Expat taxes in Tanzania

After speaking about expat taxes in numerous countries, including  ThailandSouth Korea and Japan,  GermanySingaporeFrance the Philippines and Switzerland, this article will speak about Tanzania.

Whilst this shouldn’t be considered as official tax advice, it is right at the time of writing.

For any questions, or if you are looking to invest as an expat, you can contact me using  this form, or use the WhatsApp function below.

Introduction:

First of all, take a look at some of the important terminology related to our topic for today, which is ‘Expat taxes in Tanzania’.

This information (regarding terminology) will help you get a better understanding of taxation and the relevant information about taxes in Tanzania for expats.

Tax – ‘Tax’ is a mandatory charge, which is collected from individuals living in a country/region by their respective government or tax authority.

Tax is usually collected at the country level, and depending on the country, it can also be collected by the state governments and local governments as well.

Generally, in return for the taxes collected, a country will offer certain rights and privileges to the specific individual and their family. Some noticeable benefits include rights, freedom, protection, and others.

The revenue earned by a government with the help of taxes is used for its expenditure and developmental activities.

The taxes that are imposed on individuals will depend on the country and the respective country’s government will have all the necessary power to decide whether or not a specific type of tax is to be collected from the individuals and how much should be collected.

Taxes will not only be imposed on individuals, but they will also be imposed on corporations and other business entities as well.

A specific tax authority can be able to take the necessary action against the individuals or entities that try to avoid the taxes illegally.

There are different types of taxes, which are classified depending on the type of income on which they are imposed.

Some of the common types of taxes include ‘Income tax’, ‘Corporate tax’, ‘Wealth tax’, ‘Real estate tax’, ‘Property tax’, ‘Value added tax’, ‘Inheritance tax’, and others.

As discussed, whether or not to levy a specific tax will depend on the country’s government or tax authority. For example, one country might impose income tax on individuals, and another country might not.

Expat – Any person who moves to another country other than his/her country of origin is known as an ‘Expat’ or ‘Expatriate’.

Generally, the most common reasons for expats to move to another country are employment, education, retirement, etc.

A person would be considered expat as long as they don’t return to their country or acquire citizenship in the current country of residence and renounce their citizenship from their country of origin.

Along with the residents living in a country, expats are also charged with taxes. Some countries might charge taxes on expats which lower compared to residents and some countries might charge a higher amount of taxes.

In general, the taxes imposed on expats are only applicable to the income earned by them with the help of sources located in their country of residence. There is a very slight possibility for this to change depending on the country.

A perfect example for such countries is the United States, where expats (even being permanent residents of another country) will be charged taxes on their worldwide income.

In most cases, an expat is taxed in his/her country of residence as well as the country of origin. 

In order to provide relief from such menace, many countries enter a double taxation treaty with other countries.

For example, if country ‘A’ has entered a tax treaty with country ‘B’, then the residents of country ‘B’ who move to go live in country ‘A’ won’t be charged with taxes twice.

Tanzania – Tanzania is a country, which is officially called the ‘United Republic of Tanzania’, and is located in the Eastern Africa region. 

Swahili is known to be the official language of Tanzania, yet languages like English and Arabic are seen to spoke by many people. 

The major religion of Tanzania is Christianity and the presence of some other religions such as Islam can also be observed.

The currency of Tanzania is called as ‘Tanzanian Shilling’ and is represented as ‘TZS’. By the time of writing this article, 1 Tanzanian Shilling is equal to somewhere around 0.00043 USD.

Major export industries in Tanzania include agriculture, mining, and tourism industries. It is no wonder to say that a majority of the population in Tanzania are employed in the agricultural sector.

Over the long run, the gas reserves located in Tanzania are expected to bring a lot of income with the help of exports. Some other considerable sectors in Tanzania are Construction, Financial Services, Manufacturing, etc.

Corporate taxes:

Resident companies and other business entities are taxed on the income derived worldwide and non-resident corporations are taxed only on the income derived within Tanzania.

The income tax rate for the resident corporations in Tanzania is 30%. The same is applicable to the permanent establishment of a non-resident corporation.

The tax rate is 5% of the turnover for the technical/management service providers, who render services to entities involved in mining, oil, and gas businesses depending on the relevant non-resident withholding tax rates.

Gains arising from the disposal of investments in Tanzania are levied with income tax. If that’s the case, investments come under the source rules, and the gains will be taxed at a rate of 30%.

