeed the case under current law). However, if individual partners have no other income, the flat 25% means they lose out on the lower brackets that could have applied if it were normal personal tax (in older regimes where progressive rates applied, this was relevant; now with flat business rate, it’s moot). Another consideration: companies enjoy some tax incentives and allowances that partnerships might not (though most apply equally via partner shares, some investment allowances or venture capital incentives are easier with corporate structures). Moreover, companies can retain earnings without immediate shareholder tax, which can defer tax, whereas partners cannot defer tax on their share. Failing to weigh these can be a pitfall in tax planning.

Not Considering CGT on Dissolution Transfers: When dissolving or reconstituting partnerships, partners sometimes redistribute assets among themselves without considering that a taxable disposal may occur. For example, Partner A takes the partnership’s truck personally upon dissolution. This is effectively a sale from the partnership to A at market value, which could trigger a balancing charge (income inclusion) or CGT if it’s a capital asset. A pitfall is ignoring this and not reporting accordingly, which can cause problems in a later audit. Partners should either sell assets to third parties or among themselves at fair value and handle the tax, or ensure exemptions (if any) are used.

Foreign Partner’s Tax Obligations Overlooked: In partnerships with foreign members, a pitfall is assuming the foreign partner’s tax is “their problem back home.” Zimbabwe expects and requires payment of tax on local source profits by that foreign partner. If the foreign party doesn’t file or pay, ZIMRA can come after the local partner or partnership assets. Local partners should ensure that foreign partners are aware of and compliant with ZIMRA filings, perhaps even withholding the foreign partner’s portion of tax from profit payouts to remit to ZIMRA. Not doing so can leave the local partner holding the bag if ZIMRA invokes agent provisions.

By being mindful of these pitfalls, partnership participants can avoid common errors. Good practices include:

• having a written partnership agreement covering profit splits at any scenario
• keeping clear accounting records separating partner drawings and business expenses
• filing all required returns on time
• consulting tax advisors when in doubt (especially for complex changes)
• keeping communication open with ZIMRA (for example, if dissolving, formally notify ZIMRA to avert future tax estimates or penalties). Treat a partnership with the same rigor as a company in terms of record-keeping and compliance, even though it’s not a separate legal entity

To reinforce understanding, answer the following questions based on the lesson:

True or False: A partnership itself is considered a taxpayer under Zimbabwe’s Income Tax Act, and it must pay income tax on any profits before distributing to partners.

Fill in the Blank: section 10(2) of the Income Tax Act [Chapter 23:06] provides that income received by or accrued to a partnership is deemed to be income received by or accrued to the ______ on the accounting date, in their profit-sharing proportions.

Multiple Choice: Which of the following best describes how partnership profits are taxed in Zimbabwe?

A. The partnership pays tax on its profits at the corporate rate, and partners pay tax again on any distributions.

B. The partnership is tax-exempt; only the partners’ other income is taxed.

C. The partnership files an informational joint return, but each partner is taxed on their share of profits in their own tax return.

D. Partners are only taxed if the partnership formally distributes cash to them.

Question: Explain how a partner’s “salary” or drawings from the partnership should be treated for tax purposes. Are such payments deductible to the partnership, and how are they taxed?

Question: What happens to a partner’s share of an assessed tax loss if that partner leaves the partnership or if the partnership dissolves?

True or False: If a non-resident individual is a partner in a Zimbabwe partnership, they can ignore Zimbabwe tax on their partnership income because only residents are taxable.

Question: List two key differences between the taxation of a partnership and the taxation of a company in Zimbabwe (consider aspects like tax rates, loss utilization, and distribution of profits).

False. The partnership is not a separate taxpayer. The Income Tax Act explicitly excludes partnerships from the definition of “person” subject to tax. Instead, the partners are liable for tax on partnership profits, each in their individual capacity. The partnership itself does not pay income tax (though it must file a joint return).

Blank Filled: section 10(2) deems partnership income to be income of the partners on the accounting date. In other words, the income accrues to the partners, not to the partnership entity, in proportion to their agreed profit shares.

Correct Answer: C. In Zimbabwe, a partnership is treated as a pass-through. The correct description is that the partnership files a joint return for informational purposes, but each partner is taxed on their share of the profits in their own tax return. (Option A describes double taxation which does not apply to partnerships; B is incorrect since partnership income is not tax-exempt; D is false because partners are taxed on accrued profits whether or not cash is distributed.)

Partner’s “Salary” Treatment: A partner’s salary or regular drawings are not treated like an employee’s salary. Such payments are essentially a means of distributing profits to that partner. For the partnership’s profit calculation, partner salaries/drawings are not deductible expenses (they are usually added back when determining taxable income). The partner’s “salary” is then included in that partner’s share of profits and taxed as part of the partner’s income from the partnership. In summary, partner remuneration reduces the residual profit but does not escape taxation – it is taxed in the partner’s hands, and the partnership cannot deduct it as a cost of doing business (unlike true wages paid to third-party employees).

Losses for Leaving Partner: If a partner leaves or the partnership dissolves, any assessed tax loss that was allocated to that partner remains with that partner personally. The loss does not stay with the partnership or transfer to remaining partners. The departing partner can carry forward their share of the loss and use it against future income (if they have any business income in subsequent years), subject to the normal tax rules on loss carry-forwards. The other partners cannot claim the departing partner’s loss share – each partner’s portion of a loss is personal to them “forever, even if he or she leaves the partnership or dies”.

False. A non-resident partner is not exempt from Zimbabwean tax on partnership income. If the partnership’s activities are in Zimbabwe (source in Zimbabwe), the non-resident’s share is taxable in Zimbabwe just like a resident’s share. In fact, Zimbabwe’s law may deem the partnership as the non-resident’s permanent establishment, giving Zimbabwe taxing rights. Moreover, ZIMRA can recover unpaid tax from the partnership assets if a non-resident partner doesn’t pay. Double Taxation Agreements can provide relief in the form of credits, but they do not eliminate Zimbabwe’s right to tax the local-source partnership profits of a non-resident.

Differences – Partnership vs Company Taxation: Two key differences are: Taxation level: Partnerships are tax-transparent – profits are taxed only once, in the hands of partners. Companies are separate taxpayers – profits are taxed at the corporate level, and then if distributed as dividends, those dividends may be taxed again (withholding tax).; Loss utilization: In a partnership, a partner’s share of a tax loss flows through to them personally, which they can often use against other income or future income. In a company, a tax loss is trapped in the company; shareholders cannot use it on their personal returns. Other differences include tax rates and obligations: partnership business income is taxed at the flat 25% individual trade rate (same as companies) but partners pay it via self-assessment, whereas companies pay corporate tax directly. Also, companies must comply with corporate filing (annual returns to the Registrar, audited financials for certain sizes) and withhold taxes on dividends, while partnerships have simpler compliance (joint tax return, no dividend tax). Finally, partners are taxed on all profits as they accrue (no deferral), whereas companies can retain earnings without immediate shareholder tax – giving companies some tax deferral advantage, whereas partnerships ensure immediate taxation of profits whether distributed or not..

Legal Nature and Tax Status: A partnership in Zimbabwe is not a separate legal person and thus is not a taxpayer under the Income Tax Act. Instead, the partners are taxed individually on the income of the partnership. This flow-through treatment aligns with the partnership’s contractual nature and joint liability of partners.

Pass-Through of Income: section 10(2) of the Income Tax Act ensures that partnership income is deemed accrued to the partners in their profit-sharing proportions. The partnership’s taxable profit is calculated at the partnership level (aggregating all income and expenses), but then it is split and included in each partner’s taxable income. Profits are taxed once – in partners’ hands – rather than at a partnership level.

