Frequently Asked Questions: Doing Business in Tanzania

Frequently Asked Questions: Doing Business in Tanzania Tanzania is one of the fast-growing emerging markets and is open for investments across all sectors and there are positive assessments of its growth by the World Bank https://www.worldbank.org/en/country/tanzania/overview. Also, the IMF report of 2023 post Covid 19 https://www.elibrary.imf.org/view/journals/002/2023/153/article-A001-en.xml shows that Tanzania is rebounding from the effects of Covid 19 and some sectors e.g. mining and tourism already show signs of recovery from 2022. Also, there are multiple incentives including tax breaks which are extended to investors who meet the required qualifications:https://www.ug.tzembassy.go.tz/business/category/doing-business-intanzania.

Investors seeking investment opportunities in Tanzania usually have common queries which if answered correctly provides them with a general overview of the Regulatory framework in Tanzania. This article addresses the common queries across sectors and will guide an investor on the initial steps of investing in Tanzania. Incorporation & Regulatory 1. If I register a business in Tanzania, does it cover both Tanzania mainland and Zanzibar? No. It does not. Each jurisdiction has separate registries meaning it is necessary to register, apply for licences / permits and comply with regulatory obligations separately under each jurisdiction. Please note that references to Tanzania in this article refer to Tanzania mainland only. No information has been provided regarding Tanzania Zanzibar. 2. Can a business be virtually without having a physical presence in Tanzania? No.

Companies Act and the Business Licensing Act, among other laws still require entities during business in Tanzania to have a physical presence i.e. an office. Hence, virtual business without physical address is not possible. There are instances where there is co-occupation of one office by multiple entities provided that there is a representative for all entities and each entity strictly observes its regulatory compliance obligations. Also, for businesses where foreign entities supply services or goods to a local entity, it is common for such foreign suppliers not to set up an office in Tanzania because their role is to supply and their obligations terminate the moment the goods are loaded at the port of departure outside of Tanzania.

However, there are some sectors particularly those bound by local content requirements where it is mandatory to set up an office in Tanzania and have joint venture arrangements with locals even if it is a one off supply of goods and/or services: e.g. https://www.madini.go.tz/media/MINING-LOCAL-CONTENT- REGULATIONS-2018.pdf and https://www.ewura.go.tz/wp-content/uploads/2015/03/GN-Petroleum-Local-Content- Regulations-2017-GN-197.pdf. 3. Which legal entity can a foreign investor register in Tanzania for doing business? A foreign investor has an option to register a limited liability company where the liability of members is limited by shares, a partnership, a sole proprietorship or a branch (a branch of a foreign entity). These entities are considered to undertake commercial operations with the intention of making profit meaning there will be obligation to pay corporate taxes, among others.

Prior to establishing a legal entity, it is important to consider the sector of operations and obtain tax advice on the best legal entity to register because each has its pros and cons when considered from a project and tax perspective. 4. What are the capital requirements for investing in Tanzania? The Companies Act does not impose a minimum capital amount so it can be as small as US$ 50. However, some sectors impose a minimum capital in order to obtain a specific regulatory licence. Hence, whilst the legal entity will be incorporated at the company registry (https://www.brela.go.tz/), the legal entity will not be able to obtain a sector specific licence until it increases its share capital to meet the minimum capital obligations required under the specific sector. Increase of share capital is a simple process which shouldn’t be difficult to implement. 5.

Is it necessary to issue and pay up the entire share capital? No. The Companies Act does not require all share capital to be issued or be fully paid up. This is left at the discretion of the shareholders of the company. However, the sector specific licence may require a certain amount of share capital to be issued and paid up and will require proof that the said share capital is paid up. Note that, the share capital payment should be direct deposit to the company’s bank account in Tanzania. Funds advances for operation expenses or a loan cannot be considered as paid up share capital unless there are relevant corporate approval documents which convert such capital injections and loans into equity.