Reduced corporate income tax rates – Any company that has been formed newly will have a reduced corporate income tax rate of 25%. 

However, these newly formed companies should be listed on the Dar es Salaam Stock Exchange (DSE).

Additionally, in order to qualify for the reduced corporate income tax rate, at least 30% shares of the respective company should have been owned by the public.

A reduced CIT (corporate income tax) rate of 10% will be imposed on companies involved in the assembly of vehicles, tractors, and fishing boats for the first 5 years after the operations begin to commence.

A reduced CIT rate of 20% is applicable to the new manufacturers involved in the pharma or leather industries. To qualify, the company must have a performance agreement with the Tanzanian government for the first 5 years after the operations begin to commence.

A reduced CIT of 25% applies to new investors in manufacturing sanitary pads. For this, the corporation should get into a performance agreement with the Tanzanian government for the first 2 years (2019/20 – 2020/21).

AMT (Alternative Minimum Tax) – There is an Alternative Minimum Tax applicable, for which the tax rate is 0.5% of the turnover. 

It is only imposed on the companies with long-lasting tax losses for the present and the following two years. 

However, companies involved in agriculture, as well as companies that provide services of health or education, are exempt from the alternative minimum tax.

Local income tax – No.

Tax residence – A company is considered to be a tax resident of Tanzania if it satisfies any of the following criteria.

  • If a company is either incorporated or formed on the basis of the laws of Tanzania.
  • If the management and control of the activities of a respective company are exercised within Tanzania.

PE (Permanent Establishment) – Any non-resident entity will be allowed to have PE in Tanzania if its business activities are carried out in Tanzania. This consists of the following:

  • A business is carrying out its business with the help of a dependent agent.
  • A business has used/installed or currently using/installing substantial equipment or machinery.
  • A business involved in activities related to construction, assembly, or installation project for at least 6 months or more. This includes a place where a business is carrying out supervisory activities with respect to such a project.

VAT (Value Added Tax) – VAT is imposed on all taxable goods and services, which have been supplied or imported into Mainland Tanzania. 

The standard tax rate for VAT is 18%, yet it can be reduced to a rate of 0% for the export of some specific goods and services.

Businesses, which are currently having or expecting to have a turnover of an amount more than TZS 100 million must register for VAT in Tanzania. 

A Commissioner has the power to register investors as intending traders, for whom projects have not commenced the production of taxable supplies but they wish to register for tax in order to reclaim the taxes incurred on the start-up costs.

Any business that involves making VAT exempt supplies can’t be able to register for VAT and furthermore, won’t be able to recover from the VAT that has been incurred on inputs.

Businesses that have been registered must submit VAT returns and complete all the payments of tax dues on a monthly basis.

For services that have been imported, VAT is accounted for by businesses through a ‘reverse-charge’ mechanism. For such, accounting is only appropriate where a taxpayer’s total supplies include 10% or more exempt supplies.

Based on the type of industry, there are some exempt supplies that include the following (a few examples):

  • Agricultural implements, Agricultural inputs, Livestock, Basic agricultural products & food that can be consumed by humans, Fishery implements, Beekeeping implements, and Dairy equipment.
  • Import of food, clothing, and footwear donated to non-profit organizations in order to distribute among orphanages and schools for children having special needs.
  • Goods imported by non-profit organizations in case of emergency and disaster relief activities.
  • Goods imported by religious organizations for services related to health, education, water, and religious services.
  • Educational services offered by an approved educational institution.
  • Healthcare, pharma, and medical products.
  • Petroleum products.
  • Certain types of insurances.
  • Unprocessed vegetables.

Businesses entitled to VAT refunds are able to claim any remaining credit after six months (from when the tax became due). This is subject to all the intervening returns that are being rendered.

In order to claim, a VAT refund must be provided along with an auditor’s certificate of genuineness. Businesses that are in a position for making refunds consistently are able to apply for approval to lodge the claims for refunds on a monthly basis.

In Tanzania Zanzibar, VAT is administered on a separate basis yet similar legislation.

Customs duty – The import duty rates applicable as per the CET are given below:

  • 0% for Raw materials, Capital goods, Pure-bred animals, Agricultural inputs, and medicines.
  • 10% for semi-finished goods.
  • 25% for finished goods.

To any other category that hasn’t been mentioned above, the rate is import duty rate is 0%.

