“Over 50% of Zimbabwean businesses cite inconsistent electricity supply as a major barrier to growth.” – World Bank Report on Zimbabwe.

In Zimbabwe, the majority of small and medium-sized enterprises (SMEs) remain informal, creating significant challenges for their growth, access to finance, and long-term sustainability. Despite the government’s push towards formalizing businesses, only about 10% of Zimbabwean SMEs are formally registered. This staggering statistic reflects deep-rooted challenges that continue to hinder formalization efforts.

Formalizing a business in Zimbabwe means greater access to financing, legal protections, and business opportunities. However, businesses still face substantial hurdles that prevent them from taking this critical step. In today’s article, we will explore the key barriers to business formalization in Zimbabwe and provide insights into how TD & Partners can help businesses navigate these challenges.

A business that stays in the shadows of informality is like a bird that refuses to leave the nest—afraid to spread its wings, but destined for greater heights. Formalization is not just a legal step; it’s an evolution. It transforms the business from something fragile into something resilient, enabling it to navigate challenges, explore new opportunities, and soar beyond its limitations. The comfort of informality may seem appealing, but true growth only begins when the business steps into the light, embracing structure and vision to fulfill its true potential.

Taskforce Titans

For many SMEs in Zimbabwe, the cost of formalization is the first major hurdle. According to the World Bank, 80% of informal businesses cite high costs as their main barrier to formalization. The financial burden comes in several forms: registration fees, council licenses, industry-specific permits, tax compliance, and other associated expenses.

• A small business in Harare may have to pay between $100 to $300 annually just for a council business license. This is a considerable amount for small enterprises that operate on tight margins. Additionally, sector-specific permits (such as those for retail, manufacturing, or food-related businesses) add further financial strain, discouraging many businesses from formalizing.

These costs accumulate, and without subsidies or incentives to alleviate them, many informal businesses choose to stay in the informal sector, where they can operate with fewer upfront expenses.

The process of formalizing a business in Zimbabwe is perceived as overly complex and time-consuming. Business owners must deal with multiple government agencies, extensive paperwork, and long approval waits, which can deter them from completing the formalization process.

• To register a business, entrepreneurs must first reserve a company name with the Registrar of Companies, prepare and submit a Memorandum of Association, Articles of Incorporation, and other required documents. This process is often slow, requiring back-and-forth trips to government offices and long waiting periods. The lack of digital infrastructure further complicates this process, as most paperwork is still done manually.

Although the Zimbabwe Investment Development Act (ZIDA) was introduced to streamline the registration process, it is still seen as cumbersome for smaller business owners without legal or professional assistance.

One of the biggest barriers to formalization is a lack of awareness among business owners about the benefits that come with operating a formal business. Many SMEs believe that staying informal provides flexibility and fewer regulatory obligations, without realizing the significant opportunities they are missing.

• A small retailer in Bulawayo might not be aware that formalizing their business would make them eligible for loans from financial institutions, allowing them to expand operations. Formal businesses also have access to government contracts and can take advantage of the legal protections afforded by the law, such as the ability to enforce contracts and protect intellectual property.

Statistics show that formalized businesses are 2.5 times more likely to grow compared to their informal counterparts because they have better access to financing, legal protections, and market opportunities.

Zimbabwe’s tax system is another major deterrent for SMEs. The complexity of the tax regime, which includes Value-Added Tax (VAT), corporate tax, and PAYE (Pay As You Earn) for employees, scares off many business owners. They fear that formalization will bring high taxes, penalties for late filing, and frequent audits by the Zimbabwe Revenue Authority (ZIMRA).

• Many businesses avoid formalizing due to the belief that tax compliance will eat into their profits. While it’s true that formalized businesses must comply with tax regulations, there are also incentives in place that can reduce the tax burden. For instance, obtaining a Tax Clearance Certificate (ITF 263) from ZIMRA reduces the withholding tax rate from 10% to 0%, making the business more competitive when applying for contracts.

Despite the introduction of TARMS (Tax and Revenue Management System), which has simplified tax filings through online systems, many SMEs still find the process challenging. Poor internet access and a lack of familiarity with TARMS prevent many business owners from fully utilizing this platform.

Zimbabwe’s volatile economic landscape presents another hurdle to formalization. Frequent changes in regulations, inflation, currency instability, and economic uncertainty make it difficult for SMEs to budget for taxes, licenses, and other compliance-related expenses.

• A business in Mutare might hesitate to formalize due to the country’s fluctuating inflation rates, which can increase the costs of compliance. Currency instability also complicates business operations, making it harder for SMEs to plan for long-term growth while remaining compliant with regulatory requirements.