Take note to ensure that the audited financial statements (AFS) of the company indicate whether shares are paid up or not to avoid any future issues where the shares are indicated as paid up in the AFS but in reality they are not paid up. 6. Are different classes of shares allowed? Yes. Different classes of shares are allowed under the Companies Act. To mention a few, ordinary, preferential and redeemable shares can be issued by the company, provided that at least one shareholder should hold ordinary shares. One shareholder

can hold shares in different classes. Also, it is possible for one class of shares to have different rights attached to that share class, usually it is indicated in more details in the shareholders agreement and the subscription agreement. 7. What licences and permits are required before commencing a business? I have split these into two categories. Category A is for general licences and permits which are necessary regardless of sector of operations, and category B are sector specific. Category A is divided into two parts: Part A - necessary licences and permits prior to commencement of operations and Part B – can be obtained in due course but not more than 6 months from incorporation.

Category A - Part A are as follows: (a) Certificate of Incorporation/ Registration (https://www.brela.go.tz/); (b) Tax Identification Certificate (https://www.tra.go.tz/); and (c) General Business Licence (https://business.go.tz/obtain-a-business-license). If the nature of your business is not on the list, it is possible to liaise with the relevant Authority and identify a category to register under.

Category A – Part B are as follows: (a) Social Security Registration (https://www.nssf.go.tz/); (b) OSHA (https://www.osha.go.tz/); (c) Fire Registration Certificate (https://portal.zimamoto.go.tz/); (d) Value Added Tax Certificate as soon as the business attains the minimum threshold ( https://www.tra.go.tz/index.php/value-added-tax-vat/97-howshould-i-register-for-vat); (e) Workers Compensation Fund Registration Certificate (https://portal.wcf.go.tz/); (f) Registration and payment of service levy as stipulated under the Local Government Finances Act (https://www.tra.go.tz/Images/headers/CHAPTER_290- THE_LOCAL_GOVERNMENT_FINANCE_ACT.pdf); and (g) If any the employees has outstanding loan from the Higher Educations Student Loan Board, the company shall register, deduct from salary and remit otherwise penalties will apply to the company ( https://www.heslb.go.tz/? lang=).

Category B There are sector specific depending on the business operations and sector(s) of the company and it is possible for one entity to fall under multiple regulatory bodies. Prior to commencement of business, identify the specific sector(s) and obtain legal advice on the sector specific licences which may be required. The regulatory structure of Tanzania meaning, the default position for any investor is to assume that there is a sector specific licence required before being proven otherwise. Note that penalties

will apply for undertaking business operations without sector specific licence unless the sector is unregulated. 8. Is it possible to register single shareholder companies in Tanzania? No. From a practical perspective, is it not possible to register a single shareholder company. The requirement of minimum two shareholders can be met by issuing 1 share to the second shareholder. 9. Are minority shareholders protected? Yes. Whilst there is no specific provision in the Companies Act which expressly lists the protections of the minority shareholders, the minority shareholder may institute legal proceedings against the company if the company is operating contrary to the law or the minority shareholder is of the opinion that its rights have been or about to be breached. 10. How soon should the local entity file tax returns from the incorporation date?

Immediately after incorporation, the entity should endeavor to get a tax identification certificate and commence filing tax returns whether or not business has commenced and/or there are no profits. If business has not commenced, the returns can be zero but must be filed. Otherwise penalties for non-filing will continue to accrue even if it is zero returns. During incorporation phase, it is important for the entity to retain a tax declarant and to identify an accounting firm which will ensure monthly returns are filed religiously. 11. What is the timeframe for registering a business in Tanzania? Registering a business and obtaining Category A – Part A registration certificates usually takes between 14 to 20 working days. It is important to note that they cannot be applied concurrently.

It is necessary to have an office lease agreement stipulating the address of the entity and a tax clearance certificate. For the registrations under Category A – Part B usually takes between 3 to 6 months to complete because some involve physical visit by the Regulatory bodies. For those under Category B, the timeframes can vary greatly depending on the processes and the requirements imposed by the relevant regulatory bodies, but usually not exceeding 2 years from the date of application. 12. Is a local director and/or local ownership in joint venture with a Tanzanian necessary?

No. In principle it is possible to register a company at the company registry which is 100% foreign owned and all directors are foreigners. However, some sectors require local directors and/or local ownership as a condition for a sector specific licence or as part of local content requirements which are imposed in some sectors e.g. mining, oil and gas. On assumption that no local directorship or local ownership is required, the investor may require a local director or have one of the foreign directors to come in Tanzania for biometrics as part of the process to obtain a tax identification certificate for the legal entity. 13. Can an investor remit dividends outside of Tanzania freely? Yes. This is a guaranteed right of every investor in the country provided that, taxes are paid for which the dividends relate to and the relevant documents are submitted to the remitting local bank.

