March 28, 2022

COMPANY LAW UPDATE: WHAT YOU SHOULD KNOW ABOUT BENEFICIAL OWNERSHIP IN TANZANIA.

Brief history of Beneficial Ownership in Tanzania
Laws governing Beneficial Ownership in Tanzania
Who are the real owners of a Company?
Who is a Beneficial Owner?
Who is a Politically Exposed Person?
Reporting of Beneficial Owners’ Information.
Purpose of Beneficial Ownership Reporting

1.0 Introduction

As part of the efforts to developing Tanzania in business and investment, but also as a means of prevention and detection of corruption and money laundering, the Government of the United Republic of Tanzania has adopted the concept of Beneficial Ownership as a mechanism to deal with among other things the issues forementioned. One of the mechanisms so adopted to curb and keep tag on the forementioned matters is imposing a Beneficial Ownership reporting. Beneficial Ownership Reporting is meant to reveal the persons termed as beneficial owners behind companies registered in the United Republic of Tanzania.

Our Corporate Commercial Department at Breakthrough Attorneys has prepared this Article as a continuation of the previous article on Beneficial Ownership published on 18^th January 2022. Extension of time for Registration of Company’s Beneficial Owners Information.

This Article elaborates the details regarding the Beneficial Ownership concept which include its history, the governing laws, the purview on who is the beneficial owner, and the purpose of imposition of the concept in Tanzania.

2.0 Brief History of Beneficial Ownership in Tanzania

The concept of Beneficial Ownership may be a known topic worldwide but has been found to be a new concept or rather confusing matter in Tanzania. However, it should be noted that there are various initiatives and events that shaped the way to its existence and even so evident this recently as experienced by persons in the trading and investment Industry.

Going back to 2014, Tanzania was part of a pilot scheme by the Extractive Industries Transparency Initiaves (EITI), as one of its member countries. The purpose for theEITI was to assess the feasibility of requiring the Beneficial Ownership information from companies in the Industry of Extractive Resources. The EITI is an Initiative that implements global standards to promote the open and accountable management of Extractive Resources i.e., oil, gas and minerals. Again in March 2015, Tanzania participated in a seminar on beneficial ownership by EITI in UK to review the experience and lessons learnt from the Pilot Scheme countries that started to disclose the beneficial owner (B.O.) information. The session among other things addressed issues of who the real owners of companies are as well as the lifting of the corporate veil.

In May 2015, a workshop by the National Resource Governance Institution (NRGI) and Global Witness was held in Dar es Salaam which focused on how to go about the reporting and disclosure of the (B.O.) information. The Workshop dealt with matters pertaining to drafting templates, defining a beneficial owner, and setting thresholds of ownership. Thereafter, in July 2015, Tanzania enacted the Extractive Industries Transparency and Accountability Act No. 23 of 2015 that requires all extractive companies, i.e., companies in the oil, gas, and mining industry to disclose names of shareholders. This is governed by section 26(1)(b) of the Act followed by the Tanzania Extractive Industries Transparency Regulations, 2019 which provided for further legislative basis for Beneficial Owners’ disclosure in extractive companies.

Further, in May 2016 at the Anti-Corruption Summit in London, Hon. Kassim Majaliwa, the Prime Minister ensured implementation of the disclosure of the B.O. information of the extractive companies. He also declared that there will be established a center registry for the beneficial ownership of all extractive companies in Tanzania.

Lastly, in the year 2020, the government of the United Republic of Tanzania through the Finance Act, 2020 amended several laws to add the Beneficial Ownership rules, including beneficial owners’ definition and reporting.

3.0 Laws governing Beneficial Ownership in Tanzania

Beneficial Ownership in Tanzania is governed by a number of laws which have been enacted to facilitate the reporting of the B.O. information. The following are the Acts in play up to date;