Joint Returns and Individual Taxation: Partnerships must prepare a joint tax return each year showing the results of the business. However, any tax on the profits is paid by partners in their own capacities. Each partner includes their share of profit (or loss) in their personal or corporate return and is responsible for the tax due on that share. Partners are jointly responsible for filing obligations, and ZIMRA can pursue the partnership or any partner for compliance failures.

Allocation of Profits and Losses: Profits and losses are allocated according to the partnership agreement. If the sharing ratio changes or if a partner is present for only part of the year, the allocation should reflect that (often via apportionment). A partner’s drawings or “salary” from the partnership is not a separate category of income but part of their profit share, taxable to the partner and not deductible by the partnership. Each partner’s share of an assessed loss flows to them individually and can be carried forward by that partner (subject to tax rules), even if the partner leaves or the partnership ends.

Changes in Membership: Admission of new partners, retirement or death of partners can trigger a technical dissolution of the partnership, but the business often continues with reconstituted membership. There is typically no immediate tax on these changes themselves, provided profit shares up to the change are properly taxed to those entitled. On a partner’s death, interim profits to the date of death are computed, but surviving partners include their shares of that period’s income in the normal annual return (no extra return). Care must be taken in these events to settle the departing partner’s tax and to adjust profit sharing going forward.

Dissolution and Winding Up: If a partnership dissolves completely, a final set of accounts is made to determine profit or loss up to cessation. Partners are taxed on final profits as usual. Distributing partnership assets to partners may trigger tax consequences: e.g. balancing charges or allowances if depreciable assets are taken over (treated as deemed disposals), or Capital Gains Tax if land or specified assets are transferred. The partners should handle all final tax obligations (including notifying ZIMRA of business cessation) to avoid future issues. There is no separate “exit tax” on dissolution beyond the normal income tax and CGT on asset disposals.

Resident vs. Non-Resident Partners: Partnership income is taxed based on source and partner residence rules. A partnership is generally considered Zimbabwe-resident if any partner is resident, and its income is typically Zimbabwean source if arising from activities in Zimbabwe. Resident partners pay tax on their partnership share along with their other local income. Non-resident partners are equally liable to Zimbabwe tax on their Zimbabwe-source partnership profits – effectively the partnership is a permanent establishment for them. Zimbabwe can enforce tax payment by non-resident partners; if they default, ZIMRA may recover the tax from the partnership’s assets (up to the value of the non-resident’s interest). Double Tax Agreements may allow the partner to claim credit in their home country, but the tax must be paid in Zimbabwe first.

Comparison with Companies: Unlike partnerships, companies are separate taxable entities. Companies pay corporate tax (currently 25% plus 3% levy) on profits, and shareholders pay tax on dividends (withholding tax) on distributions – a two-tier taxation. In a partnership, profits are only taxed once at the partner level and there is no dividend tax on drawings. Partners are taxed on all accrued profits, even if retained in the business, whereas company shareholders are taxed only on distributed profits (allowing companies to defer shareholder taxation by retaining earnings). Losses: partnership losses pass to partners (providing immediate benefit by reducing other taxable income or future income for those partners), while company losses stay with the company (shareholders cannot use them). Capital allowances and tax incentives apply to partnerships through the partners: e.g. partners claim their share of depreciation on partnership assets. Some special tax incentives (for certain industries or zones) explicitly target companies – partnerships might need to incorporate to take advantage of those. Compliance: partnerships have fewer formal requirements (no annual company registry filings, no mandatory audit purely for tax), but they must maintain proper books and file tax returns. Ultimately, the choice between a partnership and a company involves balancing non-tax factors with these tax differences, but from a pure tax perspective, partnerships offer a simpler flow-through taxation model and avoid the economic double taxation on profit distribution.

ZIMRA Practice and Updates: Zimbabwe’s tax authority (ZIMRA) has published guidance reinforcing these principles, noting that a partnership is not a taxpayer on its own and that partners must register for tax and file returns for their shares. The Finance Act No. 7 of 2025 has confirmed that business income of individuals (including via partnerships) is taxed at the same rate as corporate income (25%), streamlining the tax burden across entity types. Tax students and practitioners should stay updated on any changes (e.g. if future Finance Acts alter rates or introduce special rules for unincorporated businesses). As of this lesson, the framework described (from the Income Tax Act [23:06] and Finance Act 2025) is the current law. The key take-away is that partnerships in Zimbabwe are tax-transparent conduits, with tax obligations ultimately falling on the partners in proportion to their shares, under a uniform tax rate for trading income. This system encourages neutrality (partners and companies pay similar rates on business income) while preserving the flexibility and simplicity of the partnership form.

A partnership is a contractual business relationship between two or more persons joining resources or skills to earn profit jointly. In Zimbabwe, partnerships are a common structure for SMEs, informal sector joint ventures, and professional firms (e.g. law or audit firms) where individuals collaborate without forming a limited company. Under Zimbabwean law, a partnership is not a separate legal person – it exists as an agreement among partners and not as an independent entity. This has important implications: the partnership itself doesn’t pay income tax; instead, tax falls on the individual partners. In this lesson, we explore the taxation of partnerships from first principles, drawing on the Income Tax Act [Chapter 23:06], the Finance Act No. 7 of 2025, and ZIMRA’s practice, following the TaxTami A–I structured approach.

A partnership in Zimbabwe is defined by key elements grounded in common law. These include:

• a voluntary contract between two or more persons
• a contribution by each partner (money, property, labor, or skill) to a common enterprise
• an intention to carry on a business for joint profit
• a mutual understanding to share profits (and losses) amongst the partners

This lesson will cover the full scope of partnership taxation in Zimbabwe. We begin by outlining the legislative framework governing partnership taxation. We will then provide a detailed conceptual explanation of how partnership income and losses are handled for tax purposes, including allocation of profits/losses and the differing treatment of the partnership “entity” versus individual partners. Real-world examples (such as an informal retail venture or a law firm partnership) will illustrate these concepts in practice. We will examine the impact of changes in partnership composition (new partners, retirement, or death of a partner) on tax obligations, as well as the tax implications when a partnership dissolves. Special attention is given to scenarios involving non-resident partners, touching on permanent establishment risk and cross-border tax issues (like source rules and double taxation agreements). We also compare partnership taxation with company taxation in Zimbabwe – highlighting differences in tax rates, capital allowances, and compliance duties. Throughout, references to the Income Tax Act [23:06] (notably specific sections and schedules) and the latest Finance Act 2025 provisions are provided, along with relevant case law and ZIMRA practices. The tone is formal and didactic, aimed at intermediate to advanced tax students and professionals seeking a comprehensive understanding of partnership taxation in Zimbabwe.

Primary Legislation: The taxation of partnership income in Zimbabwe is governed by the Income Tax Act [Chapter 23:06]. A foundational point in the Act is the definition of “person” for tax purposes. section 2 of the Income Tax Act excludes partnerships from the definition of a taxable “person”. This means that, unlike companies or trusts (which are treated as persons/taxpayers), a partnership itself is not recognized as a taxpayer. The Act’s intent is that partners are taxed directly, aligning with the legal reality that a partnership has no separate persona. In practice, the partnership is treated as a pass-through or flow-through vehicle for tax: it computes its income, but tax is levied on the partners individually.