Note that, the incorporation documents and/or the shareholders agreement may restrict payment of dividends either until the outstanding loans are paid or on an unpaid shares. 14. Are there anti-trust / merger laws in Tanzania? Yes. There are anti-trust laws in Tanzania which are enforced and regulated by the Fair Competition Commission (FCC) - https://www.fcc.go.tz/. It is important to note that acquisitions and dispositions of assets or equity are subject to obtaining a merger approval provided there is a change of control within or outside of Tanzania, there is a change of control and a combined threshold is met and the current threshold is Tanzanian Shillings 3.5 billion (approx. US$ 1.5 million).

It is worth noting that, there are recent amendments to the Fair Competition Act of Tanzania and you can read more here: https://www.clydeco.com/en/insights/2024/11/notable-amendments-tothe-fair-competition-act. Note that, a consumer may lodge a complaint at the FCC if their rights have been breached by a service provider, manufacturer or distributor as provided in the following link: https://www.fcc.go.tz/en/legal-framework. 15. Are there data protection laws in Tanzania? Yes. There are data protection laws in Tanzania and it is a new legislation. Among other obligations, there is a requirement to register with the Data Protection Commission as shown on this link: https://www.pdpc.go.tz/en/.

Data collectors which includes companies which collect customer, employees, service providers etc. data must be registered and observe the requirements imposed under the data protection laws and regulations. Note that it is now possible for a person to file a complaint that their data was used, shared or processed contrary to their will or without their consent. Similarly, there is an Electronic Transactions Act which provides the obligation to protect the electronic data of consumers and other third parties which should be read together with the data protection laws and regulations.

16. Is there a requirement to register ultimate beneficial owner (UBO)? Yes. There is a mandatory requirement to register an ultimate beneficial owner for entities in Tanzania. The UBO registry is under the company registry, BRELA and the link for registration can be found here: https://bo.brela.go.tz/. 17. Is there consumer protection framework under the laws of Tanzania? Yes. There are various laws which provide on consumer protection, including but not limited to the anti-trust legislation as addressed herein above. There are those which are sector specific and those which are applicable generally. Consumers have a right to institute legal proceedings against the person who has breached their rights and may be awarded damages, among others. 18. Is there public private partnership law in Tanzania? Yes. There is a Public Private Partnership Act and it is very active.

The Government is keen to enter into PPP arrangements and investors are welcome across various sectors. There is a detailed process for initiating the PPP process to finalization and can be read here: https://www.clydeco.com/clyde/media/fileslibrary/Publications/2013/MEBE_-_010_- _Public_Private_Partnerships_in_Tanzania_the_new_regime_explained_-_Eng_- _Sep2013_2.pdf and https://www.clydeco.com/en/insights/2023/07/tanzania-ppp-actamendments. Note that, government guarantees are not granted for PPP projects but other forms of government support can be negotiated and agreed as highlighted here: https://www.linkedin.com/pulse/energy-sector-tanzania-amalia-lui-o0vqf/. 19. What are the available options to exit a company or a business?

One can exit the company in totality i.e. ceasing to hold equity or sell the business segment which is no longer required: (a) Share transfer or transfer of the business which is no longer required and retaining the rest of the business activities (b) Call and forfeiture if the shares are not paid and there is failure to pay when called to do so (c) Cancellation of shares and reduction of share capital, with or without payoff (d) Redemption of shares if they were issued as redeemable shares (e) Voluntary or creditor winding up of the company (f) Striking off of the company from the company register It is important to identify if there are any exit obligations imposed under the law particularly to those sectors where there is an agreement entered between the investor and any Government Authority.

