Income Tax in Tanzania

Personal Income Tax:

Tax Return:

An individual is required to file a return of income with the Commissioner no later than six months after the end of each year of income.

The Commissioner may extend the due date for filing a return of income upon an application by the person in writing and on such terms and conditions as the Commissioner considers appropriate.

Under the presumptive system an individual is not obliged to file any return of income but instead can pay by installments if the assessed amount exceeds TSHS 50,000 per year.

Taxation:

Individuals are categorized in two groups, small individual traders who are not required to maintain audited accounts and the medium individual traders who are required to maintain audited accounts. Small traders are taxed by presumptive tax system, whereas medium are taxed based on the annual profit determined from the audited accounts.

a)  Presumptive tax system:

This is a tax system where individuals are taxed based on their annual turnover. The Taxpayers under this system are not obligated to prepare and submit audited accounts to the TRA. However, he may opt not to apply the system and prepare audited accounts and pay tax based on profits.

Conditions which qualify to be in Presumptive tax system.

· the Taxpayer must be a resident individual

· the annual turnover of the business does not exceed the threshold of TSHS 20 million.

· he must conduct business only for the year of income hence not be engaged in any other activities such as employment or investments. Under the presumptive tax system, individual’s income must be derived solely from business sources. If income is derived from other sources such as employment and/or investment the presumptive scheme cannot be used.

· the individual’s income for any year must consist exclusively of income from business with sources in the United Republic of Tanzania.

Rates of tax under presumptive tax System.

Under this system, tax payable is established based annual turnover shown by taxpayers records. In absence of complete records, annual turnover will be estimated based on the best judgment of the commissioner. The turnover bands and their tax rates are as stipulated below:

Annual  turnover	Tax payable when records are incomplete	Tax payable when records are complete
Where turnovers does not exceed TSHS 4,000,000	NIL	NIL
Where turnover exceeds TSHS  4,000,000 but does not exceed TSHS 7,500,000	TSHS  150,000	3% of the turnover in excess of TSHS 4,000,000
Where turnover exceeds TSHS 7,500,000 but does not exceeds TSHS 11,500,000	TSHS  318,000	TSHS 135,000+3.8% of the turnover in excess of TSHS 7,500,000
Where turnovers exceeds TSHS. 11,500,000 but does not exceed TSHS 16,000,000	TSHS  546,000	TSHS 285,000+4.5% of the turnover in excess of TSHS11,500,000
Where turnover exceeds TSHS 16,000,000 but does not exceed TSHS 20,000,000	TSHS 862,500	TSHS 487,000+5.3% of the turnover in excess of TSHS 16,000,000

b)  Individuals who prepare audited accounts.

This is a group of taxpayers whose annual turnover is above TSHS 20,000,000 and are required to prepare audited accounts/financial statements in respect of their business.

Rates of tax for individuals who prepare Audited Accounts

Taxpayers under this category are taxed basing on their profits. The rates applicable for this category are as follows:

Tanzania Mainland

Annual Taxable  Income	Tax Rate
Where Total Income does not exceed TSHS 2,040,000	NIL
Where Total Income exceeds TSHS  2,040,000 but does not exceed TSHS   4,320,000	9% of the amount in excess of TSHS 2,040,000
Where Total Income exceeds TSHS  4,320,000 but does not exceed TSHS  6,480,000	TSHS 205,200 plus 20% of the amount in excess of TSHS 4,320,000
Where Total Income exceeds TSHS  6,480,000 but does not exceed TSHS 8,640,000	TSHS 637,200 plus 25% of the amount in excess of TSHS 6,480,000
Where Total Income exceeds TSHS 8,640,000	TSHS 1,177,200 plus 30% of the amount in excess of TSHS 8,640,000

Zanzibar

Annual Taxable Income	Tax Rate
Where total income does not exceed TSHS 1,800,000	NIL
Where total income exceeds TSHS 1,800,000 but does not exceed  TSHS. 4,320,000	13% of the amount in excess of TSHS. 1,800,000
Where total income exceeds TSHS 4,320,000 but does not exceed TSHS. 6,480,000	TSHS. 327,600 plus 20% of the amount in excess of TSHS. 4,320,000
Where total income exceeds TSHS 6,480,000 but does not exceed TSHS 8,640,000	TSHS. 759,600 plus 25% of the amount in excess of TSHS. 6,480,000
Where total income exceeds TSHS 8,640,000	TSHS. 1,299,600 plus 30% of the amount in excess of TSHS. 8,640,000

Filing of tax returns and payment of tax:

The statement of estimated tax payable.

The statement of estimated tax payable is a provisional return which a taxpayer is required to complete and file to the Commissioner within three months from the beginning of the year of income (which for individuals shall be calendar year).

The taxpayer is supposed to pay the estimated tax in a maximum of four installments each falling due after three months. The Due dates are as follows:

·  On or before 31st March

· On or before 30th June

· On or before 30th September

· On or before 31st December

Corporate Income Tax:

A Tanzanian resident is taxed on worldwide income, irrespective of source. Non-residents are taxable on income with a source in Tanzania.

Income tax is charged at a rate of 30% on income of a resident corporation and of a permanent establishment (PE) of a non-resident corporation or 5% of turnover for technical and management service providers to mining, oil, and gas entities (deducted by way of WHT). Certain payments to non-residents are subject to tax at the relevant non-resident WHT rates.

Small-scale miners are subject to 5% final WHT tax on the market value of minerals.