Several key provisions of the Income Tax Act outline how partnership income is handled:

section 10(2) – Accrual of Partnership Income: This section stipulates that any income received by or accrued to a partnership during an accounting period is deemed to be received or accrued to the partners on the partnership’s accounting date, in the proportions in which they share profits. At the end of the financial period, the law automatically attributes the partnership’s income to the partners according to the agreed profit-sharing ratio. This holds true regardless of whether the income was actually distributed to the partners or left in the partnership accounts.

section 37(15) – Joint Tax Return and Partner Liability: The Act requires persons carrying on any trade in partnership to make a joint return of income for each year of assessment, detailing the partnership’s results. Each partner is “separately and individually liable” to ensure the joint return is submitted, but importantly, partners are liable to tax only in their individual capacities. In other words, the tax authorities expect one combined declaration of the partnership’s income (encompassing all partners), yet any income tax is ultimately assessed on each partner, not on the partnership as an entity.

Death of a Partner (section 37(15) proviso): The law provides a specific rule for when a partner dies during a year. If accounts are drawn up from the last accounting date to the date of death (to determine the deceased’s share of profit), the surviving partners are not required to include that interim period’s income in a separate return. Instead, the surviving partners report their shares of that income in the return for the year in which the first anniversary of that accounting date falls. This effectively means that the deceased partner’s final profits are taxed in the normal cycle, preventing the administrative burden of filing a short-period return for the survivors.

Tax Recovery Provisions: The Income Tax Act contains provisions to secure tax payment from partnerships in certain cases. section 77(5) (as amended) empowers ZIMRA to recover unpaid tax from the partnership if a partner’s share of tax cannot be recovered from that partner personally. For instance, if a partner’s tax on partnership income remains unpaid and the partner has no assets in Zimbabwe aside from their partnership interest, the partnership can be deemed liable for that tax to the extent of the value of that partner’s interest. This provision is often relevant for non-resident partners who might leave Zimbabwe without settling their taxes – ZIMRA can pursue the partnership’s assets (up to the departing partner’s stake) to satisfy the tax debt.

Finance Act No. 7 of 2025: This Finance Act (effective from 1 January 2026) is the latest fiscal law updating tax rates and other provisions. It amended the Income Tax Act’s schedules to set out current tax rates and thresholds. According to the Finance Act No. 7 of 2025, income tax rates for trade income are standardized across individuals and companies: the basic tax rate on business (trade or investment) income is 25% for both individuals and companies. Additionally, an AIDS levy of 3% of the tax payable is imposed, resulting in an effective rate of about 25.75% on taxable income from trade. This means that an individual partner’s share of partnership profits is taxed at roughly the same flat rate as a company’s profits. (By contrast, employment income is taxed under a progressive rate schedule up to a top marginal rate around 40% – but that progressive scale does not apply to partnership business profits.) The Finance Act 2025 changes essentially ensure parity between unincorporated business income and corporate income taxation. It’s worth noting that Zimbabwe’s tax system remains primarily source-based, and the Finance Act also introduced provisions like a Domestic Minimum Top-Up Tax (15% on multinationals, per OECD Pillar 2), though such measures affect mostly corporate groups and are beyond our partnership focus.

In summary, Zimbabwe’s legislative framework establishes that a partnership is fiscally transparent: the Income Tax Act attributes all partnership income to partners, who then are taxed at the applicable rates (guided by the latest Finance Act). The partnership must still comply with filing requirements (joint returns) and maintain proper accounts, but it is not a taxpayer in its own right. We will now delve deeper into how these rules operate conceptually.

Entity vs. Partner Taxation: The core concept in partnership taxation is that the partnership is not taxed as an entity – instead, its profits “flow through” to the partners. In practice, the partnership will calculate its taxable income much like a company or sole trader would: by taking gross income and subtracting allowable deductions and allowances. This computation is done as if the partnership were a separate taxpayer to determine a single net profit or loss for the year. However, once the net partnership profit is determined, it is apportioned among the partners according to the profit-sharing ratios in the partnership agreement. Each partner is then taxed on their share of that profit, and any tax is paid by the partners individually, not by the partnership. As ZIMRA explains, the partnership is treated as a “pass-through” entity: the income “generated by the partnership is taxed at the individual partner level rather than at the partnership level,” and each partner must include their share of the partnership income in their personal or corporate tax return.

Joint Return and Individual Returns: Although a partnership doesn’t pay tax itself, Zimbabwe’s rules require a joint tax return to be filed for the partnership’s activities. This joint return is essentially an information return consolidating the partnership’s financial results (income and deductions) for the year. It should be accompanied by financial statements showing the business’s profit or loss. All partners are responsible for ensuring this return is submitted (failure to file can expose each partner to penalties). After filing jointly, each partner also reports their share of the partnership profit or loss on their own tax return (be it an individual income tax return or a corporate return, if the partner is a company). The Act explicitly notes that partners are liable to tax only in their separate capacities – meaning ZIMRA will assess and collect tax from each partner for their portion of income. In effect, the partnership return serves to reconcile the total income and its allocation, while the actual taxation happens through the partners’ self-assessments.

Computation of Partnership Profit: The process of determining the taxable profit of a partnership follows normal tax rules, with a few special considerations:

Income Recognition: All revenue the partnership earns (trading income, fees, interest, etc.) in a year is the partnership’s gross income. The timing of accrual follows general rules, but section 10(2) ensures that by year-end, any income belonging to the partnership is deemed accrued to the partners. This means partners are taxed on accrued profits at the accounting date even if those profits have not yet been physically paid out to them. For example, if a law firm partnership’s financial year ends December 31, 2025, each partner is taxed on their share of the firm’s profit for 2025 even if some cash will only be distributed in 2026 (the accrual on the accounting date suffices for tax purposes).

Deductions and Expenses: The partnership may deduct all expenses incurred in the production of income that are allowable under the Act (rent, salaries of employees, office expenses, etc.). Since a partnership is not a separate taxpayer, one might wonder how certain expenses paid to partners are treated. A partner is not considered an “employee” of their own partnership. Thus, any “salary” or drawings a partner takes is not a normal deductible wage expense; it is viewed as an advance distribution of profits. In computing the partnership’s profit, such partner remuneration is usually excluded from deductions (or added back) because it’s part of profit allocation. However, there is a nuance: if the partnership agreement provides for a partner’s salary or interest on capital as a priority share of profit, the common practice is to deduct it in calculating the residual profit, then include that amount in that partner’s share of taxable income. For instance, if Partner A receives a fixed monthly draw (salary) from the partnership, that amount is ultimately taxable to Partner A as part of their partnership income share. Likewise, if a partner charges the partnership rent for using a property the partner owns, that rent is deductible to the partnership business, but it is taxable income in that partner’s hands (outside the partnership share). Transactions between a partner and the partnership (rent, interest on a partner’s loan to the firm, etc.) are generally allowed as business expenses for the partnership, with the corresponding income taxed to the partner. This prevents double counting and aligns with the idea that you cannot make a profit from yourself – such payments are simply a method of dividing profit.

Taxable Income Allocation: After accounting for all income and deductions, the partnership’s taxable income (or loss) is determined. Pursuant to section 10(2), this taxable income is allocated to the partners in the profit-sharing ratios in effect at the end of that period. Each partner’s share of taxable income is then combined with any other income they have and taxed accordingly. It’s important to note that if the partnership agreement specifies different sharing ratios for different types of income or for different periods in the year (for example, if the ratio changed when a new partner was admitted), the allocation should reflect those terms. Generally, the profit share arrangement on the accounting date governs the split for the year’s income, unless special arrangements or part-year allocations are needed due to a partner joining or leaving mid-year.

