4.1 Regulatory Reforms

Tanzania has implemented several reforms aimed at improving the business environment and encouraging investment. These reforms include:

• Starting a Business: Tanzania has made it easier to start a business by establishing registration centers at all local authorities, making the company seal optional, eliminating the need for inspections by health, town, and land officers as a requirement for a business license, and introducing an online name search service conducted through the Business Registration and Licensing Agency (BRELA) website.
• Dealing with Construction Permits: Tanzania has simplified the process for obtaining construction permits by implementing a one-stop shop and streamlining the building permit process.
• Getting Credit: Tanzania has improved its credit information system by introducing new regulations that provide for the licensing of credit reference bureaus and outline the functions of the credit reference data bank, creating credit bureaus, expanding credit bureau borrower coverage, and distributing credit data from retailers.
• Trading Across Borders: Tanzania has accelerated trading across borders by implementing the Pre-Arrival Declaration (PAD) system and enabling electronic submission of customs declarations. Tanzania has introduced a requirement for obtaining a certificate of conformity before shipping imported goods, which has made importing more challenging. On the other hand, Tanzania has made trading across borders more accessible by improving the infrastructure at the port of Dar es Salaam. Additionally, the implementation of the Tanzania Customs Integrated System (TANCIS), an online system for downloading and processing customs documents, has reduced the time for both exporting and importing.

4.2 Starting a Business in Tanzania

This chapter provides information on the process of starting and operating a small to medium-sized limited liability company in Tanzania's largest business city, Dar es Salaam. The process includes measuring the paid-in minimum capital requirement, the number of procedures, time and cost involved. The Business Registrations and Licensing Agency (BRELA), an Executive Agency under the Ministry of Industry and Trade, is responsible for registering companies, business names, intellectual property rights, and issuance of industrial licenses. In Tanzania, starting a business involves 11 procedures and takes 28 working days, ranking 162 globally out of 190 economies, with a percentage cost on income per capita of 42.9. Some procedures, such as business names registration, company name clearance, and official search, are conducted electronically and can be completed within approximately 0.5 days. The following are the procedures for starting a business in Tanzania:

Tanzanian regulations permit both domestic and foreign private entities to establish and own business enterprises and engage in legal remunerative activities. The Business Registration and Licensing Act establishes licensing regulations for business operations and grants the right to freely establish private entities, own property (movable and immovable), and acquire and dispose of property, including interest in business enterprises and intellectual property. The Act mandates that no business entity can commence business activities in Tanzania without obtaining a business license from BRELA.

Typically, a foreign company establishes a business in Tanzania by either setting up a limited liability Tanzanian company as a subsidiary or registering a foreign limited liability company in Tanzania as a branch, which is considered to have an established place of business in Tanzania. If the company has a charitable purpose, it usually sets up a Tanzanian company limited by guarantee and may also be required to register as an NGO. The limitation of liability concept applies similarly to other common law jurisdictions.

4.3 Paying Taxes in Tanzania

4.3.1 Tax Administration Overview

In this section, the taxes and mandatory contributions that a medium-sized company is required to pay in a given year, as well as the administrative burden of paying taxes and contributions, are discussed. On average, companies in Tanzania make 60 tax payments per year, spend 207 hours per year on tax-related activities such as filing and preparation, and pay total taxes that amount to 44.1% of their profits. Tanzania is ranked 154th out of 190 economies globally in terms of the ease of paying taxes.

The Tanzania Revenue Authority (TRA) is the main agency responsible for the administration of various taxes in Tanzania. Tax laws in Tanzania are governed by parliamentary statutes and case law. Every year in June, the annual budget is presented and subsequently, a Finance Act is passed to introduce new provisions and amend existing laws. The tax system in Tanzania includes several direct and indirect taxes, such as income tax, Value Added Tax (VAT), import duty, excise duty, and stamp duty. Local governments may also impose some minor taxes. TRA administers all central government taxes, with three tax departments, namely Domestic Revenue, Customs and Excise, and Large Taxpayers.

4.3.2 Corporate Income Tax

The tax system in Tanzania is based on residence, with non-listed resident companies being subject to a standard corporate tax rate of 30%. Companies that have recently been listed on the Dar es Salaam Stock Exchange and have issued at least 30% of their shares to the public are taxed at 25% for the three consecutive years following their listing. From 2018 to 2022, there is a reduction in the corporate income tax (CIT) rate from 30% to 20% for new investors in the pharmaceutical and leather industries to encourage investment in these sectors and reduce foreign exchange spent on importing these products. Foreign branches with permanent establishments are required to comply with the Income Tax Act as resident companies and are subject to an additional 10% tax on profit repatriation.

