INTERNATIONAL EXECUTIVE SERVICES Thinking Beyond Borders Tanzania kpmg.com
Tanzania Introduction Taxation of individuals under the Income Tax Act 2004 (ITA) is on the basis of both residence and source. Individuals are classified either as resident or nonresident taxpayers. Resident taxpayers are taxed on their worldwide income. Nonresident taxpayers (and residents who have not been resident for more than two years in total during their entire lives) are taxed on income accrued in, or derived from, Tanzania. Contact David Gachewa KPMG in Tanzania Director T: +255 22 2122003 E: dgachewa@kpmg.com Individual income tax is covered under the Pay-As-You-Earn (PAYE) system, in respect of employment income being usually withheld from salary, wages, payment in lieu of leave, fees, commissions, bonuses, gratuity and other allowances received in respect of employment. Key messages Effective as of 1 January 2012, any nonresident person exiting from Julius Nyerere International Airport will obtain a value-added tax (VAT) refund upon submission of original fiscal receipt(s) provided the following conditions are met: the claim for VAT refund is received within six months after the date of the fiscal receipt the purchases of items should be less than 400,000 Tanzanian shillings (TZS) the goods have not been consumed or used and the seal is intact.
Income tax is calculated by applying a progressive tax rate schedule from 0 percent up to a maximum of 30 percent. All employers in Tanzania, including foreign companies operating through a permanent establishment (PE), must deduct PAYE from remuneration paid to all employees, and remit this tax to the authorities within seven days following the month with which the income relates. Income tax Liability for income tax The income of a person for a year of income from any employment, business or investment shall be: in the case of a resident person, the individual s income from employment, business or investment for the year of income, irrespective of the source of income in the case of a nonresident person, the individual s income from the employment, business or investment for the year of income, but only to the extent that the income has a source in Tanzania. The income tax shall be charged to every individual s total income during the year of income, and also repatriated income related to a PE or any person receiving final withholding payments during the year of income. Residence rules Tax residence status is based on the place of residence. The place of domicile or origin is not relevant in determining tax residence. Resident status is determined by the nature and length of stay in Tanzania. An individual is considered to be a Tanzanian resident if the following conditions are met: the individual is present in Tanzania during the year of income for a period or periods aggregating to 183 days or more the individual is present in Tanzania 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. For a company, a residence is determined based on the following: it is incorporated or formed under the law of Tanzania at any time during the year, management and control of the company are exercised in Tanzania. Source of income A person shall calculate their income or loss from any employment, business or investment that has a source in the United Republic of Tanzania separately from any income or loss from that employment, business or investment that has a foreign source. Tax trigger points The tax trigger points under the ITA are as follows: statement of estimated tax payable and installment tax payable is due at the end of every quarter of the accounting period of a company. If their year-end is 31 December, then it would be due at the end of March, June, September and December final tax and final return of income is due six months after the end of the accounting period of the company employment taxes and withholding tax is due on the 7th day following the month in which it relates semi-annual PAYE statements and withholding tax statements are due every calendar year, 30 days after the end of each semi-annual period (i.e. 31 July and 31 January). Types of taxable income This will be divided between employment, business and investment incomes. Employment taxable income shall include: payments of wages, salary, payment in lieu of leave, fees, commissions, bonuses gratuity or any subsistence, traveling, entertainment or other allowances received in respect of employment or services rendered payments providing any discharge or reimbursement of expenditure incurred by the individual or an associate of the individual payments for the individual s agreement to any conditions of the employment retirement contributions and retirement payments payment for redundancy or loss or termination of employment other payment made in respect of the employment including quantified benefits-in-kind other amounts as may be required to be included. Business taxable income shall include: service fees earnings for stock trades gains from the realization of business assets or liabilities of the business
