TECH INVESTMENT INCENTIVES IN ZANZIBAR

Silicon Zanzibar is a recent initiative that has been announced in Zanzibar by the Ministry of Investment & Economic Development within the Fumba Special Economic Zone. The aim is to pull tech-based businesses, their workers, specialists, and investors. The goal is to place Zanzibar as an attractive location for the growth of an African technological hub.

Silicon Zanzibar was announced on Tuesday, August 3^rd, 2022. Companies such as Wasoko (originally headquartered in Kenya) have already relocated to Zanzibar and are currently enjoying the incentives provided under the private-public initiative. The initiative has captured global attention and is attracting more tech firms, workers and enthusiasts to the island.

To build the tech industry in Zanzibar, the following incentives have been placed forward by the Government of Zanzibar:

Direct Incentives

1. Work Visa Availability

This is a common pain point for most relocating workers as work visas and permits tend to take an inconveniently long time to process due to the bureaucratic procedures involved. The initiative is geared towards streamlining and simplifying the application and grant process in order to accelerate the ability of tech firms to quickly onboard foreign workers.

 

2. Corporate Income Tax Exemption

Exemption from payment of corporate tax for an initial period of ten years and thereafter a corporate tax, shall be charged at the rate specified in the Income Tax Act. The purpose for this is to allow investors to recoup the amounts and expenses incurred in establishing and operating the business (as stated under the Zanzibar Investment Promotion and Protection Authority Act, 2018).

 

This exemption, however, can only be applied for by an Approved Investor who invested not less than seventy five percent of the capital specified in the Business plan or Feasibility study approved by the Zanzibar Investment Promotion Authority, and has already started business operation.

 

Application is to be made in writing to the Authority for a Corporate Income Tax exemption and it is to be accompanied with;

1. Audited final accounts filed by the Zanzibar Business and Property Registration Agency;
2. Progress report of the investment made;
3. Tax Clearance Certificates from tax authorities; and
4. Valid business license.

 

3. Strategic Investment Incentives existing under Zanzibar’s Free Economic Zone Program

Since investment in tech is regarded as an innovative investment, tech firms can apply to the Zanzibar Investment Promotion Authority to be granted the status of being a Strategic Investment as provided under Section 6(c) and the Third Schedule to the Zanzibar Investment Promotion and Protection Authority Act, 2018.

 

The Incentives for Strategic Investments in Tech are as follows;

Benefits, Incentives and Allowances during Implementation of the Approved investment.

1. Exemption from all duties and taxes on importation and local purchases of construction goods and materials during the project construction;
2. Exemption of income tax on interest on capital borrowed from foreign banks;
3. Five years grace period on payment of land lease;
4. Hundred percent foreign ownership is allowed; and
5. Engagement of foreign contractors is allowed.

 

Benefits, incentives and allowance during operation of the approved investment

1. Fifty percent exemption of the prevailing rate for corporate income tax;
2. Fifty percent exemption of profit tax for repatriated profit;
3. Fifty percent exemption o for accelerated depreciation for five years;
4. Fifty percent exemption of income tax on interest on capital borrowed from foreign banks;
5. Hundred percent allowance on research and development expenditure;
6. Hundred percent retention of all profits after tax; and
7. Hundred percent foreign ownership is allowed.

Note: The Zanzibari government is likely going to modify and/or improve these incentives as the project is still receiving recommendations and comments from investors.

Indirect/Supplemental Incentives

1. Education and Training

Silicon Zanzibar is also gearing the government and investors towards the introduction of IT studies in schools and learning institutions. Wasoko, for instance, is working on developing an education curriculum to develop new technology experts.

This will help to create interns and employees that can be sourced directly from Zanzibar and thus helping to curb the global shortage of coders, programmers and tech professionals that is plaguing various countries.

 

2. Residential and Commercial Properties (Fumba Town)

Currently, residential and commercial properties are under construction in order to meet the growing demand for space in the area, offering proximity to the sea shore and the airport.

The target initial housing capacity for residents is 20,000 and this will help to give convenient, beautiful and safe housing to workers and owners of tech firms.

 

3. Private Operation of Zanzibari Fiber Optic Cable Network (to attract companies such as Facebook (Meta) and Google to invest in the same).

This is a recommendation given by the Founder and CEO of Wasoko. Zanzibar is surrounded by fiber optic cable networks. Daniel Yu suggests that privatization of the networks will help to boost connectivity and greatly facilitate the operation of tech firms in Zanzibar.

Regardless of whether this privatization takes place or not, the presence of the fiber optic cable networks around the Island is a positive sign towards eased and rapid connectivity.

 

4. Government supported infrastructure

Section 36(a)(i) of the Zanzibar Investment Promotion and Protection Authority Act provides that the Government will work towards development of integrated infrastructure facilities. This can be observed on aerial views of the Fumba Area which has seen rapid construction and setting up of various necessary and convenient infrastructure.

Expanding existing infrastructure as well as construction of new networks will greatly aid in facilitation and growth of Silicon Zanzibar.

 

Note:

Fumba Zone

Silicon Zanzibar has been established in the Fumba Zone. This zone was granted the status of an Export Processing Zone (EPZ) in 1992 and has been recognized and declared as a Free Economic Zone as provided under Section 35(1) of the Zanzibar Investment Promotion and Protection Authority Act, 2018.

It is located in the southwest coast of Unguja Island, 24 kilometers from the Seaport of Malindi and 10 kilometers from Zanzibar’s Abeid Amani Karume International Airport.

Important Notice:

This publication has been prepared for information purposes only, and it 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, Cymbell 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.