Gain from the disposal of investments in Tanzania is subject to income tax where such investments fall within the source rules, and, in such a case, the gain will be taxed at a rate of 30%.

Reduced rate for newly listed companies:

A reduced CIT rate of 25% applies for three consecutive years for companies newly listed on the Dar es Salaam Stock Exchange (DSE). To qualify, at least 30% of the company's shares must be issued to the public.

Reduced rate for specific persons:

A reduced CIT rate of 10% applies to new assemblers of vehicles, tractors, and fishing boats for the first five years from commencement of operations.

Alternative minimum tax:

Alternative minimum tax applies at a rate of 0.3% to the turnover of companies with perpetual unrelieved tax losses for the current and preceding two income years. Exemption applies to (i) agricultural companies and (ii) companies engaged in provision of health or education.

Subject to any provision to the contrary in the Income Tax Act, income is to be calculated in accordance with generally accepted accounting principles (GAAP). Local GAAP is in accordance with International Financial Reporting Standards (IFRS). Corporations must apply an accrual basis of accounting.

Inventory valuation:

Trading stock is valued at the end of the year at the lower of cost and market value. No explicit method is stated for determining inventory cost, and, so far, for tax purposes, such cost will match the cost determined in accordance with GAAP. Special rules apply for the valuation of long-term work in progress.

Capital gains:

There is no separate capital gains tax in Tanzania. Instead, income tax is charged on the taxable profit arising on a gain arising from the realisation of an 'investment asset' (a term that [subject to certain exceptions] includes shares, interests in land and buildings, and a beneficial interest in a non-resident trust). The gain is determined as the difference between costs incurred and sale proceeds.

Dividend income:

Dividend payments are taxed by way of WHT, and this is a final tax. The normal rate of WHT on dividends is 10%.

Where a dividend is paid by a resident corporation to another resident corporation holding 25% or more of shares and voting rights in the corporation paying the dividend, the WHT rate is 5%.

Dividends paid by a company listed on the DSE are subject to 5% WHT (regardless of whether they are paid to a resident or non-resident).

Interest income:

Interest income is treated as income from investment. The term 'interest' is defined as payment for the use of money and includes payment made or accrued under a debt obligation that is not a repayment of capital, as well as any gain realised by way of a discount, premium, swap payment, or similar payment.

Interest income is taxed by way of WHT at 10%.

Royalty income:

Royalty income is treated as income from investment and is taxed by way of WHT at 15% (regardless of whether it is paid to a resident or non-resident). WHT on royalty payments to a non-resident is final tax.

The term 'royalty' means any payment made by the lessee under a lease of an intangible asset and includes payments for:

· the use of, or the right to use, a copyright, patent, design, model, plan, secret formula or process, or trademark

· the supply of know-how, including information concerning industrial, commercial, or scientific equipment or experience

·  the use of, or right to use, a cinematography film, videotape, sound recording, or any other like medium

·  the use of, or right to use, industrial, commercial, or scientific equipment

· the supply of assistance ancillary to a matter referred to in paragraphs (i) to (iv), or

·  a total or partial forbearance with respect to a matter referred to in paragraphs (i) to (v), but excludes a natural resource payment.

Foreign income:

A resident person's foreign-source income or loss (from employment, business, and investment) is calculated as that person's worldwide income or loss less any income sourced in Tanzania and plus any loss sourced in Tanzania.

A resident person may claim a foreign tax credit on any foreign tax paid by the person on foreign income. However, such credit should not exceed the Tanzanian tax rate applicable to that income. Any unrelieved amount of foreign tax credit may be carried forward (subject to 'change in control' provisions as detailed in the Group taxation section). An election may be made to relinquish foreign tax credit and claim a deduction for the amount of foreign income tax.

There are no provisions for the deferral of the taxation of foreign income.

Corporate - Corporate residence:

A company is tax resident if it is incorporated or formed under the laws of Tanzania or if the management and control of its affairs is exercised in Tanzania.

Permanent establishment (PE):

A non-resident entity has a PE in Tanzania if it carries on business in Tanzania. This includes a place where a person (i) is carrying on business through a dependent agent; (ii) has used or installed, or is using or installing, substantial equipment or machinery; and (iii) 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.

Tax administration:

Taxable period:

While the year of income for tax purposes is the calendar year, an entity may apply to use its own accounting period rather than the calendar year.

Tax returns:

A statement of estimated tax payable, which contains an estimate of the chargeable income and the tax payable thereon, is due for submission within three months from the beginning of the accounting period. A final tax return must be furnished within six months from the end of the accounting period.

WHT returns must be submitted every half year. The due date for filing the WHT return is 30 days after each six-month calendar period (e.g. the January to June return is due by 30 July).

A late filing penalty applies monthly at an amount equal to the higher of (i) TZS 225,000 or (ii) 2.5% applied to unpaid tax. If estimated tax is significantly underestimated, a penalty may also apply.

Payment of tax:

Instalment tax is payable in four equal instalments not later than three months, six months, nine months, and 12 months from the beginning of the accounting period. Final tax is payable on the date on which the final return is due for submission, namely six months after the end of the accounting period.

WHT is due seven days after the month of deduction.

Interest on late payment is charged at the Bank of Tanzania discount rate.

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Note: Information placed here in above is only for general perception. This may not reflect the latest status on law and may have changed in recent time. Please seek our professional opinion before applying the provision. Thanks.