The Extractive Industries (Transparency and Accountability) Act, No. 23 of 2015 (TEITA)
This Act was enacted to govern transparency and disclosure requirements including among others, revenue disclosure, contract engagements, and also beneficial owners’ disclosure. TheTEITA Act imposes an obligation on Companies in Extractive Industry to publish information, including but not limited to, names of individuals who own interests in the extractive industry companies. (see section 16(1)(b) of the Act).
The Companies (Beneficial Ownership) Regulations, 2021
Made under section 483(2) of the Companies Act, 2002; these regulations were made to regulate the information that is required and the manner in which such reported should be made. The regulations also provide for the governance of the register of the B.O as well as the consequences of non-compliance.
The Finance Act, 2020
This Act applies to beneficial ownership as it entails amendments of several statutes to reflect the Beneficial Ownership concept such as the definition of a beneficial owner, entity, and arrangement as related to the beneficial ownership and the required information regarding the Beneficial Owner.The Laws subject to amendment concerning inclusion of Beneficial Ownership Concept are as follows;
1. The Extractive Industries (Transparency and Accountability) Act, No. 23 of 2015 (TEITA)
  This Act was enacted to govern transparency and disclosure requirements including among others, revenue disclosure, contract engagements, and also beneficial owners’ disclosure. TheTEITA Act imposes an obligation on Companies in Extractive Industry to publish information, including but not limited to, names of individuals who own interests in the extractive industry companies. (see section 16(1)(b) of the Act).
2. The Companies (Beneficial Ownership) Regulations, 2021
  Made under section 483(2) of the Companies Act, 2002; these regulations were made to regulate the information that is required and the manner in which such reported should be made. The regulations also provide for the governance of the register of the B.O as well as the consequences of non-compliance.
3. The Finance Act, 2020
  This Act applies to beneficial ownership as it entails amendments of several statutes to reflect the Beneficial Ownership concept such as the definition of a beneficial owner, entity, and arrangement as related to the beneficial ownership and the required information regarding the Beneficial Owner.The Laws subject to amendment concerning inclusion of Beneficial Ownership Concept are as follows;
  1. The Companies Act, 2020;(see section 14, 115, 129, 451A, 451B of the Act as amended);
    The Act was amended to include definitions of beneficial owner, arrangement and politically exposed persons; Inclusion of the particular of B.O. upon registration of Memorandum and Articles; and making and Keeping entries for information of B.O.
  2. The Anti-Money Laundering Act, (CAP 423);
    to include definitions of beneficial owner and ensuring information of beneficial owners of entities. (see section 3 of the Act as amended)
  3. The Trustees Incorporations Act (CAP 318);(see section 1, 2 and 15 of the Act as amended)
    This Act was amended to also include definitions relating to B.O. in Trusts as well as particulars needed to be reported for Trusts.
  4. The Income Tax Act [CAP 332 R.E. 2019] ;
    This Act was amended to include among others, the definition of a B.O and other matters related to the beneficial owners, such as, the extent of chargeable income, sources of income and so forth(see section 3, 69, of the Act as amended).

4.0 Who is a Beneficial Owner?

The Companies (Beneficial Ownership) Regulations, 2021 provides as explained hereinbelow, a person who is considered a beneficial owner. (see regulation 3)

Is a natural person, who directly or indirectly owns or exercises substantial control over an entity or an arrangement;
The first thing to note is that The Companies (Beneficial Ownership) Regulations, 2021 defines a B.O. as a natural person, resident, or non-resident. That the natural person can be a beneficial Owner to an entity or arrangement, directly or indirectly, as will be explained later on in this article.Also, as amended by the Finance Act, 2020; the Companies Act, 2002 provided for the definition of an arrangement, to mean the meaning ascribed to it under the Income Act [CAP 332 R.E. 2019].

It is also important to note that the Companies (Beneficial Ownership) Regulations, 2021 as well as the Companies Act, 2002 as amended; do not expressly define what an entity is, however, the Income Tax Act, defines an entity to be a Partnership, Trust or Corporation. This impliedly means that the Regulations apply to the three aforementioned entities as well in addition to a company. (see Regulation 3). The provisions are hereby reproduced for ease of reference:- (see section 3 of the Income Act [CAP 332 R.E. 2019]).

“arrangement” includes an action, agreement, course of conduct, dealing, promise, transaction, understanding or undertaking, whether express or implied, whether or not enforceable by legal proceedings and whether unilateral or involving more than one person”

“entity” means a partnership, trust or corporation;
Is a person that has a substantial economic interest in or receives a substantial economic benefit (enjoys a share of the profits) from an entity or arrangement, whether acting alone or together with other persons;
On whose behalf an arrangement is conducted; or
Exercises significant control or influence over a person or arrangement through a formal or informal agreement.
For the purpose of understanding what ‘substantial economic interest’ and ‘substantial economic benefit’ is, reference can be made to the definition of ‘substantial’ in the Oxford dictionary which is; “of a considerable important , size or worth”. The definition may be used to imply that the economic interest and benefit herein stated should be of a considerable amount.Further, in as far as Corporations and Partnerships are concerned, the current practice as set by the Business Registration and Licensing Authority (BRELA) is
1. A natural person must have interest or benefit of at least 25% of the total shares held by a person or voting rights exercised by a person in a company, and,
2. The right to appoint or remove any member of the board of directors of the company.

