CORPORATE AND INVESTMENT LAW UPDATE: STARTING AND REGISTERING A BUSINESS IN TANZANIA BY A FOREIGN INVESTOR
- Forms of businesses that may be established in Tanzania by foreigners
- Pre-establishment compliance matters that should be complied with before establishing a business
- Post Compliance issues to be adhered to, after starting a business
In establishing a business in the United Republic of Tanzania by a foreign investor, one needs to keep in mind, which forms of business entity (vehicle) to establish. Also prior to establishing the business vehicle one needs to be aware of the requirements for establishing that business vehicle. Upon that business vehicle being successfully established and operational, one will also need to be aware of the compliance matters that follows registration of the company.
This article from our Corporate Secretarial department at Breakthrough Attorneys, gives a general practical overview of the common business vehicles capable of being established by foreigners in Tanzania as well as making a prospective foreign investor aware of the procedure to be followed to establish various forms of business. Such an investor, through this article will be aware of the general post-compliance matters upon the business being operative.
2.0 Forms of businesses that may be established in Tanzania
Generally, one can establish a business in Tanzania in form of an individual (Sole Proprietorship), a partnership (or Firm), trust or a limited company. This article focuses on establishing of companies limited by shares and compliance matters emanating from establishing a company limited by shares’ business in Tanzania.
3.0 Pre-establishment compliance matters that should be complied with before commencing business
3.1 Establishing a local company
A foreign investor may opt to register a new limited liability company (local company) or seek business existence of a foreign company in Tanzania by establishing foreign company. Under the Tanzanian Companies Act, Act. No. 12 of 2002 establishing a new company in Tanzania requires making an application to the Registrar of Companies at the Business Registration and Licensing Authority (BRELA) to acquire a Certificate of Incorporation. The company incorporated will be considered as a local company. This company may be a company limited by shares or limited by guarantee with a share capital.
If the prospective investor does not wish to register a local company but he or she or it has an already registered company outside Tanzania but needs do business in Tanzania (to have business existence) it may opt to apply for registration of a foreign company in Tanzania. This registered foreign company can operate as a branch of the foreign company which exists outside Tanzania.
In order to be able to open up that foreign company branch, an application for registration of a foreign company shall be made to the Registrar of Companies at BRELA. If the Registrar approves the application, a Certificate of Compliance will be issued to the foreign company’s branch in Tanzania. (See more under item 3.3 below.)
3.2 Pre-establishment matters to consider for a local company:
Prior to establishing a local entity in Tanzania one must have ready the following matters;
3.2.1. Memorandum and Articles of association with company objects and rules respectively
3.2.2. Total authorized capital, nominal share value, and initial share allotment
3.2.3. Names of at least two directors that may act as first directors of the company
3.2.4. Names of at least two shareholders
3.2.5. Local content consideration. There are certain businesses which require Tanzanian shareholders like mining, Broadcasting business, Telecommunication business
3.2.6. At least 3 options of prospective company names for clearance as most names may be unavailable and having options in place may save a lot of time
3.2.7. Statutory declarations forms (14a and 14b) that are filed parallel with the MEMARTs.
3.3 Pre-establishment matters for a foreign company (A foreign company’s branch):
Prior to triggering an application to the Registrar of Companies for a Certificate of Compliance, one should make the following matters in order;
3.3.1 Should have one local (Tanzanian) representative of the foreign company.
This local representative is mandatory for purpose of receiving documents on behalf of the foreign company.
3.3.2 Translated Charter or Statute or Memorandum and Articles of Association of the Foreign Company.
One of these documents are part of the requirements for an application for a certificate of compliance. If at all any of these documents are not in English the same must be translated into English by a certified translator
3.3.3 Preparation of the latest Accounts or financial report document regarding the foreign company.
The prospective investor who is desirous of acquiring a certificate of compliance must make sure that the foreign company that needs existence in Tanzania must have latest Accounts indicating the financial status or condition of the company. If the same are not in place, then the same must be prepared by certified auditors of the company.
3.3.4 Place of business in Tanzania:
The prospective investor should have detailed information of the place at which the branch will be situated in Tanzania once the Certificate of Compliance is acquired
4.0 General Post Compliance issues to be adhered to after starting a business
This segment, will generally discuss on matters that must be adhered to when the company (be it a local company or Foreign company). These matters include (unexhaustively) the following:
4.1 Registration for Tax Identification Number (TIN) certificate:
After registration of a local company or foreign company one must make an application for TIN at the Tanzania Revenue Authority (TRA). TIN is crucial for every type of business as named in Clause 2.0 above. TIN certificate must be applied for an entity and the individual who form part of the company such as the shareholders or directors residing in Tanzania. If the shareholder or director was already registered for TIN then there is no need for registration for TIN again.
