ZIMBABWE

FOREIGN EXCHANGE CONTROL

EXCHANGE CONTROL PROVISIONS 

• The Government of Zimbabwe recognizes that the remittability of dividends and profits as well as of the proceeds of disinvestment is an important consideration for foreign investors. Accordingly, although currently there is a regime of exchange controls in force in Zimbabwe, the Government has consistently applied an exchange control `policy that has, within prescribed limits, enabled foreign investors to rem it dividends and profits and the process of disinvestment. 
• It has to be appreciated that the balance of payments of Zimbabwe, like many other countries is subject to stresses and constraints, and to external forces beyond our power to control. However, Government is determined not to reduce the degree of remittability of investment income presently in force, except in the event of extreme balance of payments stress. Indeed it is Government's intention to liberalize the rules whenever possible. 
• In brief, investors who make "new investment"(defined as foreign capital introduced into Zimbabwe through normal banking channels after 1 September 1979) are allowed to remit 50 per cent of their net after-tax profits arising out of such investment, while investors with "old investment" (that is foreign capital invested in Zimbabwe before 1 September 1979) are, in the light of the balance of payments position, currently allowed to remit 25 per cent of their net after-tax profits. Mining dividends may' exceed 25 per cent and 50 per cent of net after tax profits for old and new investment respectively, subject to each are being approved on its merits by Exchange Control. It should also be noted in this respect that investors who have reinvested their blocked funds with the Exchange Control approval are allowed to avail of 50 per cent of their net after tax profits. Government has further decided to grant the incentive of up to 100 per cent remittability' of dividends and profits for a stipulated period, in exceptional cases, to high priority projects approved by Government.
• Two years after the date of their new investment, investors may disinvest and remit the proceeds from such disinvestment equal to the amount of their original investment, less a deduction of the amount of income from the investment remitted before the disinvestment. The amount so deducted, together with the amount of any capital gain made on disposal of the investment, may be remitted through a Government bond procedure. 
• Government is proud of the fact that despite some balance of payments constraints in the mid 1980s, there has never been any reduction in the remittability of the dividends and profits from new investment. Moreover, Government offers a guarantee that it will not during a two-year period immediately following a new investment reduce the remittability of dividends and profits from such an investment below the level applicable under the Exchange Control regulations in force at the time of the investment. In fact, Government has in practice never reduced such remittability even after two years. 
• Dividends declared by foreign investors in Zimbabwe in excess of 25 per cent and 50 per cent of net after tax profits in respect of old investment and new investment respectively do not qualify for immediate remittance under the current exchange control rules but are credited to blocked accounts with authorized dealers (i.e. banks) in Zimbabwe, authorized by the Reserve Bank of Zimbabwe to open and operate blocked accounts. The funds in such accounts are referred to as blocked funds and may not be reinvested without the prior approval of the Exchange Control. Prior to May 1987, the Exchange Control gave such approval on condition that the foreign shareholders matched the value of any reinvested blocked funds with new investment funds from external sources on a 50/50 basis. Depending on the nature of the project and its contribution to exports, import savings and employment, the additional external funds required may vary from 50 per cent down to zero. Blocked and matching funds invested in this way are accorded venture capital status, carrying 50 per cent profit remittability and disinvestment rights. However, such blocked funds will remain invested for a period of 5 years qualifying for disinvestment rights. 

Where the majority of the equity of a corporate body or partnership with investment in Zimbabwe is owned by a foreigner, that part of its after tax profits which is not declared as dividends is referred to and designated by the Exchange Control as surplus funds. Such surplus funds may be used to conduct normal business operations or to finance expansions of existing business operations in Zimbabwe. However, surplus funds may not be reinvested in other projects without the permission of Exchange Control. The Exchange Control currently encourages the reinvestment of surplus funds in approved projects, but such investment is not given venture capital status (i.e. it does not qualify for the remittance of 50 per cent of net after tax profits or for the remittance of disinvestment proceeds). Where surplus funds have not been used or reinvested in accordance with the rules explained above, they may only be invested in short-term or fixed deposits or in savings accounts with authorized dealers in Zimbabwe. 
• As a further liberalization measure Government now considers applications by potential investors in Zimbabwe to access blocked funds on a switch basis with non-resident owners of such funds. 

Since December 1981, foreign companies have been given access to local credit facilities within certain limits of 15 per cent of share holders' funds. However, Government has now raised the formula limit to 25 per cent of share holders' funds. Borrowing by such companies beyond the formula limit is possible but is likely to result in some restrictions on dividend and profit remittances unless the borrowing is in respect of an export generating enterprise.