Taxpayers in Tanzania use a self-assessment approach and are required to file a tax return at the end of the year, with tax payments made on a quarterly basis. Capital gains are combined with business income and taxed at the standard corporate income tax rate. Tanzanian tax residents are taxed on their worldwide income, while non-residents are taxed only on income from a source within Tanzania. A company is considered a Tanzanian tax resident if it is incorporated or formed under the laws of Tanzania or has its management and control exercised in Tanzania during the year of income. Married couples are taxed separately.

In Tanzania, a resident is defined as an individual who has a permanent home in Tanzania and was present in Tanzania during any part of the year of income; is present in Tanzania for a period of 183 days or more in that year of income, or during the year of income and in each of the two preceding years of income for periods averaging more than 122 days in each such year of income; or is an employee or official of the Government of Tanzania posted abroad.

The corporate tax year runs from January 1 to December 31, but companies can apply for approval from the Tanzania Revenue Authority (TRA) to adopt a different year of income. Corporate taxpayers must submit an annual income tax return within six months after the end of the year of income, with a possible extension of up to 60 days. Corporate taxpayers must also pay quarterly instalments of provisional tax at the end of the third, sixth, ninth, and twelfth months of the year of income.

Taxpayers whose annual turnover exceeds 20 million Tanzanian Shillings are required to prepare audited accounts for their business and are taxed on their profits. Income is calculated in accordance with generally accepted accounting principles, with deductions allowed for revenue expenditure incurred wholly and exclusively in the production of income, subject to statutory exceptions. For capital expenditure, specific tax depreciation allowances apply.

For individuals, the tax year runs from January 1 to December 31, and employees are taxed on a monthly basis under the Pay-As-You-Earn (PAYE) system, under which tax is withheld at source by employers 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 who only earn employment income are not required to submit annual income tax returns. Tax deducted under the PAYE system, as well as withholding tax returns and payments, are due by the 7th day of the following month.

4.3.3 Value Added Tax (VAT) and Withholding Tax

Imported goods and local supplies of goods and services in Tanzania are subject to a standard VAT rate of 18%. The registration threshold for VAT purposes is TZS 40 million annually, and VAT returns and payments must be made by the last day of the following month. Specified payments made to both residents and non-residents are subject to withholding tax deducted at source. Generally, this tax is an advance tax for residents and a final tax for non-residents. The applicable withholding tax rates for payments to non-residents may be reduced or eliminated under a double tax agreement between Tanzania and the recipient's country of residence.

Double tax treaties have been entered into between Tanzania and Canada, Denmark, Finland, India, Italy, Norway, South Africa, Sweden, and Zambia. For income tax purposes, there is an obligation to quantify, apportion, and allocate amounts on an arm's length basis for transactions between associates. An "associate" is defined as a person who, alone or with an associate(s), directly or indirectly controls or may benefit from 50% or more of the rights to income or capital or voting power of the entity. If the Commissioner determines that a person has failed to comply with the arm's length requirement, he may make adjustments as he deems appropriate.

Dividends paid to non-resident or non-controlling residents are subject to a final withholding tax of 10%. Dividends distributed by a resident company to another resident company are subject to a final withholding tax of 5% if the resident shareholder controls 25% or more of the distributing company's shares or if the company is listed on the Dar es Salaam Stock Exchange. A branch profit remittance tax of 10% is levied on profits deemed to have been repatriated according to a specified formula. However, no withholding tax applies when the shareholder is a Tanzanian resident company that holds 25% or more of the shares and controls 25% or more of the voting power directly or indirectly. Withholding tax on dividends is considered final tax.

Payments of interest, other than payments to a resident financial institution, are subject to a 10% withholding tax. For non-resident individuals receiving interest from a deposit with a financial institution, the withholding tax is a final tax unless the interest is in the nature of business income to the individual. In the case of resident recipients, this is not a final tax. Royalties paid to both residents and non-residents are subject to a 15% withholding tax. For non-resident recipients, this is a final tax.

Payments of rent are subject to withholding tax, but in the case of payments to residents, the withholding obligation is limited to rent on land and buildings. This withholding tax is considered final tax if the landlord is a resident individual, and the rent is not received in the course of conducting a business. Payments for technical and management services rendered by a non-resident are subject to a final 15% withholding tax. Services rendered by residents are subject to a 5% withholding tax, which is considered final tax if the service is rendered to a mining company.

