Corporate tax in Tanzania

Summary

Corporate Income Tax Rate (%) 30 (a)
Capital Gains Tax Rate (%) 30 (b)
Branch Tax Rate (%) 30
Withholding Tax (%)
Dividends 5 / 10 (c)
Interest 10 (d)
Royalties 15 (e)
Management and Professional Fees (Service Fees) or Technical Services Fees
for Mining, Oil or Gas
5 / 15 (f)
Supply of Goods 2 (g)
Insurance Premiums 5 (h)
Rent 10 (e)
Money Transfer Commission 10 (.i)
Other payments 15
Branch Remittance Tax 10 (j)
Net Operating Losses (Years)
Carryback 0
Carryforward Unlimited

a) The corporate income tax rate is reduced to 25% for three years for companies that are newly listed on the Dar es Salaam Stock Exchange and that issue at least 30% of their share capital to the public. Companies reporting tax losses for three consecutive years must pay alternative minimum tax at a rate of 0.3% on annual turnover.

b) Capital gains are treated as business income for companies and are taxed at the regular corporate income tax rate.

c) The 10% rate applies to dividends paid by unlisted companies to residents and nonresidents. The 5% rate applies to dividends paid by companies listed on the Dar es Salaam Stock Exchange and for dividends paid by a resident com­pany to a resident company owning 25% or more of the shares in the payer of the dividends.

d) This tax applies to residents and nonresidents. Resident companies may credit the withholding tax against their annual corporate income tax. Interest paid by strategic investors to nonresident banks and resident financial institu­tions is exempt from withholding tax.

e) This withholding tax applies to both residents and nonresidents.

f) The 5% rate applies to residents, and the 15% rate applies to nonresidents. The withholding tax on management and professional fees (services fees) for resident persons is an advance tax creditable against the final income tax. The withholding tax on technical services provided to mining, oil or gas compa­nies is a final tax. Also, see Section B.

g) This withholding tax applies to all supplies of goods to the government.

h) This tax applies to nonresidents only.

i) This tax applies to residents who pay a money transfer commission to a money transfer agent.

j) This tax applies to branches of foreign companies. Tax is levied on an annual deemed profit repatriation basis. Special rules apply to the calculation of the base.

Taxes on corporate income and gains

Corporate income tax. Companies are considered resident for tax purposes if either of the following applies:

  • They are incorporated or formed under the laws of Tanzania.
  • Management and control of the affairs of the company are exer­cised in Tanzania at any time during the year of income.

Resident companies are subject to tax on their worldwide income. Nonresident companies are subject to tax on their Tanzanian-source income only.

Rates of corporate tax. Both resident and nonresident companies are subject to tax at a rate of 30%.

The corporate income tax rate is reduced from 30% to 25% (for the first three years) for companies that are newly listed on the Dar es Salaam Stock Exchange and that issue at least 30% of their share capital to the public.

Companies operating in the Export Processing Zone (EPZ) are exempt from corporate tax for the first 10 years. They are also exempt from withholding tax on dividends, interest and rental payments.

Alternative minimum tax. Companies reporting tax losses or uti­lizing loss carryforwards for three consecutive years must pay alternative minimum tax at a rate of 0.3% on annual turnover.

Capital gains. Capital gains are treated as business income for companies and are taxed at the regular corporate income tax rate. Direct and indirect share transfers are subject to capital gains tax.

Administration. A company’s year of income is the calendar year. Companies may apply to the Commissioner of Income Tax for approval of a different year of income.

Companies must file provisional tax returns by the end of the third month of their year of income and file their final tax returns within six months after the end of the year of income. The esti­mated tax must be paid in four equal installments, as set forth in the provisional return. The remaining balance of tax due (the difference between the actual tax and tax paid in installments) must be paid by the due date of filing the final return. The tax-payer’s estimate of taxable income may not be less than 80% of the company’s taxable income as finally determined for the year of income. The Commissioner of Income Tax may allow a lower estimate if justified by the facts and circumstances of the case. Companies may revise their provisional return and file a revised return in the 6th, 9th or 12th month of the year of income if new developments suggest an increase or decrease in income.

A penalty is imposed for a failure to file a return. The penalty equals the greater of the following:

  • 5% of the amount of tax assessable less tax paid by the start of the period in which the return is due
  • 15 currency points (1 currency point = TZS15,000)

Fraud related to a return may be subject to a penalty of 50% of the tax shortfall if the statement or omission is made without reason­able excuse. The penalty is increased to 75% of the tax shortfall if the statement or omission is made knowingly or recklessly.

