The Facts About Tax in Tanzania

Original Source : Worldwide Tax Summaries Online

Tanzania

Corporate – Significant developments

Last reviewed – 18 August 2022

Finance Act 2022

Some of the significant changes brought in by the Finance Act 2022 include the following:

Tax administration 

  • The Tanzania Revenue Authority (TRA) is required to issue a Taxpayer Identification Number (TIN) to individuals with a National Identification Number.
  • The requirement to maintain a primary data server in Tanzania has been extended by one year (i.e. effective date is 1 July 2023).
  • Every owner of a storage facility who intends to keep goods for business purposes is required to register the facility with the Commissioner General, keep records of all stored goods, and report to the Commissioner on a monthly basis.

Income tax 

  • Introduction of taxation on digital transactions (limited to electronic services) at the rate of 2% of the gross payment received, excluding value-added tax (VAT).
  • Definition of ‘equity’ for thin capitalisation has been limited to paid-up share capital at the end of the year of income.
  • Amendment of the definition of ‘residence’ for corporations to include scenarios where management and control are exercised in the United Republic of Tanzania via electronic means.
  • Exemptions:
    • The Minister for Finance has been granted power to exempt special strategic investment approved by the National Investment Steering Committee from income tax.
    • Exemption from capital gain tax on transactions involving free carried interest to the government and transfer of projects assets to a joint venture company.
    • Exemption from tax on amount derived from gain on realisation or transfer of shares to government through the Treasury Registrar.
    • For companies operating in both mainland Tanzania and Zanzibar, the Act allows a tax credit to be claimed for income tax paid in either jurisdiction. In addition, the Act provides for the Minister (upon consultation with the Minister responsible for Finance in Zanzibar) to determine the presumptive income tax rates in Zanzibar.
  • Payments with a source in the United Republic of Tanzania:
    • Expansion of the scope of natural resource payments with a source in the United Republic of Tanzania to include payment for harnessing, generating, or utilising land, air, or water natural resources for generation of power or anything of value, whether the respective natural resource is located alongside the border or within the country.
    • Payments made by an individual other than payments made in conducting a business in respect of a service rendered by a non-resident through a digital marketplace.
  • Sectoral:
    • Transportation business: A resident person engaged in the transportation business is required to pay an advance tax with an amount ranging between 180,000 and 2,790,000 Tanzanian shillings (TZS)per vehicle based on the type of vehicle used (see table below). The operator is also required to issue receipts by electronic means.
      Category A: Goods vehicles (load in tonnes) Tax payable (TZS)
      0 to 1 180,000
      1 to 5 450,000
      6 to 10 720,000
      11 to 15 1,710,000
      16 to 20 2,430,000
      21 to 25 2,610,000
      Above 25 2,790,000
      Category B: Passenger vehicle Tax payable (TZS)
      Bus and other similar vehicle with seating capacity below 10 passengers 180,000
      Bus with seating capacity from 11 up to 16 passengers 450,000
      Bus with seating capacity from 16 up to 30 passengers 720,000
      Bus with seating capacity up to 32 passengers 1,710,000
      Ordinary bus 2,430,000
      Semi luxury bus 2,610,000
      Luxury bus 2,790,000
    • Financial services:
      • Controlled foreign company (CFC) rules: In determination of unallocated income of a resident financial institution, the ‘distributions which are treated as not-distributable as determined by the Bank of Tanzania’ should be included as part of the total distributions made.
      • Alternative financing is defined as ‘any financial arrangement approved by the Bank of Tanzania other than conventional financial arrangements’.The margin on such an arrangement will be treated as interest.
    • Media: Reduction of the withholding tax (WHT) rate to 10% (from 15%) on royalty payment relating to the use of cinematography film, video tape sound recording, or any other like medium, whether paid to a resident or non-resident.

Value-added tax (VAT)