Non-residents' net rental income is taxed at a flat rate of 20%. Taxable income is computed by deducting costs incurred from the gross rental income. Rental income earned by non-residents from leasing land and buildings is subject to a 15% withholding tax, which can be credited against the taxpayer's income tax liability. Lease agreements are liable to stamp duty, which is levied at 1% of the gross rent. Conveyance of real properties is liable to stamp duty, which is levied at 1% of the gross selling price.

f non-residents dispose of Tanzanian assets, any capital gains are subject to a flat tax rate of 20%. The taxable capital gains are calculated by deducting the acquisition costs from the gross selling price. However, if the property was used as the individual's private residence for three years before the sale, up to Tshs 15 million (US$7,092) of capital gains may be exempt from tax. Property tax is imposed by municipal or city councils at flat rates based on the property's value. The applicable rates vary depending on the property's size, use, and location.

4.3.4 Income Tax for Individuals

Residents individuals, excluding short-term residents, are required to pay income tax on their global income. Taxable income includes salary and the value of non-cash benefits resulting from employment. Expenses incurred entirely for employment duties may be deductible, subject to certain exemptions. Non-cash benefits are typically taxed at their market value. Short-term residents and non-residents are subject to tax on income from Tanzanian sources. Personal services are considered Tanzanian if they are performed in Tanzania or if the payer is the Tanzanian government.

Tax rates are graduated, ranging from 0% to 30%, with 30% being the highest marginal rate for resident individuals. Non-resident individuals are subject to a withholding tax of 15%, while the total income of non-resident individuals is subject to a rate of 20%. Resident and non-resident employees with secondary employment are subject to a rate of 30%. A non-resident employee is an individual who works in Tanzania for less than 183 days, has no permanent residence in Tanzania, has not been present in the United Republic for more than 122 days on average in each of the two previous years, or is not a government employee or official posted abroad during the year of income.

Resident Rates – Mainland Tanzania

Tax Rates and Administration in Tanzania

Withholding Tax Rates

4.3.5 Skills and Development Levy

The Vocational Education and Training Act of 1994 requires employers with more than four (4) employees to pay a skills and development levy (SDL). This levy is calculated monthly at a rate of 4.5% of the total gross monthly compensation paid by the employer to all employees. Gross Emoluments refer to the sum of amounts from salaries, wages, payments in lieu of leave, fees, commissions, bonuses, gratuities, any subsistence, travel, entertainment, or other allowances received by employees in relation to the employment or services they provide.

4.3.6 Contributions to Social Security Funds

According to Tanzanian law, employers are required to make monthly contributions to social security funds, amounting to 20% of their employees’ monthly salary. The contribution is made up of 5% from the employee and 15% from the employer. In 2018, the President of Tanzania enacted the Public Service Social Security Fund Act, which established the Public Service Social Security Scheme. This Act repealed previous Acts such as the Public Service Retirement Benefit Act, the LAPF Pensions Fund Act, the GEPF Retirement Benefits Fund Act and the PPF Pensions Fund Act, and also provided for other related matters.

Under the current law, all public sector employees are required to contribute to the Public Service Social Security Fund (PSSSF), while the private sector employees and other voluntary contributors will contribute to the National Social Security Fund (NSSF). If a member changes employment from the public sector to any private sector employer, their membership will be transferred to the NSSF. Similarly, all public sector employees who are members of the NSSF will be transferred to the PSSSF.

The contribution to PSSSF is made up of a sum equivalent to 5% of the member’s monthly salary, which is deducted by the employer from the member’s monthly salary, and 15% of the member's monthly salary, which is contributed to the member's account by the employer. The term "wages" is defined as remuneration in money paid to an employee under their contract of service or apprenticeship.

4.3.7 Dealing with Construction Permits

This section tracks the procedures, time, and costs involved in building a warehouse. This includes obtaining the necessary licenses and permits, submitting all required notifications, requesting and receiving all necessary inspections, and obtaining utility connections. Additionally, it measures the building quality control index, which evaluates the quality of building regulations, the strength of quality control and safety mechanisms, liability and insurance regimes, and professional certification requirements.

According to data collected by Doing Business, obtaining construction permits in Tanzania requires 24 procedures, takes 184 days, and costs 6.6% of the warehouse value. Tanzania ranks 156 out of 190 economies globally in terms of ease of obtaining construction permits. The following procedures are applicable when securing a construction permit in Tanzania.