5.0 Who are the real owners of a Company?

One can have a stake in a company directly or indirectly;

Direct Ownership
A direct owner of a company is an individual who directly owns the shares of a company. A person who owns X% shares of a company directly owns the company.
Indirect Ownership
An indirect owner of a company is an individual who may own shares of a company through a pattern or chain of ownership that is other than direct. Example; a transaction made on the owner’s behalf, where a person X holds the shares of Company A and Company A owns shares of Company B, this chain makes person X to indirectly own or benefit from Company B.

It is quite important to note that in indirect ownership, there is a chain as well as forms or ways of business engagements that have to be unfolded till all the persons having ownership in a company have been identified.

6.0 Politically Exposed Person (PEP)

When dealing with identifying whether a person is a beneficial owner or not, it is crucial and mandatory to also determine whether a person is a PEP or not. This is provided for under the Companies Act, 2002 as amended. (see section 14 (2)(b) viii) A politically exposed person is an individual entrusted with prominent public functions including head of states or governments, judicial or military officials, senior politicians, senior government, senior executives of state-owned corporations or agencies (see section 3 of Anti-money laundering Act, [CAP 423 R.E. 2019]).

It is also important to note that the definition of a PEP under section 3 of the Anti-Money Laundering Act [CAP 423 R.E. 2019](AML Act), states that a PEP is a foreign person. However, the current and practice interpretation as established by BREL; a PEP is an individual and therefore can be a resident or a non-resident all of whom should disclose their status as so when reporting matters of beneficial ownership.

Further, Tanzania being a member state to the United Nations Convention against Corruption adopts the provisions of Article 52(1) of the Convention which obligates a member state to conduct scrutiny when assessing whether a person is a PEP. The scrutiny can not only be made on the person but also on their family members and close associates.

7.0 Reporting of Beneficial Owner’s Information

The Companies (Beneficial Ownership) Regulations, 2021 provides that every company is required to report the B.O. details of such companies by submitting to the registrar of companies particulars of such B.O in Form No. 14b of the Company (Form) (Amendments) Rules, 2021 (See regulation 14(2)(b) of the Regulations) provides for the particulars to be submitted. The provision is hereby reproduced for ease of reference;

14 (b) accurate and up to date records of beneficial owners of such company which shall include-

Full name, including any former or other name;
Date and place of birth
Telephone number
Nationality, national identity number
Passport number or other appropriate identification
Residential, postal and email address, if any;
Place of work and position held;
Nature of the interest including the details of the legal, financial, security, debenture or informal arrangement giving rise to the beneficial ownership; and
Oath or affirmation as to whether the beneficial owner is a politically exposed person or not.”

The Regulations further imposes an obligation to file/ report a change of B.O. when it so happens and the nature of the change within thirty (30) days from the date of the change. It is prescribed that the change shall be filed in a prescribed form No. 14f. If the change relates to ceasation of a person’s B.O. status then the change shall be made via Form No. 14c.

In case a person appears in the registry of members of a company but does not hold the beneficial interest to such shares, a declaration to that effect should be submitted to the Registrar of companies via a prescribed form No. 14d. Such declaration shall be submitted within thirty (30) days from the date the name was registered.

Lastly, a person who holds or acquires a beneficial interest in shares of a company not registered in his name should give a declaration disclosing such interest in prescribed form No. 14e (see regulation 4 and 5 of the Regulations)

8.0 Conclusion

The imposition of beneficial ownership reporting in Tanzania may appear to be abrupt or not contemplated. However, based on the above background, it is evident that, it has been in execution process for some years. It was crucial for the concept to be fully implemented in Tanzania to cater for several purposes which include prevention and exposure of corruption, money laundering, illict financial flows and acts of such nature. Imposition of this concept in Tanzania step shall ease conduction of due diligence to uncover persons relating to Tanzanian established businesses, their source of income and trace their business activities even where it is indirect.

Imposition of beneficial ownership concept strives in increasing of trust and accountability in the management of entities registered in Tanzania by keeping tag on matters such as tax evasion, revenue collection enhancement, and overall improvement of the Tanzanian investment climate. Breakthrough Attorneys has taken the liberty to avail this information to different stakeholders to bring to light the rationale and obligation behind the beneficial ownership concept.

Important Notice:

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.