Assessed Losses: If the partnership incurs a tax loss for the year (i.e. deductions exceed income), that loss is apportioned to the partners in the profit-sharing ratio as well. Each partner’s share of the loss is treated as their personal assessed loss. According to practice, the partner carries that loss forward for offset against future income (subject to the usual rules on loss carry-forwards). The assessed loss attaches to the individual partner, not to the partnership entity – so even if the partner leaves the partnership or the partnership dissolves, the portion of loss remains with that partner to potentially use against other income in subsequent years. (For example, if a partner had a $5,000 loss allocated and later starts a new business, they may offset that $5,000 against the new business profits, since it’s their carried loss). This is a significant difference from a company: in a company, tax losses remain in the company and cannot be transferred to shareholders, but in a partnership, losses flow out to the partners personally.

Changes in Partnership Composition: Partnerships are dynamic and the tax system accommodates changes such as a new partner joining, a partner retiring, or a partner’s death:

Admission of a New Partner: When a new partner is admitted, typically the partnership’s profit-sharing ratios will change from that date. There is generally no tax on merely adding a new partner – no “entry” tax – as no income is realized by the partnership from this event. However, practical complexities arise in allocating that year’s profit. The partners may decide to split the accounting year into two periods (before and after the new partner’s entry) and allocate profits accordingly, or use an average for the year. The Income Tax Act does not mandate a specific method in this scenario; it relies on the partnership agreement. Most partnership agreements have clauses on how to allocate profits for a partner who is only a member for part of the year. For tax purposes, as long as the allocation is per the legal agreement and reflects economic reality, ZIMRA will accept it. The new partner will be taxed on their share of profits from the date of joining, and the existing partners’ shares adjust downwards. (If any capital was paid by the new partner to old partners for buying into the partnership, that is a separate capital transaction – not taxable as income to the partnership, though it could have Capital Gains Tax implications for the outgoing portion if it involved sale of a partnership interest or goodwill).

Retirement or Exit of a Partner: When a partner retires or otherwise leaves the partnership while others continue, the tax treatment depends on the terms of withdrawal. Often, the partnership will dissolve and immediately reform among the continuing partners (in legal theory, a partnership “dissolves” whenever the constitution changes, unless there’s an agreement to continue). For tax purposes, if at least one of the original partners remains and the business continues without interruption, ZIMRA tends to treat the business as continuing. The departing partner is allocated their share of profits up to the departure date (again, often via interim accounts or a pro-rata allocation) and is taxed on that. The remaining partners pick up the business thereafter. There is no immediate tax on the departing partner’s capital withdrawal per se under the Income Tax Act, since that is usually a realization of their capital stake (which could trigger Capital Gains Tax on any goodwill or asset appreciation paid out to them, but not income tax). Important: if the partnership had any assessed losses not yet used, the departing partner keeps their portion of those losses (to use against future income of their own), and the remaining partners keep their portions. They do not get to reallocate the leaver’s loss to themselves. A practical pitfall here is that the retiring partner might lose the ability to use the loss if they cease to have any income from trade going forward – but the tax law does not reassign it to others.

Death of a Partner: A partner’s death customarily dissolves the partnership by law (unless a partnership agreement provides otherwise). The Income Tax Act’s special rule (noted above under section 37(15) proviso) prevents any immediate additional tax filing burden on the surviving partners. Typically, accounts will be drawn up to the date of death to ascertain the deceased’s share of profit (for estate and settlement purposes). For tax, the deceased partner’s income up to that date will form part of their final year income (taxable in the year of death via their estate). The surviving partners’ shares for that partial period are not taxed separately immediately; instead, they roll into the normal full-year taxable income for the survivors. The surviving partners often continue the business as a new partnership (perhaps with the deceased’s heirs being paid out). If the business continues, the survivors will include the full year’s results (which include that interim period) in their taxable income for the year. If the business does not continue (i.e. it ceases upon death), then the final period’s income is still taxed to each partner or their estate as appropriate. In dissolution due to death, any asset transfers to remaining partners or heirs should be examined for capital gains or transfer taxes (e.g. if a deceased partner’s interest in a property passes to others, that might trigger Capital Gains Tax under the Capital Gains Tax Act [Chapter 23:01] unless an exemption applies).

Change in Profit-Sharing Ratio: Sometimes partners remain the same but agree to alter their profit and loss sharing ratios (for example, one partner’s share increases from 30% to 50% and the other’s drops). This is conceptually similar to admitting a new partner or a partial exit – it’s a reallocation of future profits. There is no tax event at the moment of change (no income is realized by just changing ratios), but it affects how profit is split going forward. For the year of change, an appropriate time-based or accounts-based allocation should be done if the change occurs mid-year. Tax is then assessed on each partner’s actual share for that year as per the new agreement.

In all these scenarios, the guiding principle is that tax follows the economic income allocation. Partners are taxable on what they ultimately earn from the partnership for the period they are partners. The law and ZIMRA practice allow reasonable methods to split profits for part-year partners. It’s advisable that partnership agreements explicitly cover these situations to avoid ambiguity. ZIMRA’s own guidance enumerates changes like new partners, death, or retirement as common scenarios but does not impose additional tax on the change itself – the primary obligation remains that the correct share of income is taxed in the hands of whoever was the partner when that income accrued.

Ownership of Assets and Capital Allowances: Because a partnership cannot own assets in its own name (assets are jointly owned by the partners in undivided shares), tax depreciation (capital allowances) on partnership assets are handled at partner level. In practice, when the partnership business buys a depreciable asset (e.g. equipment or a vehicle), the asset is treated as owned proportionally by the partners. The partnership accounts will typically claim the capital allowances (wear-and-tear, etc.) in determining the profit, which effectively means each partner gets their share of the allowance. The Income Tax Act’s Fifth Schedule (which governs capital allowances) doesn’t explicitly name partnerships, but by interpreting in line with section 10(2), each partner is entitled to claim allowances in proportion to their ownership/share of the partnership asset. ZIMRA’s practice confirms this: any capital allowances or balancing charges (recoupments on asset disposal) on partnership property are apportioned between the partners according to the partnership profit-sharing ratio. For example, if a farming partnership (50/50 partners) buys a tractor, the tractor would be listed under the partnership’s assets, but each partner can effectively claim 50% of the allowable depreciation on that tractor against their share of income. If an asset is sold resulting in a balancing adjustment, the income or loss from that is also split between partners.

If a partner contributes an asset for use in the partnership but retains title (i.e. it’s not intended to become partnership property), then the allowances and any eventual balancing charge remain with that contributing partner alone. In other words, partners can individually own assets used by the partnership (similar to leasing it to the partnership). They would then claim depreciation on their own tax and perhaps charge the partnership rent or usage fees (the partnership deducts those, and the partner includes that income). This flexibility is sometimes used in professional firms – e.g. a partner may let the partnership use a personal car or building and handle the tax consequences individually.

Profit Distributions vs. Drawings: It is important to clarify that for tax purposes, partners are taxed on their share of profits as determined in the accounts, not on the cash they withdraw. A partnership may decide to leave some profits undistributed as working capital. Nonetheless, section 10(2) deems those profits accrued to the partners, so they must pay tax on the full profit share even if they did not actually take the cash. This contrasts with a company, where undistributed profits generally do not immediately tax the shareholders. In a partnership, there is no concept of retained earnings sheltering from current tax – all profits are passed through. Partners often mitigate this cashflow issue by drawing funds through the year in anticipation of profits (called drawings). Drawings are not additional income; they are prepayments of the partner’s expected profit. From a tax view, drawings have no effect other than reducing what’s left to withdraw after year-end. What matters is the profit allocation at year-end – that amount will be taxed to the partner whether or not it was drawn out.