Also, tax considerations should be taken into account during the exit process because usually there are taxes payable on exit or transfer of shares or business. The company

registry is unlikely to approve any exit, transfer or closure of business without a valid tax clearance certificate. Note there is a requirement to advertise the acquisition of a business or equity under the Transfer of Businesses (Creditors Protection) Act. Also, worth checking if a merger approval from the Fair Competition Commission will be required. 20. What are the options for restructuring of a company or a business in Tanzania? Restructuring can be triggered by a number of factors, including: (a) when a shareholder wants to exit the company; (b) there is a new investor in the company; (c) Government acquiring equity in the company either by operation of the law or by agreement between equity holders and the Government; (d) Subscription of additional shares but not all shareholders want or are able to subscribe to more equity; or (e) Conversion of debt to equity etc.

There are multiple options for restructuring ranging from an acquisition of shares through a transfer, allotment of shares etc. The Companies Act is accommodating of the various structures which may be adopted, including the nature of shares to be issued. Overall, it is necessary to consider the regulatory approvals which need to be obtained for the intended restructuring, including a merger approval from the Fair Competition Commission, payment of taxes and licence conditions depending on the licences held by the target entity. 21. Can a restructuring occurring outside of Tanzania at or above the nonresident shareholder trigger regulatory obligations in Tanzania? Yes. To mention a few: (a) Merger approval from the Fair Competition Commission can be trigged by a restructuring occurring at or above a nonresident parent level.

Note that the law does not exempt the changes occurring in the stock exchanges outside of Tanzania affecting the shareholding structure of the parent company which has a subsidiary in Tanzania. (b) Payment of taxes i.e. capital gains tax can be triggered even if the acquisitions or the restructuring is occurring outside of Tanzania, no matter how many levels up. (c) Consent / approval / notification to a licensing authority may be applicable because there are some licences which require the issuing authority to consent, approve or be notified prior to such restructuring occurring outside of Tanzania.

22. If a foreign investor wants to enter into a joint venture with a Tanzanian, what are the key issues to consider?

Prior to entering into any joint venture arrangements, it is important for the foreign investor and the local joint venture partner to consider the following: (a) Undertaking due diligence (both legal, financial, tax and criminal) on the local partner (b) The nature of business to be undertaken and the requirements under the law (c) The source of capital and contribution obligations for each party (d) Declaration of dividends and conditions there to especially if shares allotted remain unpaid (e) Subscription of additional shares and dilution of a party who is not able to acquire and pay upfront the additional capita (f) Financial support during the initial operations of the company and source thereof (g) Shareholder loans and priority on their repayment, including any interest payable (h) Exit mechanisms, and tag / drag rights if applicable and disposition of assets and settling of liabilities (i) Loss and how loss will be shared between the parties (j) Business development and marketing for business growth, including financing for the marketing initiatives (k) If directors and local partner will be entitled to any payments whether consultancy or monthly payments from the business (l) If the foreign investor is the majority shareholder and the JV entity requires land, how will the land be owned given the restrictions on land ownership imposed on foreigners.

(m) What are the expectations of each party and milestones to be attained by each (n) If the investor is buying into the existing business of a local partner, due diligence must be undertaken, particularly legal, tax and financial to ensure the investor does not step into any liabilities without adequate prior knowledge.

(o) Dispute resolution mechanisms (p) If the investor and/or the local partner is an individual, what happens upon death of one of them (q) Restriction on undertaking personal businesses locally which compete with the local business by the JV parties (r) If any party is making contribution otherwise than in cash, how such contribution will be quantified (s) Board membership and quorum and what happens on dilution (t) Quorum for shareholders meetings and voting rights including what matters are reserved for shareholders and not under Board mandate (u) Admission of new shareholders and dilution of the initial shareholders, including if Government is entitled to free carry interest how it will be shared between the JV partners. (v) Entering into a binding shareholders agreement to provide the rights and obligations of each of the parties, some of which are listed under this paragraph.

Disclaimer The views expressed in this paper are those of the author only and should not be considered as an official interpretation, defamatory, or interference of any legislation, laws, or policies of any country including Tanzania. The contents of this paper should not under any circumstances be reproduced or used without the express written consent of the Author. It should not be considered as legal advice to any of its recipient(s) and should not be relied upon without obtaining further legal advice. We accept no liability for any loss occasioned or suffered due to the contents of this paper. The information contained herein is general and is not intended to address the circumstances of any particular deal. Although effort has been made to research and share the correct information, we do not provide any guarantee to such information.