SETTING UP & OPERATING BUSINESS IN TANZANIA

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TYPE OF BUSINESS Limited Companies The provisions concerning limited companies are contained in the Tanzania Companies Ordinance Cap 212 which is modelled closely on the UK Companies Act 1948. Limited companies may be public or private.  A private company is prohibited from inviting the general public to subscribe to its shares, it cannot have more than 50 members, and its shares are not freely transferable between members.  A public company, as its name suggests, may offer its shares to the general public. There is no maximum number of members and its shares are freely transferable. Such a company is the equivalent of a corporation in many other countries. Partnerships The law relating to partnerships is largely contained under Partnership provisions in the Law of Contract Cap. 433.  A partnership is restricted to a maximum of 20 persons in general trading or 10 in banking business. If these numbers are exceeded the partnership must be registered under the Companies Ordinance.  Each partner is jointly and separately liable for all the debts incurred.  A partnership may be formed by any kind of agreement expressed or implied without any special formality but usually it is in writing.  If the partnership does not trade under the names of partners, the names must be registered under the Business Names Ordinance Cap 213. Partnership Agreements do not have to be filed in any public registry and are not open to public inspection nor do they have to publish financial statements.  Partnerships are not required by law to appoint auditors although many larger partnerships do so in practice and the income tax authorities require that financial statements filed with them for tax purposes must be audited by authorized auditors. The death, resignation or retirement of any individual partner dissolves a partnership unless, as is usual, the partnership agreement provides otherwise.  A limited partnership may be formed but it must be registered. The same maximum number of partners applies but at least one partner must be a general partner who is liable for all the debts for the firm without a limit. Limited partnerships are governed by contract of law (Partnership Provisions Part X). Branches of Foreign Companies A company incorporated outside Tanzania may carry on business here through a branch. In order to establish a branch the following requirements should be fulfilled : Approval of the company name from the Registrar of Companies must be obtained. A certified copy of Memorandum and Articles of Association, Charter , statutes, or other instrument constituting or defining the constitution of the parent company must be filed with the Registrar. If the instrument is not written in English language a certified translation thereof is required. A list containing the names and addresses, nationalities and occupations of its directors and company secretary. The names and addresses of one or more Tanzanian residents who are authorized to accept legal notices on the company's behalf. A statement of existing mortgages and charges created by the company in Tanzania if any.  The address of the company’s registered or principal office. In the event of any alteration being made in any instrument or in such address or in the directors or managers or in the name or address of any such person as aforesaid, the company should within three months of such alteration deliver to the Registrar a notice of alteration. TAXATION The income tax law is contained in the Income Tax Act 1973 under which companies and individuals are taxed. It is administered by the Commissioner of Income Tax headquartered in Dar es Salaam, plus another nineteen regional offices including Zanzibar. Taxation changes and amendments to the Act are normally announced by the Minister of Finance in his Budget speech delivered in June each year. Tax returns are paid in Tanzanian Shillings. In general, the tax department is unwilling to give advance rulings on proposed transactions. Corporate Taxes a. Companies are required to pay corporate taxes at a rate of 30% of net taxable profits b. Other withholding taxes are in respect of dividends - 15% Interest 15% Management and professions fees - 20%, Royalties - 20%, Rents - 20% Lease of Air crafts - 10%. Technical Services and management fees to Mining Sector - 3% or 20% and Branch Profits remittance - 20% INDIRECT TAXES Indirect Taxes and levies payable: (i) Value added Tax at 20% (ii) Housing Levy 4% of payroll (iii) Stamp Duty on sales 1.2% (iv) Vocational Education Training Levy 2% of gross payroll (v) Transport withholding tax 2% (vi) Road and Motor Vehicle Registration Taxes (various rates) (vii) Airport and sea port departure charges   (viii) Local