To summarize the conceptual framework: Zimbabwe treats partnerships as transparent for tax. The partnership business calculates its income similarly to any business, but the resulting profit or loss is immediately attributed to the partners by law. Each partner is responsible for declaring that share and paying the tax due. The partnership does not pay income tax itself (it might, however, have other tax obligations like VAT or PAYE as an employer – those are separate compliance matters). This flow-through approach ensures no double taxation at partnership level. It aligns with the legal nature of partnerships and is codified in the Income Tax Act provisions we’ve discussed.

To ground these concepts, let’s consider several Zimbabwe-specific examples and scenarios involving partnerships:

Example 1: Informal Sector Partnership (SME): Suppose Tendai and Chipo form an informal partnership to run a clothing stall in Mbare Musika (a bustling marketplace in Harare). They have no registered company – just an oral agreement to share profits 50/50. During the year, their business earns ZWL 10 million in revenue and, after expenses (market fees, inventory costs, etc.), they have a taxable profit of ZWL 2 million. Even though Tendai and Chipo did not formally register a company, from ZIMRA’s perspective they are operating a partnership. They should register with ZIMRA for tax purposes (each as a self-employed person in partnership). At year-end, they must prepare accounts and submit a joint partnership return showing the ZWL 2 million profit. That profit is then split: ZWL 1 million each. Tendai will include ZWL 1 million in his individual tax return; Chipo will do likewise. Each will be taxed at 25% on this business income (about ZWL 250k tax each, ignoring levies). If Tendai also has formal employment elsewhere, the partnership income is still taxed separately at the flat rate for trade income. If Tendai and Chipo do not incorporate, they avoid any corporate tax layer – only a single layer of tax occurs. However, they remain jointly liable for any tax due. If Chipo fails to pay her portion, ZIMRA could ultimately recover it from partnership assets (which effectively comes out of their business or Tendai’s share). This example shows that even small informal joint ventures are within the tax net as partnerships, and they should maintain records to determine profit for tax. Many SMEs in Zimbabwe operate as partnerships (or de facto partnerships) without realizing the tax implications; they should note that “My Taxes, My Duties: Building my Zimbabwe” applies to them too.

Example 2: Professional Firm Partnership: Consider “Dube & Katsande Chartered Accountants”, a partnership of two auditors. Professional service firms in Zimbabwe (law firms, accounting firms, etc.) commonly use partnerships. Dube and Katsande share profits 60:40. The firm’s profit for 2025 is USD 100,000. The partnership will file a joint return declaring this income. Then Mr. Dube will include USD 60,000 in his personal tax return, and Ms. Katsande USD 40,000 in hers. They will each pay tax on these amounts (if they have no other trade income, at the flat 25% business rate). Differences from a company scenario: If Dube & Katsande had incorporated a company instead, the company would pay 25% corporate tax on the USD 100,000 (i.e. $25k). If the remaining profits were paid out as dividends, a further withholding tax on dividends might apply (for local individuals, currently 10% on dividends, subject to exemptions) – causing a second layer of tax. By using a partnership, Dube and Katsande pay tax once on their shares and there is no dividend tax on drawings. However, the partnership structure means unlimited liability – a trade-off often accepted in exchange for simpler taxes and regulatory compliance. From a tax compliance perspective, Dube & Katsande must each ensure they register with ZIMRA and file returns; the partnership itself is not a taxpayer but must submit the joint return and possibly register for VAT if their fees exceed the VAT threshold (e.g. USD 60,000 per year). If the firm buys equipment (computers, furniture), it will allocate depreciation between Dube and Katsande 60:40. Should Katsande retire and the firm dissolve, each will take their share of any remaining work-in-progress or debtors as per agreement, and the tax on final profits will be split accordingly. This illustrates how partnerships for professionals are taxed in a straightforward manner: profits taxed at partner level, no corporate tax, no PAYE on partner draws (since partners are not employees of the firm).

Example 3: Change in Partnership Composition – Admission of Partner: Continuing the above scenario, suppose in 2026 Dube & Katsande admit a new partner, Ndlovu, who brings in capital and expertise. The profit-sharing changes to Dube 50%, Katsande 30%, Ndlovu 20% from July 1, 2026 onwards. For the 2026 tax year, they decide to draw up accounts for the full year and allocate the annual profit by weighting the two periods (6 months at 60:40 between Dube and Katsande, then 6 months at 50:30:20 among three partners). This yields each partner’s share for tax. The partnership files one return for 2026 reflecting the total profit and an attachment showing how the split was calculated. Each partner then pays tax on their portion. There is no additional tax simply because Ndlovu joined. Ndlovu’s buy-in payment to the old partners (if any) would be a capital transaction (possibly involving goodwill). Goodwill paid in a partnership context is usually a capital receipt for the retiring or reducing partners, and not taxable as income under the Income Tax Act (and not subject to CGT unless it involves a “specified asset” sale). Zimbabwe’s tax practice treats purchased goodwill as non-deductible and non-taxable (it’s a capital element), except in special cases like the lease premium context. Thus, Ndlovu’s admission may have CGT implications if she effectively buys part of a building or other specified asset, but no income tax. The key tax change is simply the new allocation going forward.

Example 4: Partnership Dissolution: Imagine a partnership of three individuals operating a manufacturing business as “ABC Manufacturers (Partnership)”. They decide to dissolve the partnership on 31 December and not continue the business (due to retirement). On dissolution, the partnership will likely sell off its machinery, inventory, etc., and settle liabilities. Tax-wise, the final year’s trading income up to dissolution is calculated and split among the partners as usual. Any recoupment on selling depreciated machinery (i.e. selling price above tax value) is treated as income and likewise allocated to partners. Any capital gains on sales of factory buildings or land will be handled under the Capital Gains Tax Act – the partnership (though not a person) is an association of persons, so ZIMRA may treat the partners as having disposed of their proportional interests in the asset. Typically, the partners would each report their share of the capital gain on their CGT returns (and any CGT due is paid by them or from the partnership’s winding-up proceeds). After dissolution, if some assets are distributed in specie to partners (e.g. one partner takes a vehicle as part of their settlement), that is treated as a deemed sale at market value from the partnership to the partner for tax purposes. It could trigger a balancing charge or capital gains depending on the asset. Each partner would then hold that asset personally going forward. The partnership will file a final joint income tax return up to the date of dissolution. Each partner includes their share of final profits or losses on their tax return. Thereafter, the partnership ceases to exist for tax. One must also notify ZIMRA of the business cessation (and deregister any VAT or PAYE accounts) to fully close the compliance requirements. This example shows that closing a partnership involves handling income tax on final operations and potentially CGT on distributions, but there is no separate “exit tax” on the entity – everything flows to the partners.