Dividends. A final withholding tax is imposed on dividends. A 10% rate generally applies to residents and nonresidents. A 5% rate applies to dividends paid by companies listed on the Dar es Salaam Stock Exchange and to dividends paid to resident companies that hold 25% or more of the shares in the payer of the dividends.

Special tax for the extractive industry. Technical services provid­ed by resident companies or branches to the extractive industry in mining or oil and gas are subject to a final withholding tax of 5%. For nonresident service providers, the withholding tax rate is 15%.

Determination of trading income

General. The audited financial statements serve as the starting point for computing taxable income. Expenses and losses are generally not de ductible unless they are incurred wholly and ex­clusively in the production of income.

Inventories. Inventories are valued at the lower of cost or net real­izable value. The last-in, first-out (LIFO) method is not allowed.

Provisions. Provisions may not be deducted.

Depreciation. Depreciation computed for financial statement pur­poses is not deductible, but capital allowances are provided for de­preciable assets, which are allocated to one of the eight classes. The following are the classes and the rates of the capital allowances.

 

Class Assets Rate
1 Computers and data handling equipment, together with peripheral devices; automobiles, buses and minibuses with a seating capacity of less than 30 passengers; goods vehicles with a load capacity of less than 7 tons; and construction and earth-moving equipment 37.5% (reducing-balance)
2 Buses with a seating capacity of 30 or more passengers; heavy general purpose or specialized trucks, trailers and trailer-mounted containers; railroad cars, locomotives and equipment; vessels, barges, tugs and similar water transportation equipment; aircraft; other self-propelling vehicles; plant and machinery used in agriculture, manufacturing or mining operations; specialized public utility plant and equipment; and machinery irrigation installations and equipment 25% (reducing-balance)
3 Office furniture, fixtures and equipment; and any assets not included in another class 12.5% (reducing-balance)
4 Natural resources exploration and production rights and assets referred to in Subparagraph (3) with respect to natural resource prospecting, exploration and development expenditure 20% (straight-line)
5 Buildings, structures and similar works of a permanent nature used in agriculture, livestock farming or fish farming 20% (straight-line)
6 Buildings, structures and similar works of a permanent nature other than those mentioned in Class 5 5% (straight-line)
7 Intangible assets other than those in Class 4 1/useful life
8 Plant and machinery (including windmills, electric generators and distribution equipment) used in agriculture; electronic fiscal devices purchased by non-value-added tax registered traders; and equipment used for prospecting and exploration of minerals or petroleum 100.00%

Plant and machinery in Categories 2 and 3 qualify for an initial capital expenditure allowance of 50% for the first year if they satisfy any of the following conditions:

  • They are fixed in a hotel used for tourism services.
  • They are fixed in a factory used for manufacturing.
  • They are used in fish farming.

The maximum depreciable amount for a non-commercial auto­mobile is TZS15 million.

Mining companies may deduct 100% of qualifying expenditure in the year in which the expenditure is incurred.

Relief for tax losses. Companies may carry forward tax losses indefinitely. No carryback is allowed. Special rules for long-term contracts may apply.

Other significant taxes

The following table summarizes other significant taxes.

Nature of tax Rate (%)
Value-added tax (VAT) 18
Customs duties (imports may also be subject to VAT)
Raw material or capital goods 0
Semifinished goods 10
Finished goods 25
Property tax; imposed by local governments on the value of real property 0.15
Skills and Development Levy; imposed on gross
remuneration (excluding benefits-in-kind)
5
Social security; imposed on basic salary;
rates depend on the respective fund; paid by
Employer 10 / 15
Employee 5 / 10
Workers’ Compensation Fund; imposed on
employers’ annual wage bill; employers must
make monthly payments through deposits in
the fund’s bank account; payments must be
made on the last working day of the month
after the month to which the payment relates
Private sector employers 1
Public sector employers 0.5
Railways Development Levy; imposed on
customs value on importation of goods
1.5

Foreign-exchange controls

Tanzania does not impose foreign-exchange controls on current-account transactions, but the Bank of Tanzania must be notified of foreign capital-account transactions.

Dividends Interest Royalties
% % %
Canada 10 15 20
Denmark 10 12.5 20
Finland 10 15 20
India 10 12.5 20
Italy 10 12.5 15
Norway 10 15 20
South Africa 10 10 10
Sweden 10 15 20
Zambia 0 0 0
Non-treaty countries 10 10 15

The East African countries, which are Burundi, Kenya, Rwanda, Tanzania and Uganda, have signed a tax treaty, which has not yet been ratified.