amounts required to be included under paragraph four of the Third Schedule on the realization of the person s depreciable assets of the business amounts derived as consideration for accepting a restriction on the capacity to conduct the business gifts and other ex-gratia payments received by the person in respect of the business amounts derived that are effectively connected with the business and that would otherwise be included in calculating the person s income from an investment Investment taxable income shall include: any dividend, distribution of a trust, gains of an insured from life insurance, interest, natural resource payment, rent or royalty net gains from the realization of investment assets as calculated under the ITA amounts derived as consideration for accepting a restriction on the capacity to conduct the investment other amounts required to be included. other amounts required to be included. Tax rates Rates Resident companies Corporation tax: Companies that issue at least 30% equity to the public for the first three years after listing in the Dar es Salaam Stock Exchange (DSE) 25% Other companies Capital gains (on assets other than land and premises) 30% Capital gains (on land and premises) 10% Dividend income: Received from a resident company in which it holds at least 25% of the voting power Received from a resident company in which it holds less than 25% of the voting power Paying company is listed in the DSE Paying company not listed in the DSE Received from a nonresident company 30% Exempt Interest income, royalty income, and rent income 30% Mining service fee income 5%* 5%* 10%* 30% For the purposes of this guide, a 30 percent rate for resident companies (above) is equated to a 0-30 percent rate for resident individuals (here below): Income tax 0%-30%** Dividend income: Received from a nonresident company 0%-30%** Interest income from resident financial institution: Received in conducting business Received other than in conducting business Rent income: Received in conducting business Received other than in conducting business 0%-30%** 10%* 0%-30%** 10%* *Tax withheld at source (withholding tax) is a final tax **Individual s income tax table
Total income (TZS) Rate payable (%) Up to TZS1,620,000 0% TZS1,620,001 - TZS4,320,000 14% TZS4,320,001 - TZS6,480,000 20% TZS6,480,001 - TZS8,640,000 25% Over TZS8,640,001 30% Withholding tax rates on payments made by resident persons to other resident persons Employment payments 0%-30%** Dividend: Paid to another resident company holding at least 25% voting power in the paying company Paid to any other shareholder: Paying company is listed in the DSE Paying company not listed in the DSE Nil 5% 10% Interest 10% Mining service fees 5% Other service fees Rent 10% Natural resource payments 15% Royalties 15% Commuted pension 10% Other pension 15% Insurance premiums **Individual s income tax table Nil Nil Withholding tax rates on payments made by resident persons to nonresident persons (only where different from rates on payments to residents) Employment payments 15% Branch dividends 10% Other service fees 15% Rent 15% Commuted pension 15% Insurance premiums 5% Capital gains tax Capital gains realized on the disposal of land and premises situated within Tanzania are subject to tax, paid by way of a single installment, at the rate of 10 percent in the case of a resident, and 20 percent in the case of a nonresident. All other capital gains (on business and investment assets) are subject to tax at the applicable income tax rate, 30 percent for corporations and the graduated rates for individuals.
Social security Liability for social security It is a mandatory requirement by the Social Security Regulatory Act and both the National Social Security Fund (NSSF) and Parastatal Pension Fund (PPF) Acts, that every employer register their employees with the social security schemes. Private sector employers are required to deduct and remit pension contributions to the NSSF and PPF. The rate of contribution is 20 percent (i.e., 10 percent employer portion and 10 percent employee portion) and is based on the gross salary of the employee. Failure to contribute will result in a penalty of 5 percent. Compliance obligations Employee compliance obligations In Tanzania, employees have no legal obligation to remit or file taxes in relation to their employment income. However, salaried directors of a company, nonresidents and/ or residents employed by a nonresident company are all required to remit payroll taxes and file relevant returns to the revenue authority. Employer reporting and withholding requirements The employer is required to withhold PAYE on the employment income of its employees and remit to the revenue authority on or before the 7th day of the month following the month in which the employment income relates. The employer is required to remit pension contributions to the respective pension funds within 30 days of the month in which it relates. Also, the employer is required to file semi-annual PAYE statements 30 days after the end of each six-month calendar period (i.e. January to June period must be filed on or before 31 July and July to December period on