What I know to invest in Tanzania?
The tax regime in Tanzania consists of a number of direct and indirect
taxes including income tax, VAT, import duty, excise duty and stamp
duty. There are also some minor taxes levied at the local government
level. All central government taxes are administered by the Tanzania
Revenue Authority (TRA), which has three tax departments, namely
Domestic Revenue, Customs and Excise and Large Taxpayers.
The Tanzanian tax system is residence-based, with a standard corporate tax rate of 30 percent. A self- assessment approach is used, with a requirement to file a tax return at the end of the year and tax payments to be made on a quarterly basis.
Capital gains are aggregated with business income and taxed at the standard corporate income tax rate.
VAT at a standard rate of 18 percent is imposed on imported goods and the local supply of goods and services.
Withholding tax is deducted at source on specified payments both to residents and non-residents. Withholding tax is generally an advance tax in the case of residents and a final tax in the case of non-residents.
Corporate income tax
In Tanzania a corporate entity is subject to corporate income tax if it:
- has "total income" for the year of income, including income from foreign sources or from foreign permanent establishments;
- is in a so-called "perpetual unrelieved loss position", for current and four preceding years of income consecutively;
- has a domestic permanent establishment that is deemed to have repatriated income in the year of income;
- receives non-final withholding payments during the year of income.
Tanzanian tax residents are subject to income tax on their world-wide
income, whereas non-residents are subject to tax on income from a
source in Tanzania. A company is a Tanzanian tax resident if it is
incorporated or formed under the laws of the United Republic of
Tanzania or has its management and control exercised in Tanzania at
any time during the year of income.
Tax exempt entities include the East Africa Development Bank, the Price Stabilisation and Agricultural Inputs Trust; the Investor Compensation Fund under the Capital Markets Regulatory Authority, the Bank of Tanzania and the Dar es Salaam Stock Exchange.
A. Concept of "permanent establishment" (PE)
A "permanent establishment" is defined by the Tanzanian Income Tax Act as a place where a person carries on business and specifically includes a place where a person:
- is carrying on business through an agent, other than a general agent of independent status acting in the ordinary course of business as such;
- has used or installed, or is using or installing substantial equipment or substantial machinery;
- is engaged in a construction, assembly or installation project for six months or more, including a place where a person is conducting supervisory activities in relation to such a project.
B. Corporate tax rates
The basic rate of corporate income tax in Tanzania is 30 percent. Newly listed companies on the Dar es Salaam Stock Exchange that have issued at least 30 percent of their shares to the public are taxed at 25 percent for three consecutive years from the date of listing.
C. Alternative minimum tax
A company that has tax losses for five consecutive years is liable to a minimum tax at 0.3 percent of turnover for the fifth year.
D. Capital gains
Capital gains are aggregated with business income and taxed at the
standard corporate income tax rate of 30 percent. An upfront
instalment of capital gains tax is payable at the rate of 10 percent
by a resident entity and 20 percent by a non-resident entity in
respect of gains from the realization of an interest in land or
buildings situated in Tanzania or shares or securities held in a
resident entity. This upfront instalment amount paid may be claimed as
a tax credit through the annual tax return.
Shares listed on the Dar es Salaam Stock Exchange, units in approved collective investment schemes and agricultural land held by an individual may qualify for exemption. Rollover relief is available in respect of transfers between associated resident companies with a shareholding of at least 50 percent.
E. Deductible expenses
Expenditure, other than of a capital nature, wholly and exclusively incurred in the production of income is generally deductible for corporate income tax purposes.
F. Carry forward losses
Subject to the "same business" and "continuity-of-ownership" tests,
assessed losses may be carried forward indefinitely.
Losses from an agricultural business can only be offset against agricultural income. Losses incurred in petroleum or mining operations in a contract/mining area are ring-fenced from profits in another contract/mining area.
Restrictions exist in respect of the claiming of losses when the underlying ownership of a company (as compared to the last three years) changes by more than 50 percent. In these circumstances a company is deemed to have realised any assets owned and liabilities owed by it at market value.
G. Tax treaty network and transfer pricing
Tanzania has entered into double tax treaties with Canada, Denmark,
Finland, India, Italy, Norway, South Africa, Sweden and Zambia.
In relation to transactions between associates, there is an obligation to "quantify, apportion and allocate amounts" for income tax purposes on an arm's length basis. The definition of "associate" includes a person who either alone or together with an associate/(s) directly or indirectly controls or may benefit from 50 percent or more of the rights to income or capital or voting power of the entity.
If the Commissioner considers a person has failed to comply with the arm's length requirement, he may make such adjustments as he deems appropriate.
The TRA has issued The Income Tax (Transfer Pricing) Regulations, 2014 on February 7, 2014. The Regulations have adopted the same methods as approved by the OECD.
In terms of the Income Tax Act (ITA), exempt-controlled resident entities are subject to thin capitalisation regulations of a maximum debt/equity ratio of 7:3. An "exempt-controlled resident entity" is defined to include inter alia a resident entity in which 25 percent or more of the underlying ownership is held by non-residents or their associates.
Withholding tax is applicable on specified payments made to resident
and non-resident companies. In respect of payments to resident
companies, this tax is generally an advance tax.
The withholding tax rates applicable to payments to non-residents may be reduced or eliminated in terms of a double tax agreement entered into between Tanzania and the recipient's country of residence.