4.4 Getting Electricity

This subject assesses the steps, time, and expenses needed for a company to acquire a permanent electricity connection for a newly constructed warehouse. Doing Business data reveals that obtaining an electricity connection in Tanzania entails four procedures, takes 109 days, and costs 843% of per capita income. Globally, Tanzania ranks 82 out of 190 economies in terms of the ease of obtaining electricity. The metrics presented here are based on a set of particular procedures—the tasks that an entrepreneur must complete to link a warehouse to electricity through the local distribution utility, Tanzania Electric Supply Company Limited (Tanesco).

4.5 Registering Property

In this section, we will examine the procedures, time, and cost involved in registering a property in Tanzania. The case assumes that an entrepreneur wishes to purchase a building and land that are already registered and free of title disputes. This will provide insight into how challenging or straightforward it is for entrepreneurs to register a property in Tanzania.

Based on data collected by Doing Business, registering a property in Tanzania requires eight (8) procedures, takes sixty-seven (67) days, and costs 5.2% of the property value. Globally, Tanzania is ranked 142 out of 190 economies in terms of the ease of registering property.

The Tanzanian government has taken significant steps to improve the country's business environment in response to concerns from local and foreign investors. Some notable improvements include:

1. a) The launch of the Tanzania Customs Integrated System (TCIS) to speed up import and export documentations and accreditation;
2. b) The Business Registration and Licensing Agency (BRELA) has launched an online platform for business registration and name search;
3. c) The creation of a task force under the Big Results Now (BRN) initiative to ease constraints on contract enforcement. The task force involves the Tanzania Private Sector Foundation (TPSF) and the Tanganyika Law Society (TLS);
4. d) Appointment of more judges to registries to speed up case determination;
5. e) Promotion of alternative dispute settlement methods such as arbitration centers, negotiation, and mediation bodies;
6. f) The launch of the Dar es Salaam Stock Exchange Online Trading System in 2015, which can be accessed via mobile phones and other devices;
7. g) Online tax payment, return submission, and tracking through the Tanzania Revenue Authority;
8. h) The government's crackdown on commercial banks to reduce interest rates on loans and encourage greater access to entrepreneurial capital;
9. i) The launch of construction of Bagamoyo Port, which is expected to be the largest in Sub-Saharan Africa, as well as upgrades to Tanga and Mtwara ports.

4.6 Getting Credit

This section examines two key factors that affect lending: the strength of credit reporting systems and the effectiveness of collateral and bankruptcy laws. Tanzania ranks 55th globally out of 190 economies in terms of ease of getting credit. Despite a challenging global environment, Tanzania's macroeconomic performance has remained strong, with an average annual real GDP growth of 6%-7% over the past decade. The Bank of Tanzania recognizes the importance of credit reference bureaus in the economy, and its Act allows for the establishment of multiple credit bureaus. Credit Reference Bureaus provide increased access to credit for consumers and small businesses, improve bank risk management, lead to asset diversification and new banking products, and are good business propositions if properly organized and managed.

The Tanzanian banking sector includes 41 fully fledged commercial banks, 3 development financial institutions, 5 microfinance banks, 2 private credit reference bureaus, 3 financial leasing companies, and 6 community banks. More than half of the commercial banks in Tanzania are foreign-affiliated. Licensed Credit Reference Bureaus in Tanzania include CreditInfo Tanzania Limited (CTL) and Dun & Bradstreet. Development financial institutions in Tanzania include TIB Development Bank Limited (formerly Tanzania Investment Bank), Tanzania Agricultural Development Bank (TADB) Limited, and Tanzania Mortgage Refinance Company (TMRC). Microfinance banks in Tanzania include EFC Tanzania Microfinance Bank Limited, Uchumi Commercial Bank Limited, Finca Microfinance Bank Limited, Hakika Microfinance Bank Limited, Vision Fund Tanzania Microfinance Bank Limited, and Yetu Microfinance Bank Plc. Commercial banks in Tanzania include Access Bank (T) ltd, Advans Bank (T) ltd, Akiba Commercial Bank ltd, Amana Bank ltd, Azania Bank Ltd, Banc ABC (T) ltd, Bank of Africa (T) ltd, Bank of Baroda (T) ltd, Bank of India (T) ltd, Barclays Bank (T) ltd, Citibank (T) ltd, Commercial Bank of Africa (T) ltd, CRDB Bank plc., DCB Commercial Bank plc., Diamond Trust Bank (T) ltd, Eco Bank (T) ltd, Exim Bank (T) ltd, Equity Bank (T) ltd, First National Bank (T) ltd, First Housing Company (T) ltd, Guaranty Trust Bank (T) ltd, Habib African Bank ltd, I & M Bank (T) ltd, International Commercial Bank (T) ltd, KCB Bank (T) ltd, Mkombozi Commercial Bank plc., National Microfinance Bank plc., NBC Bank ltd, NIC Bank (T) ltd, Peoples Bank of Zanzibar ltd, Stanbic Bank (T) ltd, Standard Chartered Bank (T) ltd, United Bank for Africa (T) ltd, Mwalimu Commercial Bank ltd, Letshego Bank (T) ltd, Maendeleo Bank plc, Tanzania Women’s Bank, Twiga Bancorp Ltd, TPB ltd, TIB Corporate Bank ltd, and UBL Bank (T) ltd.