or before 31 January). Other issues Double taxation treaties Tanzania has double taxation treaties with the following countries: Sweden, Canada, Denmark, Finland, India, Italy, Norway and South Africa. Double tax treaties and reduced rates Country Dividends (%) Interest (%) Royalties (%) Canada 25%* 15% 20% Denmark 15% 12.5% 20% Finland 20% 15% 20% India 15%* 12.5% 20% Italy 10% 12.5% 15% Norway 20% 15% 20% Sweden 25%* 15% 20% Zambia # # # # There is no limitation under the treaty on withholding tax on dividends, interest and royalties. These payments are only subjected to tax in the originating country if they are not taxable in the recipient country. * These rates are further reduced for certain percentages of ownership. Permanent establishment implications The ITA provides that a PE shall exist generally when a person carries on a business, and shall include: a place where a person is carrying on business through an agent, other than a general agent of independent status acting in the ordinary course of business a place where a person has used or installed, or is using or installing substantial equipment or substantial machinery a place where a person is engaged in a construction, assembly or installation project for six months or more, including a place where a person is conducting supervisory activities in relation to such a project. There is a deemed dividend to the PE repatriated income which will be taxed at a withholding tax rate of 10 percent after having been subjected to a corporate tax of 30 percent. Indirect taxes VAT is charged on any supply of goods or services made in mainland Tanzania where a taxable supply is made by a taxable person in the course or furtherance of any business carried on by that individual. There are four categories of VAT supplies in Tanzania: zero-rated supplies (0 percent), exempt supplies [0 percent; however on exempt supplies you cannot claim input VAT (VAT incurred by an entity). Not claimable input VAT is a distinguishable factor when comparing exempt supplies (zero rated supplies and special relief supplies) from special relief supplies (0 percent) and VAT table supplies (18 percent).
Stamp duty depends on the type of instrument or document that is executed but generally varies between a nominal charge of TZS500 and up to 1 percent of the value of the contract amount. Customs duty depends on the harmonized system code of the products, but varies between 0 and 25 percent. Transfer pricing Tanzania has no transfer pricing rules or regulations, but the ITA includes provisions to ensure that the Tanzanian-sourced taxable income associated with cross-border transactions is at arm s-length prices. Application of the Organisation for Economic Co-operation and Development (OECD) model in determining transfer prices is permitted. Work permit/visa requirements Both purpose of entry and duration of stay in Tanzania will determine the appropriate entry document (visa or residence/ work permit). In the case of a short-term business trip (such as two weeks), a normal visitor visa should be adequate. For non-business trips, a normal visitor visa is adequate. Supervisory works are considered to be employment for purposes of immigration, and the supervisors will therefore require a permit. If the supervisors will be in Tanzania for less than 120 days, the short-term permit (or Certificate of Temporary Assignment) would be adequate. Local data privacy requirements There are no local data privacy requirements. Exchange control All transactions in foreign currency are regulated by the Foreign Exchange Act which permits any person, resident or not, to: hold any amount of foreign currency sell any amount of specified foreign currency to an authorized dealer open and maintain a foreign currency account with a bank which is an authorized dealer. Under the Investment Act 1997, investors are guaranteed unconditional transferability (through any authorized dealer in freely convertible currency) of net profits, foreign loan services, royalties, fees and technology transfer charges, emoluments of foreign personnel and repatriation of capital, after taxes on the sale of the investment. Nondeductible costs for assignees All costs in relation to the assignees qualify for deduction as long as they have been incurred wholly and exclusively for the purpose of running the business of the company. Other There are a number of other taxes as listed below: a services levy of up to 0.3 percent charged by local authorities on the total turnover of enterprises based within their territorial boundaries excise duty on a range of goods and services such as tobacco, alcohol, petroleum products, motor vehicles, carbonated drinks, mobile phones, and satellite television services fuel levy on petrol and diesel (gas oil) at a rate of TZS200 per liter stamp duty on various instruments, generally at ad valorem rates of up to 1 percent.
kpmg.com/socialmedia The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International. Designed by Evalueserve. Publication name: Thinking Beyond Borders Tanzania Publication number: 121073 Publication date: November 2012