Apart from the goods that are exempt from the import duty, a Railway Development fee of 1.5% and a Destination Inspection fee of 0.6% is additionally applicable over the FOB value.

Excise duty – It is not possible to list out all the rates related to Excise duty. However, in order to provide a general idea, you should remember that Excise duty rates are applicable on a specific or ad valorem basis.

Fuel levy – Fuel levy is imposed on Petroleum and Diesel with a rate of TZS 313 per each liter.

Petroleum levy Petroleum levy is imposed on petrol, diesel, and kerosene at a rate of TZS 50 per each liter.

Stamp duty – On conveyances, share transfers, and issue & debenture transfers, a stamp duty with a rate of 1% is applicable.

Railway development levy – As discussed earlier in customs duty, RDL is 1.5% on specific types of imported goods.

Payroll tax and social security contribution – Along with the individual income tax that is deducted at source by the employer, payroll taxes consist of the following:

  • Skills and development levy, which is charged with a rate of 4% on the payroll cash costs.
  • 20% social security contribution. Generally, it is split between the employer and employee, where the employer pays 10% and the employee pays 10%.
  • On a monthly basis, workers compensation fund tariff is charged 1% (private sector) and 0.5% (public sector) of the cash paid to employees.

Gaming tax – 20% of the overall amount on the prizes and winnings.

Property tax – TZS 10,00 for a normal building and TZS 50,000 per each floor for a building having multiple floors.

Service levy – 0.3%

Produce cess – 3% for food and commercial crops, and 5% for forest products.

Dividend income – 5% or 10%, general rate being 10% (WHT).

Interest income – 10% (WHT).

Royalty income – 15% (WHT) for both residents and non-residents.

Withholding tax (WHT) rates – The rates for withholding tax in Tanzania are given below:

  • Dividends:

    For a company controlling 25% or more voting power and shares, the WHT for residents is 5% and non-residents is 10%.

    For a company listed on DSE, the WHT for residents is 5% and non-residents is 5%.

    Other than the above-mentioned cases, the WHT is 10% for both residents and non-residents.
  • Interest:

    For both residents and non-residents, it is 10%.
  • Rent:

    It is 10% for both residents and non-residents in case of land, buildings, and aircraft lease. Other than that, it is 0% for residents and 10% for non-residents.
  • Royalty:

    15% for residents and non-residents alike.
  • Natural resource payment:

    15% for residents and non-residents alike.
  • Service fees:

    5% for residents and 15% for non-residents.
  • Director fees (apart from full-time fees):

    15% for residents and non-residents alike.
  • Insurance premium:

    0% for residents and 5% for non-residents.
  • Money transfer commission that has been paid out to a money transfer agent:

    10% for residents.
  • Fees paid out to a commercial bank agent or digital payment agent:

    10% for residents.
  • Payment for goods acquired by a government institution:

    2% for residents.

Individual Taxation:

Residents are subject to taxation on their worldwide income in Tanzania. However, short-term residents and non-residents are taxed only on the income derived from the sources in Tanzania.

Personal services that are carried out in Tanzania or carried out in other countries but paid by the Government of Tanzania, then it is considered a Tanzanian source.

Resident individuals in Tanzania are taxed at a rate of 30%. On the other hand, non-residents are subject to tax with a flat rate of 15% on the employment income, which is the final rate.

The disposal of an investment in Tanzania is subject to a tax rate of 15% for residents and 30% for non-residents. If the disposal is done overseas by a resident individual, then it is 30%.

A person is considered a resident in Tanzania if they qualify for any of the criteria given below:

  • A person having a permanent residence in Tanzania and is present in Tanzania during a tax year.
  • A person has stayed in Tanzania for a period of 183 days or more, which needn’t be consecutive.
  • A person who has stayed in Tanzania for a period of 122 days in the current year as well as the previous 2 years.

A person would be considered a short-term resident by the end of a year if that specific person has been a resident in Tanzania for a period not exceeding 2 years in their whole life.

Social security contributions – The social security scheme in Tanzania for the private sector is known as NSSF (National Social Security Fund), where employers as well as employees must make a contribution.

The social security contribution in Tanzania is 20%, which split between an employer and his employee, of which 10% is to be paid by each party.

Similar to that, PSSSF (Public Service Social Security Fund) is the scheme for the public sector in Tanzania. As per this, the employer pays an amount of 15% and the employee pays an amount of 5%.