This unstable environment leads many businesses to stay informal, where they feel they can more easily adjust to the shifting economic conditions without being tied to strict oversight and regulations.

Beyond general registration, businesses in Zimbabwe that want to engage in public sector contracts must register with the Procurement Regulatory Authority of Zimbabwe (PRAZ). Many SMEs, however, are unaware of the PRAZ requirements or find the registration process too complex. Without PRAZ registration, businesses are excluded from bidding on lucrative government tenders, limiting their growth potential.

• A construction company operating informally may miss out on significant government contracts because they have not registered with PRAZ. The lack of formal documentation and compliance prevents them from competing with other businesses that have formalized.

Similarly, businesses employing staff must register with the National Social Security Authority (NSSA), which ensures that employees receive social security and pension benefits. Many SMEs overlook this requirement due to the administrative burden and the costs of making contributions to NSSA.

Formalizing businesses has the potential to significantly boost Zimbabwe’s economy. Data from the Zimbabwe Statistics Agency (ZIMSTAT) shows that formalizing just 10% of Zimbabwe’s informal businesses could result in a substantial increase in GDP. Formalized businesses are also 70% more productive than their informal counterparts, and workers in formal businesses earn higher wages due to the protections and benefits provided by law. Formal businesses contribute to national revenue through taxes, help create formal jobs, and can participate in the global economy through exports, government tenders, and formal contracts.

Beneficial but Sometimes Overwhelming, Right? We Can Help

Formalizing a business in Zimbabwe is not without its challenges, but the long-term benefits far outweigh the initial hurdles. At TD & Partners, we understand the complexities of business formalization and offer comprehensive services to make the process easier for SMEs. From assisting with company registration and PRAZ compliance to providing tax advisory services and ongoing support, we help businesses navigate the formalization journey smoothly.

Our taskforce titans ensure that your business remains compliant with Zimbabwe’s regulations while also unlocking new opportunities for growth through access to financing, government contracts, and legal protections. Let TD & Partners be your guide in formalizing your business and achieving long-term success in Zimbabwe’s evolving business landscape.At TD & Partners, we simplify the compliance process for SMEs in Zimbabwe by offering a structured, step-by-step approach to formalization. Here are the exact steps we take to make compliance easier:

We begin by thoroughly understanding your business’s current state, its goals, and any specific compliance challenges you’re facing. This allows us to customize our services, ensuring that we address the most pressing needs of your business. By identifying areas of concern early, we’re able to guide you through the compliance process in a way that aligns with your operational goals.

TD & Partners manages the entire business registration process for you. From reserving your company name with the Registrar of Companies to submitting essential documents like the Memorandum and Articles of Association, we handle all the paperwork. This removes the bureaucratic burden from business owners, allowing them to focus on building their enterprises without being bogged down by legal formalities.

Navigating local council regulations can be challenging, but we ensure that your business acquires the necessary council business license. We guide you through the specific requirements for your region, making sure that you avoid delays and any risks of non-compliance. This step secures your right to legally operate within your municipality, ensuring that you’re not vulnerable to fines or operational shutdowns.

Tax compliance can be intimidating, especially for SMEs. We assist you in registering with ZIMRA, ensuring that your business is properly set up for VAT, corporate tax, and other tax obligations. We also help you obtain a Tax Clearance Certificate (ITF 263), which reduces withholding tax and boosts your credibility when applying for contracts. TD & Partners makes sure you take full advantage of the TARMS system, easing the burden of tax management.

Businesses employing staff are required to register with the National Social Security Authority (NSSA). We take the lead in ensuring your business complies with NSSA, registering your employees for social security and pension contributions. This ensures your business avoids penalties while securing benefits for your employees, boosting their job satisfaction and retention.

If your business is aiming to participate in public sector contracts, PRAZ registration is essential. We assist in registering your business with the Procurement Regulatory Authority of Zimbabwe (PRAZ), giving you the ability to bid for government tenders and expand your business into new markets.

For businesses in sectors like manufacturing, agriculture, or mining, environmental compliance is key. We help you secure necessary permits from the Environmental Management Agency (EMA) or other relevant industry bodies. This ensures your business complies with environmental regulations and avoids costly penalties or shutdowns due to non-compliance.

Formalization is just the beginning. TD & Partners offers continued support to keep your business compliant as regulations evolve. From managing renewals to ensuring your tax filings and council licenses are up to date, we provide comprehensive support to ensure your business remains on track.