Dividends paid to a non-resident or non-controlling resident are subject to a final 10 percent withholding tax. Dividends distributed by a resident company to another resident company are subject to a final 5 percent withholding tax if the resident shareholder controls 25 percent or more of the distributing company's shares or the company is listed on the Dar es Salaam Stock Exchange.
A branch profit remittance tax is levied at 10 percent on profits deemed to have been repatriated according to a specified formula.
Interest paid to residents and non-residents is subject to a 10 percent withholding tax. In the case of resident recipients, this is not a final tax.
Royalties paid to both residents non-residents are subject to final 15 percent withholding tax. In the case of a non-resident recipient, this is a final tax.
Payments for technical and management services rendered by a non-resident are subject to a final 15 percent withholding tax. Those services rendered by residents are subject to 5 percent withholding tax, which is a final tax if the service is rendered to a mining company.
VAT at a standard rate of 18 percent is imposed on the supply of goods
or services by taxable persons in Tanzania and the importation of
goods and services into the country.
The annual registration threshold for VAT purposes is TZS40 million.
Individual or personal taxation (employment income)
Tanzanian tax residents are subject to income tax on their worldwide
income, whereas non-residents are subject to tax on income accrued in
or derived from Tanzania.
A resident is defined as an individual who:
- has a permanent home in Tanzania and was present in Tanzania during any part of that year of income;
- is present in Tanzania:
- for a period/(s) amounting in aggregate to 183 days or more in that year of income;
- during the year of income and in each of the 2 preceding years of income for periods averaging more than 122 days in each such year of income;
- is an employee or official of the government of Tanzania posted abroad.
Tax is imposed at graduated rates ranging from 0 to 30 percent.
Employers and employees are obliged to contribute on a monthly basis to one of the following approved social security funds:
- a parastatal pension fund (PPF);
- a national social security fund (NSSF);
- a public service pension fund (PSPF);
- a local authorities pension fund.
Most private sector employees and employers contribute to the NSSF.
Both the employer and employee are to contribute 10 percent of the
employee's wages on a monthly basis. "Wages" is defined as
remuneration in money paid to an employee under his contract of
service or apprenticeship.
The Vocational Education and Training Act 1994 imposes a skills and development levy on any employer employing more than 4 employees. The levy is charged on a monthly basis at five percent of the total gross monthly emoluments payable by the employer to all his employees.
Tax incentives and favourable tax regimes
Export processing zones and special economic zones
Investors in export processing zones (EPZ) and special economic zones (SEZ) may qualify for tax benefits including:
- exemption from payment of corporate tax for an initial period of 10 years;
- exemption from withholding tax on rent, dividends, and interest for the first 10 years;
- exemption from payment of all taxes and levies imposed by local government authorities on goods and services produced or purchased in the EPZ or SEZ for a period of 10 years.
The Investment Act
The Investment Act provides for issuance of a "certificate of
incentives" to qualifying investors who have made applications for
such certificates to the Tanzania Investment Centre (TIC). Qualifying
investments are investments made in priority sectors with an
investment capital amount exceeding US$100 000 in the case of local
investors and exceeding US$300 000 in the case of foreign investors.
Qualifying strategic investors are entitled to:
- 0 percent withholding tax rate on interest payable to a non-resident bank, provided that it is not an associated or related company;
- no customs duty on capital goods;
- no VAT on capital goods.
Investors in priority areas holding an investment certificate can negotiate additional incentives, which have to be gazetted. The priority sectors include:
- agriculture and agro-based industries;
- mining, petroleum and gas;
- economic infrastructure (road, railways, air and sea transport, port facilities, telecommunication, banking and insurance); and
An investment deduction in the form of an initial allowance at 50
percent of the cost of qualifying equipment is granted in respect of
plant and equipment used in manufacturing processes, fish farming and
Special deductions are available to companies involved in mining operations established prior to the introduction of the ITA.
Compliance and administration
The corporate tax year in Tanzania runs from January 1 to December 31.
With approval from the revenue authorities, a company may adopt a year
of income which is different from the corporate tax year.
Corporate taxpayers must submit an annual income tax return by not later than six months after the end of the year of income, but it is possible to apply for an extension of up to 60 days.
Corporate taxpayers must pay quarterly instalments of provisional tax, at the end of the third, sixth, ninth and twelfth months of the year of income.
In respect of individuals, the tax year runs from January 1 to December 31, but employees are taxed on a monthly basis in terms of the Pay-As-You-Earn system under which tax is withheld at source by an employer on emoluments payable to an employee.
Final personal income tax returns are due on or before June 30 (within six months of the end of the year of income). Employees only earning employment income do not have to submit annual income tax returns.
Employees' tax deducted under the PAYE system, as well as withholding tax returns and payments are due by the 7th day of the following month. VAT returns and payments are due by the last day of the following month.
Tanzania does have exchange control regulations. Generally, subject to the submission of relevant supporting documents and the payment of applicable taxes, the repatriation of foreign currency from the country is not restricted. In respect of capital transactions (e.g. foreign source loans), the relevant transaction documentation is to be submitted for approval and the issuance of a Debt Record Number to the Bank of Tanzania.
Documents should generally be retained for a minimum period of five years for tax purposes and the statute of limitation is three years from the date of the final return.
by Celia Becker