  • Exemptions:
    • The Minister for Finance is now granted powers to grant VAT exemption on goods and services for implementation of special strategic investments approved by the National Investment Steering Committee under the Tanzania Investment Act.  The Minister shall grant this exemption by order published in the Gazette upon approval by the Cabinet.
    • Non-governmental organisations (NGOs) having an agreement with the government that provides for VAT exemption may, upon application to the Commissioner General, be granted VAT exemption on importation and supply of goods and services solely for projects implemented by the NGO. The Finance Act has now introduced a requirement for Ministerial approval of the imports and supplies in order to receive the exemption.
    • VAT exemption on air charter services to apply until 30 December 2022. Further to that, such supplies will no longer be exempt from VAT.
    • One year exemption on supply of double-refined edible oil from locally grown seeds by a local manufacturer and a supply of raw materials of specified HS Codes and packaging materials to be used solely and directly by the local manufacturer.
    • Various additions to the exemption schedule to the VAT Act (i.e. exemptions that do not require application) in relation to the agricultural sector, including on standing trees, fishing hooks, reels and lines, dairy packaging materials, etc.
    • Several other deletions and amendments to the exemptions schedule to the VAT Act.
  • VAT deferment on capital goods now extended to certain agricultural vehicles, such as tractors and semi-trailers, by inclusion of the relevant HS codes (87.16 and 8701.20.90) for these items within the definition of the term ‘Capital Goods’. However, the Act now includes a condition that these items must be locally manufactured or assembled in a customs-bonded warehouse.
  • Non-resident providers of digital services required to register under the VAT Act can now do so without imposing an obligation under the Income Tax Act 2004. The VAT Act is also amended to enable a non-resident to apply for VAT registration if it is impractical to appoint a VAT representative in accordance with procedures prescribed in respective regulations.
  • Introduction of definition of ‘alternative financing arrangement’ as ‘any financial arrangement approved by the Bank of Tanzania other than conventional financial arrangements’. The Minister for Finance is empowered to make regulations prescribing the manner and procedure of dealing in loans, including alternative financing.

Other taxes and levies

  • Electronic communications: Scope of electronic money transaction (EMT) levy extended to also include transfers from bank account to mobile money account. Exemption from the EMT levy for transactions involving payment of salaries by employers. The EMT levy upper limit is revised to TZS 4,000.
  • The scope of the 5% excise duty on pay-to-view services (previously applied to services supplied by cable and satellite) is expanded to include those provided using terrestrial or other technology services.
  • Introduction of a 10% tax on the amount of winnings from sports betting.
  • Change of workers compensation fund rate from 0.6% to 0.5% for private companies.

Original Media Source

FAQ's on Tanzania Investment

No the foreigner can not own the land according to The Land Tenure Act 1992. How ever the Act further provides the opportunity for the land to be leased to any person, Zanzibari or non-Zanzibari, intending to use that land for investment purposes subject to the approval of an investment project by ZIPA or other relevant authorities. The lease period goes up to 99 years.

Tanzania’s Land Act No. 4 of 1999 explicitly states that no foreigner can own land in the country.

According to the former executive director of HakiArdhi, Yefred Myenzi, the Act spells out how land can be used, including leasehold.

“In Tanzania we have land laws categorised as customary and statutory laws, with the later having overriding powers in case there are problems with the former. Users of land are given rights of occupancy for periods of 33, 66 and 99 years, depending on the use,” said Mr Myenzi, adding, “Our system is similar to that of Uganda with the only difference being that in Uganda there is land that falls under the Buganda kingdom and it is recognised in the country’s constitution. However, Kenya’s system is completely different because it is freehold.”

He further said that in Tanzania, once the government leases land, the lessor isn’t allowed to sub-lease.

“The right to sub-lease is held by the government since all land is public but is held in trust by the president on behalf of the people,” he said. “The government also collects land rent, property tax, withholding tax and stamp duty.”

The Land Act is very clear that a non-Tanzanian is not allowed to own land, save for investment purposes only under the Tanzania Investment Act.

Government leases

In line with the country’s laws, investors gain access to land through government leases whereby they are issued with a document known as “derivative right” through the Tanzania Investment Centre (TIC).

The duration of occupation is one year less than the years declared in the certificate of occupancy, which may be 32, 65 and 98 years. The maximum duration given in the certificate of occupancy is 99 years as per the Land Act, 1999.

Communities benefit when the government parcels out land to be used by certain groups or communities for set objectives. This normally happens when the government revokes leaseholds given to investors after they fail to develop the land in question.

In other cases, the government may decide to give land that previously belonged to a government parastatal, to interested groups wanting to undertake economic activities including agriculture.

It has been argued that compared with others, the Tanzanian system is better.

So far, the government has set aside Special Economic Zones for economic and commercial investment. The aim is to promote investment in industry; specifically for industrial products which are meant for export.

Such areas are under the supervision of Export Processing Zone Authority.

A foreign investor is allowed to own land only for investment purposes. Land can be given to an investor in the form of a derivative right which allows investors to lease land for investment purposes for a period of 32 years, 65 and 98 years.

If an investor changes the usage of the land, his lease agreement will be terminated and the certificate of incentive from TIC will be cancelled.

The TIC also has the authority to revoke the derivative right issued to foreign investors if they fail to implement approved projects.

The minimum initial investment capital varies from one sector to another and foreigners to citizens.