4.7 Exchange Control, Conversion and Transfer Policies

Tanzania has regulations regarding exchange control. Generally, as long as the required supporting documents are submitted and the applicable taxes are paid, there are no restrictions on repatriating foreign currency from the country. For capital transactions, such as foreign source loans, the relevant transaction documentation must be submitted for approval, and a debt record number issued by the Bank of Tanzania.

Tanzanian regulations permit unconditional transfers through any authorized bank in freely convertible currency of net profits, repayment of foreign loans, royalties, fees charged for foreign technology, and remittance of proceeds. The only official limit on transfers of foreign currency is on cash carried by individuals traveling abroad, which cannot exceed USD $10,000 over a period of forty days. Shortages of foreign exchange are rare, but bureaucratic hurdles can cause delays in processing and effecting transfers, which can range from days to weeks. Convertible instruments are rarely used by investors.

4.8 Labour Policies and Practices

Tanzania has developed and is currently implementing a skills development framework aimed at equipping Tanzanians with the necessary labor skills to create an industrialized economy. The National Second Five Year Development Plan (FYDP II) acknowledges the importance of graduates having more marketable skills and better learning environments. As the number of university graduates continues to increase, this skills program will provide investors with a sufficient workforce to fill various positions.

Labor and immigration regulations in Tanzania allow foreign investors to recruit up to five expatriates when local skills are unavailable. The Non-Citizens (Employment Regulation) Act of 2015 mandates that employers submit "succession plans" for their foreign employees, outlining how knowledge and skills will be transferred to local employees. According to the new law, non-citizens may be granted work permits for up to two years, which can be renewed for a total validity period of five years. The minimum wage in mainland Tanzania is set by categories that cover 12 employment sectors, ranging from Tzs 100,000 ($45) per month for agricultural laborers to Tzs 400,000 ($180) per month for laborers employed in the mineral sector (companies with mining and prospecting licenses).

4.9 Land Ownership in Tanzania

Land ownership in Tanzania remains restricted. According to the Land Act of 1999, all land in Tanzania is owned by the state. Procedures for obtaining a lease or certificate of occupancy can be complex and lengthy for both citizens and foreign investors. Less than 10% of land has been surveyed, and registration of title deeds is still manual and mainly handled at the local level. Foreign investors can occupy land for investment purposes through a government-granted right of occupancy ("derivative rights"), or through sub-leases via a granted right of occupancy. Foreign investors can also partner with Tanzanian leaseholders to gain access to land.

Non-citizen investors can only occupy land for investment purposes under the Tanzania Investment Act of 1997 and the Land Act of 1999. Land can be leased for up to 99 years, but the law does not allow individual Tanzanians to sell land to foreigners. There are several opportunities for foreigners to lease land, including through TIC, which has designated specific plots of land (land bank) to be made available to foreign investors. Foreign investors may also enter into joint ventures with Tanzanians, in which case the Tanzanian provides a lease over the land. However, restrictions on foreign land ownership can significantly delay investments, and land not already processed for investment in the land bank has to go through a lengthy review and approval process by local-level authorities, as well as the Ministry of Lands, Housing, and Human Settlements Development and the President's Office, in order to be officially re-designated from village land to general land, which can be titled for investment and sale.

Secured interests in property, both movable and real, are recognized and enforced under various laws in Tanzania, although there is no single comprehensive law to secure property rights. While the government plans to expand TIC's land bank and modernize its land titling and registration system, both changes are long-delayed in execution.