A glance into recent changes impacting miners in Zambia

Zambia has been a major mining country for nearly a century, and mining continues to be the backbone of its economy. This article highlights recent trends and expected reforms in the country’s mining sector. Throughout, these changes emphasize the need to develop comprehensive and responsive mineral resource regulations and policies that address and reconfigure the growth prospects of the mining sector and the country at large. This is particularly important in view of the world’s energy transition agenda. Zambia’s copper industry is poised to take center stage with respect to green energy as copper and manganese have now been designated by the European Commission (EC) as critical minerals in its proposed Critical Raw Materials Act.

REFORMS

Recent mineral royalty

The Income Tax Act effective Jan. 1, 2023, introduced the following tax reforms:

> Reduction of property transfer tax on transfer of mineral rights held by exploration companies from 10% to 7.5%;

> deductibility of mineral royalty tax when determining the taxable income of mining companies; and

> introduction of presumptive tax (4% to 10%) for artisanal and small-scale mining based on gross turnover.

This legislation has provided mining companies with major tax relief.

Transfer pricing

In 2018, the income tax (transfer pricing) (amendment) regulations, statutory instrument no. 24 of 2018 became effective. The regulations provide the applicable basis upon which adjustments may be made to transactional prices in controlled transactions, principles of comparability, transfer pricing methods, choice of transfer pricing methods, and rules governing transactions between parties. The regulations also provide for country-by-country reporting for large multinationals including mining companies. Zambia adopted the OECD-recommended three-tiered documentation structure consisting of (1) master file; (2) local file; and (3) country-by-country reporting (CbCR). Small to midsized companies are however exempt from the regulations.

Mining cadastre

In February 2022, the ministry of mines and minerals development, imposed a 44-day suspension on the issuance of mining rights. The suspension was for the government to facilitate an extensive audit on the mining cadastre department, as it has the sole responsibility of overseeing granting and managing of mineral licenses throughout the country. At the end of the audit, a number of active expired mining licenses in the system have since been deleted to pave way for new applications.

The noteworthy concerns for potential and current license holders following the audit are the disclosure of beneficial ownership, the connection of the mining cadastre system to other government databases, and the introduction of restrictions on the number of active mining rights that can be held by a single beneficial owner. Potential license holders should ensure that they are registered or incorporated as a company in Zambia, while current mining right holders should ensure that their beneficial ownership information is up to date and accurate. This clearly means that more areas will become available for investors.

Mining policy and regulation

The government, through the ministry of mines, launched the 2022 National Mineral Resource Development Policy on Nov. 11, 2022. The highlight of the policy is to create a semi-independent mining regulator. Currently, the director of mines regulates the mining industry.

TRENDS

International arbitration

Recently, some investors in the mining sector have pursued arbitration in international forums to resolve disputes against the Zambian government. These disputes have led to International Centre for Settlement of Investment Disputes (ICSID) arbitrations and have involved shareholder disputes between joint venture companies, state-owned enterprises, and international investors.

Zambia is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. In 2022, in a bid to restore investor confidence, Zambia also enacted the Investment Trade and Business Development Act, No. 18 of 2022. This act provides for enforcement of investment protection and promotion agreements between an investor and the government of the Republic of Zambia.

Parent company environmental liability claims

The United Kingdom Supreme Court (UKSC) case of Vedanta Resources PLC and Konkola Copper Mines PLC v. Lungowe and Others, 2019 UKSC 20, has brought to the fore peculiar considerations about mining companies operating in Zambia and liability for parent companies in claims of negligence and breach of statutory duty against members of their group.

There appears to be a trend of mining companies operating in Zambia being sued for environmental claims involving their subsidiary’s operations in Zambia. After the Vedanta case, at least one other miner has been sued (in the South African high court) for environment claims with regards to operations of its subsidiaries in central Zambia that took place in the 1970s.

Takeaways

The mining industry is expected to be of critical importance to Zambia for the foreseeable future. These recent changes, which focus on clarity in ownership and aligning internal policies with global developments, highlight the need for miners to work with local counsel on their license ownership status and on strategies to mitigate recent dispute trends. 

The authors would also like to thank Chama Simbeye, an associate at Dentons Eric Silwamba, Jalasi, and Linyama legal practitioners, and Wana Chinyemba, a research assistant at Dentons Eric Silwamba, Jalasi, and Linyama legal practitioners, for their contributions to this article.

JOSEPH JALASI is a senior partner and the head of tax, mining, corporate, banking, and finance department for Dentons Eric Silwamba, Jalasi, and Linyama legal practitioners. RACHEL HOWIE is a partner and co-lead of Dentons Canada’s litigation and dispute resolution practice group. DIORA ZIYAEVA is a partner in Dentons U.S. international dispute resolution group.