The Bank of Zambia has recently issued currency directives that fundamentally alter payment frameworks for domestic transactions in Zambia, effective 26 December 2025. The Bank of Zambia Currency Directives, 2025 (the “Directives”) establish mandatory Kwacha settlement requirements while creating carefully structured exemptions for critical economic sectors, demanding immediate attention from corporate counsel and finance teams.

Core Requirements

The Directives establish an unequivocal rule: all domestic transactions must be settled exclusively in Zambian Kwacha. A domestic transaction is defined as any private or public transaction within Zambia involving payment to a person resident in the country, except for specified exemptions.

Critically, contracts denominated in foreign currency remain permissible, but settlement must occur in Kwacha at the market exchange rate. Where parties cannot agree on the applicable rate, the Bank of Zambia’s 09:30 hours Kwacha/US dollar mid exchange rate serves as the mandatory reference. This creates potential basis risk where the reference rate diverges from actual market conditions at settlement.

Government transactions receive special treatment. Neither government entities nor their counterparties may quote, demand, pay, or receive payment in foreign currency, subject only to schedule exemptions. This prohibition extends across procurement, service agreements, and all commercial dealings with government.

Strategic Exemptions

The Directives include a detailed exemption schedule recognizing practical economic realities, particularly for Zambia’s mining-dependent economy.

Mining Sector

Detailed exemptions accommodate the industry’s international character, conditioned on tax compliance. Mining companies may remit taxes through foreign currency sales to the Bank of Zambia at official mid-rates. Exempted transactions include tolling services, inter and intra-company mineral sales, highly specialized mining equipment purchases, and engineering services incidental to mining; provided one party remits taxes through the Bank of Zambia foreign currency sales. This tax remittance linkage ensures government foreign exchange access while recognizing operational realities.

Financial Services

The directives preserve foreign currency financial products through exemptions covering banking products, securities, and insurance policies with foreign currency components regulated under respective legislation. This maintains Zambia’s capital markets while ensuring domestic service transactions use Kwacha.

Other key Exemptions

Non-resident payments for registered tourism services; electricity sector transactions; diplomatic institutions; all imports and exports; agricultural and gemstone exports through aggregators and auctions; and trade credit for agricultural inputs.

Enforcement Framework

The directives establish robust enforcement combining criminal prosecution with administrative sanctions. Individual violations carry penalties up to 2,500 penalty units or two years imprisonment, or both.

Corporate violations trigger director and officer liability. Individuals who are directors, involved in management, or who knowingly authorized violations face identical criminal penalties unless they prove violations occurred without their knowledge, consent, or connivance. This reverse onus creates significant personal exposure for senior management.

Additionally, the Bank of Zambia may impose administrative penalties reaching one million penalty units without criminal prosecution, a substantial sanction enabling swift enforcement while reserving prosecution for serious violations.

Immediate Corporate Actions

Contract Review and Restructuring

Existing foreign currency-denominated contracts require immediate attention. While denomination remains permissible, companies must implement Kwacha settlement mechanisms with clear exchange rate determination protocols. Consider contract addendums establishing payment procedures while preserving underlying commercial terms, avoiding wholesale renegotiation.

Exchange Rate Mechanisms

Contracts need express provisions determining which “market exchange rate” applies; typically, the commercial bank rate where the payer acquires Kwacha. Implement pre-dispute mechanisms for rate disagreements, such as independent bank quote averaging, avoiding costly litigation.

Exemption Qualification

Companies must assess whether activities qualify for exemptions. Mining sector entities should establish documentary systems proving the Bank of Zambia tax remittance and ensure contracts include counterparty representations regarding compliance. The exemptions for “highly specialised mining equipment” and “engineering services incidental to mining” lack precise definitions, requiring conservative compliance approaches.

Government Contract Compliance

All government contracts require immediate review for compliance with the prohibition on foreign currency quotation and payment. Government contractors must absorb exchange rate risk between cost incurrence and Kwacha receipt, requiring careful working capital management.

Pricing Strategy Revision

Companies must reconsider pricing models, particularly where foreign currency pricing provided stability. Consider “dual pricing” frameworks where foreign currency reference prices,

establish economic value while Kwacha payment amounts are calculated using predetermined formulas, preserving pricing stability while ensuring compliance.

Governance and Liability Management

The director and officer liability framework demands board-level responses. Boards should adopt formal resolutions acknowledging directive requirements, establishing compliance oversight, and delegating implementation authority with reporting obligations.

Implement documented compliance programs including policy manuals, training protocols, transaction approval workflows, and regular audits. These create evidentiary foundations for director defences against personal liability claims. Segregate duties between contract execution, payment authorisation, and accounting functions with compliance checkpoints preventing non-compliant payments.

Organisations should review directors’ and officers’ liability insurance for coverage of regulatory penalties and defence costs associated with directive violations.

Cross-Border Considerations

While imports and exports are exempt, the Directives affect cross-border transactions in subtle ways. Services performed by non-residents for Zambian entities may constitute domestic transactions where non-residents maintain sufficient Zambian presence. The definition of “non-resident”; entities not incorporated in Zambia without Zambian branches; requires factual analysis of supplier structures and transaction characterization.

Implementation Roadmap

Organizations should adopt a phased approach. Immediately conduct rapid assessment identifying high-risk contracts and payment flows, implement emergency controls preventing non-compliant payments, and brief boards on liability exposure. Within 30-90 days, develop compliance frameworks with policies and procedures, prioritize contract amendments, and complete training programs. Subsequently, refine pricing strategies incorporating exchange rate risk management and engage regulators proactively regarding interpretive questions.

Conclusion

The Directives require fundamental operational transformation with immediate effect. The substantial penalties, personal liability exposure for directors and officers, and complex exemption framework demand urgent, coordinated responses across legal, finance, and operational functions. Organizations that approach compliance strategically will navigate this regulatory landscape effectively while those treating it as administrative formality face significant legal and financial exposure.

Corporate counsel should lead cross-functional compliance initiatives ensuring organizations meet these requirements while optimizing legitimate exemption utilization and managing exchange rate risk in Zambia’s evolving regulatory environment.

Disclaimer

This article provides general information only and should not be considered legal advice. Reading this content does not establish a lawyer-client relationship. For guidance on your circumstances, please seek counsel from a qualified legal professional.