4.2 Acquiring a Tax Clearance Certificate:
It is mandatory that once a company is registered for TIN certificate it should request for Tax Clearance Certificate from the TRA offices where the TIN certificate was issued. This certificate is of the essence as the same indicates that the Company do not have any tax liability to TRA. This means that, one cannot be issued with a Tax clearance certificate if they have not paid any tax owed to TRA. The taxes which usually a newly established company faces is the Stamp Duty and Withholding tax arising out of a Lease Agreement for the Company’s new offices in Tanzania.
The tax clearance is also crucial during the stage of an application for a business license of a company as the license will not be issued unless the company do not have tax liabilities to TRA.
4.3 Application for Business license:
After obtaining TIN certificate one will be required to apply for business license from the Trade office Municipal and the Ministry of Trade and Industry depending on the type of business. Business licenses of different varieties depending on the line of business the company or investor needs to engage in. It is crucial to identify the line of business one needs to venture as the same will give a leeway on which Authority should one present the application. There are certain kinds of business whose business licenses are issued by the Ministry of Industries and Trade and others issued by the Municipal Council of the District in which the business office is situated.
It should also be noted that, there are business licenses that require prior special licenses from other Ministries or government Authorities for them to be issued. For example; manufacturing license requires an industrial license before being issued, Import or Exportation of oil lubricants needs a license from Energy and Water Utilities Regulatory Authority (EWURA), Exportation of canned fish or raw fish requires a license from the Tanzanian Fishing Authority prior to its issuance; consultancy licenses which require professional bodies recognition certificates first such as Lawyers, Engineers etc.
Further, prior to issuance of a business license to an entity in which a foreigner majority owns it the work and residence permits are usually required. Short of that one may submit a Power of Attorney and a temporary license may be issued instead. Thus, it is important to acquire a license for each line of business that one needs to engage in.
4.4 Registration with Social Security Fund and Workers Compensation Fund (WCF)
It should be noted that, it is mandatory for an entity to be registered with a Social Security Fund in Tanzania. There are only two Social Security Funds existing in Tanzania which are National Social Security Fund (NSSF) and Public Service Social Security Fund (PSSSF). Further, it is a mandatory requirement that the investor with a business in Tanzania must register for Workers’ Compensation Fund (WCF). These registration are very crucial as the same will need to be proved during applications for Work permit for foreign employees or an investor and during other matters like seeking business deals in expression of interest for tenders and so forth.
4.5 Submission of Returns on employment of non-citizens at the Ministry of Labour
If a company existing in Tanzania has employed foreign employees (expats) then it is mandatorily required that the same shall submit a Return of Non-Citizen employees to the Labour Commissioner after every six months. This requirement is pursuant to be submitted every 30th June and 31st December of every year.
4.6 Submission of Tax Returns to the Tanzania Revenue Authority (TRA)
A business entity doing business in Tanzania must file Income Tax Returns within six months of every year of income. It should be noted that, Income Tax Returns can only be accepted at TRA if the entity has cleared the income tax assessed by TRA during registration for TIN. This assessed tax is required to be paid every four months of the year (quarterly).
The process of registration of a business in Tanzania, be it a company, or Sole Proprietor business (business name) is conducted via an Online Registration System (ORS). The Corporate Secretarial department at Breakthrough Attorneys has noted that in order to simplify the registration process, one must prepare all information that is required prior to activating the registration online. Initiating the process with incomplete information may prolong and complicate the registration process.
The above compliance matters (in item 4.0) are of general nature and are not exhaustive. Compliance issues differ depending on the industry or line of business the entity or one is engaged in. Further compliance issues may change pursuant to the regulations or rules passed from time to time by government institutions regulating certain matters or lines of business. In essence, an aspiring investor/businessman who wishes to start a business in Tanzania should also take note that there are other permits and licenses which are sector-specific over and above the ones mentioned hereto. Some are usually needed prior to the business licensing (as expounded in item 4.3 above) and some complementary to the business license. All in all, it is advised that a new business ought to prudently map the sector/industry it is keen to ply its trade in and understand fully, the permits and licenses that are required for all aspects of its business to operate smoothly and fully.
This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, Breakthrough Attorneys, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.