Example 5: Non-Resident Partner and Permanent Establishment: Consider a cross-border joint venture: X (Pvt) Ltd, a South African company, and Mr. Moyo, a Zimbabwean resident, form a partnership (unincorporated) to provide mining consulting services in Zimbabwe. They agree profits 50/50. Here, X (Pvt) Ltd is a foreign corporate partner. The partnership conducts business in Zimbabwe (offices in Harare, clients in Zimbabwe), so the income is clearly Zimbabwe-source. For X Ltd, which is non-resident, this partnership business is a permanent establishment (PE) in Zimbabwe – effectively, the partnership’s presence is attributed to the foreign partner. Under any applicable Double Tax Agreement (DTA) (e.g. Zim-SA DTA), business profits attributable to a PE in Zimbabwe can be taxed by Zimbabwe. Therefore, X Ltd will be liable to Zimbabwe income tax on its share of partnership profits, just like Mr. Moyo is. The partnership will file the joint return; X Ltd will need to register with ZIMRA (typically as a taxpayer, perhaps obtaining a local tax ID) to pay its tax. There is no withholding tax on partnership profit remittances, unlike dividends – instead, X Ltd just pays income tax directly on its share. Suppose the partnership profit is USD 200k; X Ltd’s share is USD 100k. X Ltd will be taxed ~25% on that (assuming no special treaty reduction for PE profits, since it’s active business income). Mr. Moyo likewise is taxed on his USD 100k. If X Ltd fails to pay or tries to leave without paying, ZIMRA can invoke section 77(5) to recover the tax from the partnership’s assets or from Mr. Moyo, up to the value of X’s interest. This provision essentially makes the partnership a collection agent for the foreign partner’s tax if needed. From X Ltd’s home perspective, it will declare the Zimbabwe-source partnership profit in SA and likely claim a foreign tax credit for the Zimbabwe tax paid, avoiding double taxation. This scenario highlights how foreign partners are taxed equivalently to local partners on local partnership income, and how a partnership in Zimbabwe gives foreign investors a taxable presence (PE) automatically. Non-resident partners also need to be aware of Zimbabwe’s deemed source rules (e.g. certain interest or royalty income might be deemed Zimbabwean if paid by the partnership which is resident through local partners). In general, a partnership is resident in Zimbabwe if any partner is resident in Zimbabwe, and its income source is determined by where the partners perform the work or services (per the precedent Epstein v COT, discussed later).

Through these examples, we see Zimbabwe’s partnership tax principles in action: transparent taxation, allocation of profits to those who earned them, and alignment with general tax rules. Whether it’s a small informal business or a complex professional firm or a cross-border venture, the framework adapts by taxing the partners appropriately. From a planning perspective, partnerships can be advantageous in avoiding the double taxation of companies (especially given that the tax rate for business income is now unified at 25% for individuals and companies). However, partners must be disciplined with tax compliance – all partners should ensure returns are filed and taxes paid, because ZIMRA can hold any of them (or the partnership assets) accountable for the partnership’s tax debts in certain cases. Additionally, partnerships do not enjoy some corporate incentives (for example, certain tax incentives or lower rates apply specifically to companies in special economic zones or certain industries; partnerships might not qualify unless they incorporate or are expressly included). Therefore, the choice between a partnership and a company in Zimbabwe involves weighing tax simplicity vs. availability of incentives and limited liability. Many Zimbabwean joint ventures start as partnerships for simplicity and then incorporate later as they grow – tax-wise, there is no capital gains on incorporation if structured properly, but once a company exists, different tax considerations (like dividends and audited financials) come in.

The taxation of partnerships in Zimbabwe has been shaped by both statute and case law (including precedents from earlier Rhodesian and Commonwealth cases). One notable case often cited in discussions of partnership income is Epstein v Commissioner of Taxes. In Epstein, the court dealt with the issue of how to determine the source of partnership income. The case confirmed that since a partnership itself has no independent legal existence apart from its members, the source of the partnership’s income is effectively the activities of the partners. Income is considered to be earned where the partners perform the work or services that give rise to that income. Thus, if partners perform their business activities in Zimbabwe, the partnership income is Zimbabwean-source (even if the partnership agreement was signed abroad or profits kept in a foreign bank). This case entrenched the idea that one looks through the partnership to the partners’ actions when applying source rules. It complements section 12 of the Income Tax Act (source rules) by clarifying partnerships: for example, if a partner performs consultancy services in Zimbabwe, the fees earned are local income no matter that it’s labeled a partnership receipt. Epstein’s principle also means a foreign partner who never sets foot in Zimbabwe but derives profit from a Zimbabwe-partnership is considered to earn Zimbabwe-source income through the efforts of the Zimbabwean partner acting on the partnership’s behalf. This lays a foundation for the earlier example regarding permanent establishments and reinforces ZIMRA’s stance on taxing non-resident partners.

Another relevant legal principle comes from general partnership law cases (though not tax-specific) such as Muwengwa v Muwengwa (a fictitious example for illustration) or other local cases, which reiterate that a partnership dissolves upon a fundamental change unless agreed otherwise. Tax practitioners often refer to English and South African cases like Joubert v Tarry & Co. (1915) which enumerated the essential elements of a partnership, and CIR v Butcher Brothers (1945) in South Africa which dealt with allocation of partnership income and the status of partnerships for tax (South African law, like ours, treated partnerships as transparent). These cases support the interpretation that our Income Tax Act intended to follow the flow-through model. While Zimbabwe does not have a large volume of reported tax cases on partnerships (likely because the law is quite clear and undisputed on their treatment), it is accepted through practice and precedent that partners cannot escape taxation by hiding behind the firm – the Commissioner will always look through to the substance (the partners’ shares of income).

One scenario that could give rise to case law is the classification of certain partnership receipts. For instance, if partners receive a payment upon dissolution for goodwill, a dispute might arise whether that is taxable. Historically, case law (like Atherton v CIR in other jurisdictions) finds goodwill to be capital. Zimbabwe’s practice (as mentioned, goodwill is not taxed as it’s capital in nature) aligns with that view. If ZIMRA were to challenge, say, that a goodwill payment was actually disguised income, the partners could cite such cases to maintain capital treatment.

In summary, case law in Zimbabwe reinforces the statutory framework: partnerships are transparent, sources of income are traced to partner activities, and the law is interpreted in line with partnership law principles. The Epstein case stands out for source-of-income, illustrating that a partnership has no geographical source apart from where its partners operate. Knowing this case law backdrop gives practitioners confidence that, for example, structuring a partnership will not allow income to magically evade Zimbabwean tax if the work is done in Zimbabwe. Similarly, it assures that partners will receive the benefits of losses and capital items because legally those accrue to them, not to a non-person entity. Zimbabwe’s courts, if faced with partnership tax issues, would likely continue to apply these well-settled principles.

Despite the clear rules, there are several common pitfalls and mistakes to watch out for in the taxation of partnerships:

Treating the Partnership as a Company: A frequent error is treating a partnership like a separate company for tax. Some taxpayers mistakenly open a tax file for the “partnership” as if it were a company and attempt to have the partnership pay income tax. This is incorrect – a partnership itself should not pay income tax; only the partners do. The correct approach is to file a joint return (informational) and then have each partner report their share. Misunderstanding this can lead to double attempts at taxation or failure to pay tax by any party (each partner assuming the partnership paid, and the partnership thinking the partners will pay). Always remember: partners are taxed in their individual capacities, not the partnership.

Failure to Submit Joint Return: Sometimes each partner files their own return including the partnership income, but the partners neglect to file the joint partnership return. While partners might assume this is redundant, it is actually required by law. The joint return serves to reconcile total profits and is used by ZIMRA to verify that the sum of parts (each partner’s income) matches the whole. Not filing it can attract penalties, and ZIMRA may raise compliance queries. All partners are responsible for this, so it’s a pitfall to assume “the managing partner will do it” without confirmation. Every partner should ensure the partnership return is lodged.

Incorrect Profit Allocation: Taxable income must be allocated according to the true profit-sharing agreement. A pitfall arises if the partners arbitrarily split income for tax purposes in a way that differs from their legal agreement (perhaps trying to shift income to a lower-taxed partner). This can be seen as tax evasion. The Income Tax Act will deem the allocation based on the partnership agreement in force, so any side arrangement to allocate profits differently for tax is not recognized. Another related mistake is not updating ZIMRA when profit ratios change – while not a formal requirement, it is wise to disclose any mid-year change in allocation in the return’s notes to avoid confusion.