For hotel sectors, the minimum investment capital is  $2,500,000 (USD) and $300,000 (USD) for real estate.

Whilst for other sectors the minimum is $300,000 and $100,000 for foreigners and citizens respectively.

The issuance of Work and Residence Permits is governed by the Employment Act No.11 of 2005 and the Immigration Act No.7 Cap 54 respectively.

The Zanzibar Investment Promotion and Protection Act No.14 of 2018 provides an opportunity for the approved projects to employ expatriates in key positions that are determined by ZANZIBAR INVESTMENT PROMOTION AUTHORITY (ZIPA).  

ZIPA maintain that through its ‘One Stop Centre’ the work and resident permit are actually processed within 24 hours given all the supporting documents have been approved.  However, this one-day turn-around may not be the same for all those applying.

In July 2021 Zanzibar rolled out a new tax and residency programme for expatriates to live and invest in the Tanzanian island.

This move follows huge infrastructural and tourism-friendly initiatives that have enabled Zanzibar to withstand adverse effects of the COVID-19 pandemic.

Until now, Zanzibar had incentives for real estate developers and not property buyers.

Zanzibar has not attracted significant real estate buyers

The result has been that Zanzibar has been unable to attract any significant foreign investors into the real estate sector, unlike Mauritius, Dubai, Oman and Singapore, which have successfully attracted both developers and buyers.

With the introduction of this new tax and residency plan, real estate developers can a residency permit-, allowing them to live in Zanzibar as non-Citizens.
There are also several residency benefits for foreign buyers, such as first-time buyers paying only 50% of regular capital gains on the sale of it, at 5% and not the standard rate of 10%.
Foreign ownership is permitted with Zanzibar Investment Promotion Authority (ZIPA) doing the registration.

There is no VAT charged on any unit rental or sales held by foreigners, and that income tax is at 15% instead of 30% for foreign buyers.
Foreigners are allowed to hold residence permits for the period the buyer owns the property that is renewable after 24 months at the cost of US$ 3,050 for the investor and $ 550 for each dependant.

Foreigners who get into such ventures as restaurants, bars, watersports or retail operations will be given the same incentives as those in the real estate sector.

Foreigners in the real estate business will not be required to have a business license for the first three months, will be allowed to own the property and that there will be no corporate tax for the first five years.

Expatriates will be allowed to repatriate any profits from the property after tax with a 100% exemption on withholding tax on interest paid into foreign bank accounts.

In Zanzibar to encourage private investment to thrive with foreign investments requires a stable and predictable investment climate, which is provided by transparent and accountable government, strict enforcement of the rule of law, skilled and productive labour force, affordable and accessible infrastructure, and intelligent infrastructure. In Zanzibar there are still challenges for investment in three main categories: cultural challenges, legal challenges, and administrative & operational challenges..

About the Government’s stability, the Zanzibar Investment Promotion Authority (ZIPA) is of the view that, Zanzibar’s government is politically stable, economically and socially advantageous, and it enthusiastically welcomes international investors. There is no threat of seizure or nationalization. The government, through its Constitution and International Conventions agrees to protect foreign investors’ interests; and allows 100 percent foreign ownership as well as free repatriation of profits. Further, investors in Zanzibar can access into the East African and SADC markets, take advantage of EU export restrictions, and gain access into the US market through AGOA as per UNCTAD/ITE/IPC/Misc.9.

The government also provides Regional and International market concessions and also tries its best to establish an improved business environment in the region. The Government offers the firms conditions of open market and regulatory flexibility environment in these regions. To attract more foreign investments, UNCTAD/ITE/IPC/Misc.9 is on the view that, the Zanzibar government created an actual legal framework for the protection of foreign investments where there is no distinction between protection for investors from foreign countries and protection for indigenous.

To read the full article click here: Legal Protection of Foreign Investment (FI) in Zanzibar

You may also be interested in the: USA 2020 Investment Climate Statements: Tanzania Report

Where is Tanzania ranked on International Transparency on  www.transparency.org?

>Click here to see Tanzania’s results at a glance

This year’s Corruption Perceptions Index (CPI) reveals that corruption levels are at a worldwide standstill.

The CPI ranks 180 countries and territories around the world by their perceived levels of public sector corruption. The results are given on a scale of 0 (highly corrupt) to 100 (very clean).

This year, the global average remains unchanged for the tenth year in a row, at just 43 out of a possible 100 points. Despite multiple commitments, 131 countries have made no significant progress against corruption in the last decade. Two-thirds of countries score below 50, indicating that they have serious corruption problems, while 27 countries are at their lowest score ever.

>Click here to see Tanzania’s results at a glance

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