government development Levy   (ix) Customs and Excise Duties (various rates) (x) Care benefit tax (for saloon cars and pick -ups)   (xi) Entertainment tax (for non -VAT registered tax payers)   Taxes on Individuals Resident Individuals are liable to Income Tax on their world-wide income. Non resident Individuals are liable to tax on income accrued in or derived from the United Republic of Tanzania. Sources of Income include gains or profits from trade or business, employment, vocation, as well as Investment Income (Rents, Dividends, Interest, Royalties received). The withholding tax rate on Investment Income are the same as those quoted under 1 (b) above; and are final taxes. INCENTIVES General The Investment Incentives include Tax relief's and concessional tax rates which can be accessed by the investor under the Income Tax Act 1973, the Customs Tariff Act 1976 and the Sales Tax Act 1976 and the Immigration Act 1995. A brief description of these investment incentives is given below: Tax incentives The Tax Incentives available to a holder of a Certificate of Incentives under the Fiscal Laws are: Income Taxation Maximum corporate tax rate of 30% on net taxable Profits (for both Resident and Non Resident) Withholding Tax rate of 10% on Dividends Withholding tax rate of 0% (Zero rate) on interest on loans 100% write off of any Capital Expenditure incurred in the production of Income in such year of Income. Indefinite carry forward of losses and deficits of Total Income Customs Tariff Act 1976 Importation of Capital Goods for investment in the specified priority sectors are charged Import Duties not exceeding 5%. Importation of Capital goods for investment in Sectors of economic Infrastructure (construction of roads, bridges, railways, airports, installation of electricity, telecommunication, water services, as well as export processing zones) are charged Import Duty of 0% (zero rate). VALUE ADDED TAX (VAT) The VAT in respect of Capital Goods, imported, purchased, or received for us in investment shall be charged at 20% but deferred up to the date of commercial production of goods or services. For more information on VAT, see our guide to VAT in Tanzania. Investment Guarantees and Repatriation of Capital and Profits A business Enterprise which has been issued with a Certificate by the Tanzania Investment Centre (TIC) is guaranteed unconditional repatriation through any authorised dealer bank in free convertible currency of: Net profit or dividend attributable to the investment. Payments for foreign loan servicing Royalties, fees and charges in respect of any technology transfer agreements. Remittance of proceeds (net of all taxes and other obligations) in the event of sale or liquidation of the business. Payment of emoluments and other benefits to foreign personnel employed in Tanzania in connection with the business enterprise. Guarantee against Expropriation The TIC 'Certificate' guarantees the investor's business against nationalisation or expropriation by the government. In the unlikely event that the enterprise has to be acquired by the State, adequate provisions are there to ensure that: Prompt payment of fair and adequate compensation is made, and Access to the Court of Arbitration to determine the investor interest and the amount of compensation. Immigration quotas The Certificate of Incentives entitles the Investor an initial automatic immigrant quota up to 5 (five) persons during the start up period. Additional immigrant quotas can be granted whenever a specific request is submitted to the Center. EXCHANGE CONTROL The Government's objective is to remove all foreign exchange controls. VISA REQUIREMENTS Any foreigner who intends to work or invest in Tanzania requires a resident permit issued by the Immigration Office of the Ministry of Home Affairs. Classification of the permits: Class A for investors Class B for employees Class C for students, researchers and missionaries Dependent Passes Each member of a work permit holder's family requires a dependent pass which is stamped in the passport. Any dependent seeking work must obtain a separate work permit in his or her own right. VISA Nationals of certain countries require visas to enter Tanzania A resident Permit : Foreign nationals who intend to retire in Tanzania would normally be granted a class A entry permit provided that they can satisfy the authorities that they are in receipt of adequate income. Such a permit, which is issued by the Immigration Department, does not entitle the holder to accept employment. REGISTRATION OF ALIENS Any foreigner planning to stay in Tanzania for longer than three months should register under the Immigration Registration Act. Upon registration, the individual is issued with a Resident Permit stating name, address and other particulars.