Treating Partner Salaries as Deductible Wages: As discussed, a partner’s “salary” is part of profit allocation, not a deductible expense like an employee’s salary. A common accounting mistake is to deduct partner drawings or “management fees” to partners in arriving at partnership profit, thus understating taxable income. This is disallowed; ZIMRA will add back any partner remuneration when assessing partnership income. Only third-party salaries (employees who are not partners) are deductible. Partners should pay themselves via profit draws, not attempt to be on the payroll of their own partnership – issuing themselves payslips under PAYE is incorrect (and in fact, the PAYE regulations exclude payments to proprietors/partners of a firm). The correct approach: withdraw profits and pay provisional tax on them, rather than trying to run partner compensation through PAYE.

Mixing Personal and Partnership Expenses: In small partnerships, partners sometimes charge personal expenses to the “business” accounts, blurring the lines (for example, groceries or personal travel billed to partnership). For tax, only expenses incurred for the partnership’s trade are deductible. If a partner’s personal expense is paid from partnership funds, it should be treated as a drawings (reduction of that partner’s share, not an expense in profit calculation). A pitfall is failing to do this, which can lead to overstating deductions. ZIMRA may audit and disallow personal or private expenses from the partnership accounts, increasing taxable income.

Not Registering for Tax or VAT: Especially in informal partnerships, partners often don’t register with ZIMRA, thinking the small scale or lack of a formal company means they’re outside the tax system. This is risky – all partnerships should be registered for income tax (partners can register as a partnership or individually declare the source). If annual turnover exceeds the VAT threshold (currently ZWL or USD threshold as set in regulations), the partnership (through its partners) must register for VAT. Ignorance of these obligations can result in back taxes, interest and penalties if ZIMRA discovers the business later. The pitfall is assuming that an unincorporated business is invisible to ZIMRA – in fact, ZIMRA has been increasing efforts (like the TaRMS system) to capture informal sector activities.

Mismanaging Changes in Partners: When partners change, a common mistake is mishandling the tax transitions. For instance, if a partner exits mid-year and is paid a lump sum that includes undistributed profits, the partnership might try to claim that payment as an expense, which it is not (it’s a distribution of after-tax profit or capital). Or the remaining partners might forget to include the departing partner’s share of income for the final period in the tax return. Each change event needs careful accounting: do interim accounts if necessary, allocate profit properly, and ensure the departing partner’s income up to exit is taxed. Another pitfall is overlooking the carryover of losses: a new partner might incorrectly assume they can use losses that arose before they joined – Only the partners who incurred those losses (the old partners) can carry them forward. New partners start fresh with no share of prior losses.

Assuming Partnerships Always Better than Companies: While partnerships avoid the dividend tax and offer flow-through of losses, it’s a mistake to automatically assume a partnership is the best structure. There are cases where corporate taxation might be lower – for example, if partners would be high-income individuals paying 41% on other income, but the partnership income can be capped at 25% as business income (which is indeed the case under current law). However, if individual partners have no other income, the flat 25% means they lose out on the lower brackets that could have applied if it were normal personal tax (in older regimes where progressive rates applied, this was relevant; now with flat business rate, it’s moot). Another consideration: companies enjoy some tax incentives and allowances that partnerships might not (though most apply equally via partner shares, some investment allowances or venture capital incentives are easier with corporate structures). Moreover, companies can retain earnings without immediate shareholder tax, which can defer tax, whereas partners cannot defer tax on their share. Failing to weigh these can be a pitfall in tax planning.

Not Considering CGT on Dissolution Transfers: When dissolving or reconstituting partnerships, partners sometimes redistribute assets among themselves without considering that a taxable disposal may occur. For example, Partner A takes the partnership’s truck personally upon dissolution. This is effectively a sale from the partnership to A at market value, which could trigger a balancing charge (income inclusion) or CGT if it’s a capital asset. A pitfall is ignoring this and not reporting accordingly, which can cause problems in a later audit. Partners should either sell assets to third parties or among themselves at fair value and handle the tax, or ensure exemptions (if any) are used.

Foreign Partner’s Tax Obligations Overlooked: In partnerships with foreign members, a pitfall is assuming the foreign partner’s tax is “their problem back home.” Zimbabwe expects and requires payment of tax on local source profits by that foreign partner. If the foreign party doesn’t file or pay, ZIMRA can come after the local partner or partnership assets. Local partners should ensure that foreign partners are aware of and compliant with ZIMRA filings, perhaps even withholding the foreign partner’s portion of tax from profit payouts to remit to ZIMRA. Not doing so can leave the local partner holding the bag if ZIMRA invokes agent provisions.

By being mindful of these pitfalls, partnership participants can avoid common errors. Good practices include:

• having a written partnership agreement covering profit splits at any scenario
• keeping clear accounting records separating partner drawings and business expenses
• filing all required returns on time
• consulting tax advisors when in doubt (especially for complex changes)
• keeping communication open with ZIMRA (for example, if dissolving, formally notify ZIMRA to avert future tax estimates or penalties). Treat a partnership with the same rigor as a company in terms of record-keeping and compliance, even though it’s not a separate legal entity

To reinforce understanding, answer the following questions based on the lesson:

True or False: A partnership itself is considered a taxpayer under Zimbabwe’s Income Tax Act, and it must pay income tax on any profits before distributing to partners.

Fill in the Blank: section 10(2) of the Income Tax Act [Chapter 23:06] provides that income received by or accrued to a partnership is deemed to be income received by or accrued to the ______ on the accounting date, in their profit-sharing proportions.

Multiple Choice: Which of the following best describes how partnership profits are taxed in Zimbabwe?

A. The partnership pays tax on its profits at the corporate rate, and partners pay tax again on any distributions.

B. The partnership is tax-exempt; only the partners’ other income is taxed.

C. The partnership files an informational joint return, but each partner is taxed on their share of profits in their own tax return.

D. Partners are only taxed if the partnership formally distributes cash to them.

Question: Explain how a partner’s “salary” or drawings from the partnership should be treated for tax purposes. Are such payments deductible to the partnership, and how are they taxed?

Question: What happens to a partner’s share of an assessed tax loss if that partner leaves the partnership or if the partnership dissolves?

True or False: If a non-resident individual is a partner in a Zimbabwe partnership, they can ignore Zimbabwe tax on their partnership income because only residents are taxable.

Question: List two key differences between the taxation of a partnership and the taxation of a company in Zimbabwe (consider aspects like tax rates, loss utilization, and distribution of profits).

False. The partnership is not a separate taxpayer. The Income Tax Act explicitly excludes partnerships from the definition of “person” subject to tax. Instead, the partners are liable for tax on partnership profits, each in their individual capacity. The partnership itself does not pay income tax (though it must file a joint return).

Blank Filled: section 10(2) deems partnership income to be income of the partners on the accounting date. In other words, the income accrues to the partners, not to the partnership entity, in proportion to their agreed profit shares.

Correct Answer: C. In Zimbabwe, a partnership is treated as a pass-through. The correct description is that the partnership files a joint return for informational purposes, but each partner is taxed on their share of the profits in their own tax return. (Option A describes double taxation which does not apply to partnerships; B is incorrect since partnership income is not tax-exempt; D is false because partners are taxed on accrued profits whether or not cash is distributed.)

Partner’s “Salary” Treatment: A partner’s salary or regular drawings are not treated like an employee’s salary. Such payments are essentially a means of distributing profits to that partner. For the partnership’s profit calculation, partner salaries/drawings are not deductible expenses (they are usually added back when determining taxable income). The partner’s “salary” is then included in that partner’s share of profits and taxed as part of the partner’s income from the partnership. In summary, partner remuneration reduces the residual profit but does not escape taxation – it is taxed in the partner’s hands, and the partnership cannot deduct it as a cost of doing business (unlike true wages paid to third-party employees).