VAT – For precise information, you can check the details given about VAT in the corporate taxation section.

The standard rate for VAT in Tanzania is 18%, which can be reduced to 0% under certain conditions.

Net wealth tax – No.

Net worth tax – No.

Inheritance tax – No.

Estate tax – No.

Gift tax – No.

Property tax – Property tax is TZS 10,000 for a normal structure, and TZS 50,000 per each floor in a building having multiple floors.

Capital gains – transaction of assets such as shares, land, and buildings are eligible for taxation. 

Transactions that are exempt from capital gains are:

  • Private residence, where the gain is TZS 15 million or less than that.
  • Agricultural land, where the market value is TZS 10 million or less.
  • Shares that are listed on the DSE, which are held by a resident.
  • Shares held by a non-resident, where the shareholding is less than 25%.

Dividend income – Dividend income is imposed with a withholding tax (that is a final tax), having a general tax rate of 10% and a reduced tax rate of 5% for listed companies.

Dividends earned from non-resident companies by a resident individual is imposed with a tax having a rate of 10%. A tax credit can be claimed in the case of foreign income tax on the dividends.

Interest income – WHT is final for the interest income paid to individuals.

Rental income – WHT is final for the rental income paid to a resident individual.

Employment expenses – The amount that can be deducted against the employment income is the employee’s statutory social security contribution (such as NSSF).

Personal expenses – No.

Business deductions – Under some specific exceptions, an individual can be able to claim a deduction for expenses that incur entirely and exclusively while obtaining income from business or investment.

Foreign tax relief – A tax credit is made available for the resident individuals on any income tax that has been paid in another country, where the income has been earned in that specific country.

Such a type of credit cannot go over the Tanzanian tax rate that applies for that income. Any unused amount of a foreign tax credit can be carried forward.

People can elect to claim the tax relief as an expense instead of a tax credit. If the income is obtained in a country having a tax treaty with Tanzania, the treaty governs relief.

Tax treaties – Tanzania has a double taxation treaty with the following countries:

  • Canada
  • Zambia
  • Denmark
  • Italy
  • Finland
  • India
  • South Africa
  • Norway
  • Sweden

Tanzania also entered a DTT with East Africa, which is signed but is still pending ratification.

Other tax credits and incentives – No.

Taxable period – The tax year in Tanzania is a calendar year, which is from 1st January to 31st December. 

Final withholding payments – Taxes on final withholding payments are deducted by the payer at the source.

Tax returns and Payments – An individual won’t have to have to file a tax return if the only source of income is the employment income that has been paid by a resident employer.

For any other sort of income, a person would have to file their returns. A final tax return should consist of chargeable income for the year of income and should be paid within 6 months after the end of a tax year.

Estimated tax can be paid in 4 quarterly installments at the end of March, June, September, and December. Interest on late payment is charged as per the discount rates of the Bank of Tanzania.

The tax that has been withheld should be remitted online on a monthly basis. The Revenue Gateway System generates a withholding certificate for taxpayers via TRA (Tanzania Revenue Authority).

This online-generated certificate can be used to claim a tax credit against income tax. Non-residents (who can’t do so) can apply to the commissioner seeking a paper certificate for this.

Anti-avoidance:

Transfer pricing – Taxpayers need to apply as per the individual principle to transactions between parties, either residents or non-residents. 

Thin capitalization – An interest deduction for the payments that are made by an exempt resident entity, is limited to the sum of interest income along with 70% of the overall income.

This excludes the interest income as well as interest expenses. Furthermore, any non-deductible amount can be carried forward.

Penalty – A late filing tax rate is imposed, which is either TZS 225,000 or 2.5% of the unpaid tax (whichever is higher). A penalty is also applicable to the underestimated tax.

Bottom line:

It is necessary for an individual to take note of the given information to get an idea of taxes applicable to non-residents (expats) in Tanzania. 

In order to avoid unnecessary taxation or penalties, it is highly suggested that you should do some research about taxation and the tax rates before moving to Tanzania as an expat.

If you want to move to Tanzania as an expat or a permanent resident, we can offer guidance and help in acquiring a second passport, permanent residency, or renunciation of your current citizenship.

If you are searching for a financial advisor or a wealth manager to take care of your financial needs, especially needs related to financial instruments like stocks, then you can avail of the expert financial services offered by us.

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