Losses for Leaving Partner: If a partner leaves or the partnership dissolves, any assessed tax loss that was allocated to that partner remains with that partner personally. The loss does not stay with the partnership or transfer to remaining partners. The departing partner can carry forward their share of the loss and use it against future income (if they have any business income in subsequent years), subject to the normal tax rules on loss carry-forwards. The other partners cannot claim the departing partner’s loss share – each partner’s portion of a loss is personal to them “forever, even if he or she leaves the partnership or dies”.

False. A non-resident partner is not exempt from Zimbabwean tax on partnership income. If the partnership’s activities are in Zimbabwe (source in Zimbabwe), the non-resident’s share is taxable in Zimbabwe just like a resident’s share. In fact, Zimbabwe’s law may deem the partnership as the non-resident’s permanent establishment, giving Zimbabwe taxing rights. Moreover, ZIMRA can recover unpaid tax from the partnership assets if a non-resident partner doesn’t pay. Double Taxation Agreements can provide relief in the form of credits, but they do not eliminate Zimbabwe’s right to tax the local-source partnership profits of a non-resident.

Differences – Partnership vs Company Taxation: Two key differences are: Taxation level: Partnerships are tax-transparent – profits are taxed only once, in the hands of partners. Companies are separate taxpayers – profits are taxed at the corporate level, and then if distributed as dividends, those dividends may be taxed again (withholding tax).; Loss utilization: In a partnership, a partner’s share of a tax loss flows through to them personally, which they can often use against other income or future income. In a company, a tax loss is trapped in the company; shareholders cannot use it on their personal returns. Other differences include tax rates and obligations: partnership business income is taxed at the flat 25% individual trade rate (same as companies) but partners pay it via self-assessment, whereas companies pay corporate tax directly. Also, companies must comply with corporate filing (annual returns to the Registrar, audited financials for certain sizes) and withhold taxes on dividends, while partnerships have simpler compliance (joint tax return, no dividend tax). Finally, partners are taxed on all profits as they accrue (no deferral), whereas companies can retain earnings without immediate shareholder tax – giving companies some tax deferral advantage, whereas partnerships ensure immediate taxation of profits whether distributed or not..

Legal Nature and Tax Status: A partnership in Zimbabwe is not a separate legal person and thus is not a taxpayer under the Income Tax Act. Instead, the partners are taxed individually on the income of the partnership. This flow-through treatment aligns with the partnership’s contractual nature and joint liability of partners.

Pass-Through of Income: section 10(2) of the Income Tax Act ensures that partnership income is deemed accrued to the partners in their profit-sharing proportions. The partnership’s taxable profit is calculated at the partnership level (aggregating all income and expenses), but then it is split and included in each partner’s taxable income. Profits are taxed once – in partners’ hands – rather than at a partnership level.

Joint Returns and Individual Taxation: Partnerships must prepare a joint tax return each year showing the results of the business. However, any tax on the profits is paid by partners in their own capacities. Each partner includes their share of profit (or loss) in their personal or corporate return and is responsible for the tax due on that share. Partners are jointly responsible for filing obligations, and ZIMRA can pursue the partnership or any partner for compliance failures.

Allocation of Profits and Losses: Profits and losses are allocated according to the partnership agreement. If the sharing ratio changes or if a partner is present for only part of the year, the allocation should reflect that (often via apportionment). A partner’s drawings or “salary” from the partnership is not a separate category of income but part of their profit share, taxable to the partner and not deductible by the partnership. Each partner’s share of an assessed loss flows to them individually and can be carried forward by that partner (subject to tax rules), even if the partner leaves or the partnership ends.

Changes in Membership: Admission of new partners, retirement or death of partners can trigger a technical dissolution of the partnership, but the business often continues with reconstituted membership. There is typically no immediate tax on these changes themselves, provided profit shares up to the change are properly taxed to those entitled. On a partner’s death, interim profits to the date of death are computed, but surviving partners include their shares of that period’s income in the normal annual return (no extra return). Care must be taken in these events to settle the departing partner’s tax and to adjust profit sharing going forward.

Dissolution and Winding Up: If a partnership dissolves completely, a final set of accounts is made to determine profit or loss up to cessation. Partners are taxed on final profits as usual. Distributing partnership assets to partners may trigger tax consequences: e.g. balancing charges or allowances if depreciable assets are taken over (treated as deemed disposals), or Capital Gains Tax if land or specified assets are transferred. The partners should handle all final tax obligations (including notifying ZIMRA of business cessation) to avoid future issues. There is no separate “exit tax” on dissolution beyond the normal income tax and CGT on asset disposals.

Resident vs. Non-Resident Partners: Partnership income is taxed based on source and partner residence rules. A partnership is generally considered Zimbabwe-resident if any partner is resident, and its income is typically Zimbabwean source if arising from activities in Zimbabwe. Resident partners pay tax on their partnership share along with their other local income. Non-resident partners are equally liable to Zimbabwe tax on their Zimbabwe-source partnership profits – effectively the partnership is a permanent establishment for them. Zimbabwe can enforce tax payment by non-resident partners; if they default, ZIMRA may recover the tax from the partnership’s assets (up to the value of the non-resident’s interest). Double Tax Agreements may allow the partner to claim credit in their home country, but the tax must be paid in Zimbabwe first.

Comparison with Companies: Unlike partnerships, companies are separate taxable entities. Companies pay corporate tax (currently 25% plus 3% levy) on profits, and shareholders pay tax on dividends (withholding tax) on distributions – a two-tier taxation. In a partnership, profits are only taxed once at the partner level and there is no dividend tax on drawings. Partners are taxed on all accrued profits, even if retained in the business, whereas company shareholders are taxed only on distributed profits (allowing companies to defer shareholder taxation by retaining earnings). Losses: partnership losses pass to partners (providing immediate benefit by reducing other taxable income or future income for those partners), while company losses stay with the company (shareholders cannot use them). Capital allowances and tax incentives apply to partnerships through the partners: e.g. partners claim their share of depreciation on partnership assets. Some special tax incentives (for certain industries or zones) explicitly target companies – partnerships might need to incorporate to take advantage of those. Compliance: partnerships have fewer formal requirements (no annual company registry filings, no mandatory audit purely for tax), but they must maintain proper books and file tax returns. Ultimately, the choice between a partnership and a company involves balancing non-tax factors with these tax differences, but from a pure tax perspective, partnerships offer a simpler flow-through taxation model and avoid the economic double taxation on profit distribution.

ZIMRA Practice and Updates: Zimbabwe’s tax authority (ZIMRA) has published guidance reinforcing these principles, noting that a partnership is not a taxpayer on its own and that partners must register for tax and file returns for their shares. The Finance Act No. 7 of 2025 has confirmed that business income of individuals (including via partnerships) is taxed at the same rate as corporate income (25%), streamlining the tax burden across entity types. Tax students and practitioners should stay updated on any changes (e.g. if future Finance Acts alter rates or introduce special rules for unincorporated businesses). As of this lesson, the framework described (from the Income Tax Act [23:06] and Finance Act 2025) is the current law. The key take-away is that partnerships in Zimbabwe are tax-transparent conduits, with tax obligations ultimately falling on the partners in proportion to their shares, under a uniform tax rate for trading income. This system encourages neutrality (partners and companies pay similar rates on business income) while preserving the flexibility and simplicity of the partnership form.