Transfer Pricing as a concept is about transferring and/or manipulation of price which leads to tax avoidance in a transaction with the aim of reduction of tax liability. The price that is involved in these sorts of transactions is referred to as “Transfer price” as it is the price charged in the transaction between related or associated entities with the aim to avoid tax. Transactions of multinationals tend to be highly scrutinized for transfer pricing as they are taken to be more likely to carry out these forms of transactions.

Transactions between associated entities are termed as “Controlled transactions” as provided for under Regulation 3 of the Tax Administration (Transfer Pricing) Regulations, 2018 and these are defined as transactions between associates e.g., entities in same corporate structure.

An example of a Transfer Pricing arrangement can be observed where a multinational corporation in a high-tax country will sell its products to its subsidiary in a low-tax country at a price that is below the market value . Hence, where the product is sold at below the market price then the profits that the multinational corporation records are much lower than they would have been had the products been sold at the fair market value. This overall reduces the taxable income that may be charged at its home country.

After the subsidiary company in the low-tax country purchases the products at a discounted price it will proceed to sell the same product at a much higher price thus maximizing the profits gained and losing little to the tax regimes in the respective country due to the lower taxes compared to the home country of the multinational corporation.

Transfer Pricing Compliance

For related/associated parties, the law as under Regulation 7 requires that  where such transactions are being carried out there must be provided an extensive Transfer Pricing documentation by the parties to the transaction.

This documentation must provide complete organizational structure of all related parties, nature of the business, descriptions of these transactions and so on. The purpose of these extensive documentations as per Regulation 7(2) is to capture and scrutinize all transactions that meet the 10-billion-shilling (and above) threshold so as to determine compliance with transfer pricing rules and the arm’s length principle.

The law, however, under Regulation 7(3)b also provides that the Commissioner General may also require the transfer pricing documentations to be provided even by controlled entities who do not meet the 10-billion-shilling threshold.

Regulation of Transfer Pricing in Tanzania

If the Tanzania Revenue Authority determines that a transfer pricing arrangement has taken place the Commissioner General has the discretion to exercise his statutory authority under the Tax Administration (Transfer Pricing) Regulations, 2018 to analyze the level of tax avoidance in order to reverse the tax benefits realized. A local example can be observed in the Court of Appeal case: ALLIANCE ONE TOBACCO TANZANIA LIMITED V. COMMISSIONER GENERAL (TRA) [CIVIL APPEAL NO. 118 OF 2018]. In this case we can observe how the TRA exercises its authority in detecting transfer pricing arrangements and proceeding to issue adjusted assessments to eliminate the tax benefits created.

Adjustment of Transfer Pricing Transactions

In the recharacterization of a price used in transactions deemed to involve transfer pricing the concept that comes about is one termed as “Arm’s Length Price”.

Regulation 3 of the Tax Administration (Transfer Pricing) Regulations, 2018 defines an arm’s length price as the price that is charged between independent persons. This basically means that the price that one entity would charge another when they are unrelated is regarded as the arm’s length price and anything considerably higher or lower is regarded as going against the arm’s length principle.

Methods of Determining the Arm’s Length Price

In the determination of whether a transaction involved an arm’s length price or not Regulation 5(1) of the Tax Administration (Transfer Pricing) Regulations, 2018 provides six (6) ways to determine the arm’s length price that is involved in a transaction among controlled entities.

1. Comparable Uncontrolled Price Method

Compares the prices of goods and services between related parties to the prices of identical goods or services between unrelated parties. For the sake of clarity pricing for related entities is referred to as uncontrolled price or pricing for related entities has referred to as controlled price. This method is applied by taking the prices of transactions which was similar between independence parties and the aim is to determine whether the transfer prices differ from the prices between unrelated prices. This is regarded as the most reliable method of determining the arm’s length price.

2. Resale Price Method

The arm’s length price is obtained by deducting the resale margin from the resale price. After deduction of gross margin and other expenses of transferring the goods or services between associated entities the transaction can be regarded as arms-length transaction of the supplied goods or services if the gross margin is similar to that of uncontrolled transactions. This is considered as a very useful approach in determining arm’s length prices for distributors.

3. Cost Plus Method

This method is used to calculate production related direct and indirect costs incurred by a supplier of goods or services in producing the goods or services. The method starts with the supplying associate and not with the buying associate. The markup is what is used to determine the arm’s length price however this method is mostly applicable to manufacturers of semi-finished goods who do not incorporate intangible assets or service providers who did not provide unique services.

4. Transactional Net Margin Method

This determines the arm’s-length price by using the net profit that was obtained following the controlled transaction. The net profit that is observed is then compared to the net profit earned from uncontrolled transactions. If a non-profit is similar in both transactions then it is taken that the control transaction used an arms-length price.

5. Profit-Split Method

This method is applied where the transactions of controlled entities are extremely integrated in a way that they cannot be extracted separately from the activities of controlled entities. What happens here is that the profits that are split between the entities are observed in comparison to independent entities following a similar business arrangement and the economic validity of the split and the apportionment is used to determine whether the profit-split was at an arm’s length.

6. Finally, the Commissioner General can also apply any other method that is deemed fit.

CONCLUSION

Business entities, therefore, must always take transfer pricing regulations into account whenever they intend to take part in considerable business transactions with associated entity/entities. Rigorous compliance with the laws and regulations will help to ensure that no unexpected tax liability will arise due to non-compliance.

Contact Person and Contributors

Comfort Mugisha Blandes- Managing Partner

blandes@cymbellattorneys.com

Harry Godfrey Mbise- Associate

hmbise@cymbellattorneys.com

Disclaimer:

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 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 partners, 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.

The post THE CONTROL OF TRANSFER PRICING IN TANZANIA appeared first on Cymbell Attorneys.

The United Republic of Tanzania has legal authority over any mining activities and minerals found on, in, or beneath Tanzanian continental soil. Some of the minerals found in Tanzania include gemstones, gold, silver and copper.

Any person with valid mineral rights may deal in minerals depending on the scope of their licence, according to the Tanzanian law.

A foreigner can get a licence and/or permit to trade and export minerals and the conditions are outlined in the later parts of this Article.

Therefore, approvals from the licensing authority, the Tanzania Mining Commission, are needed for trading and exportation of minerals. The Commissioner for Minerals, through an application for prospecting minerals, may grant the necessary licenses and permits to trade in and export minerals in Tanzania

Who Can Trade and Export Minerals in Tanzania?

As elaborated above, minerals in Tanzania can be owned or possessed by a  person with valid licences mineral licences. With regards to trade and exports of minerals however, the following licences and permits are involved:

Persons with Mining Rights

A person with mining rights such as prospecting, smelting, processing and so on is allowed to sell their acquired minerals to a licenced broker via a mineral buying station.

Licenced Brokers

A broker’s licence authorizes the licence holder to buy or acquire gold or gemstones in a designated buying station specified by the licence and sell the same minerals to a licensed dealer at a Mineral and Gem House.

A broker licence only grants the licence holder with a domestic market and does not authorize the holder to export any minerals.

Licenced Dealers

A dealer’s licence allows a licence holder to buy and sell minerals specified in their licence from a licenced Broker at a Mineral and Gem House and to persons within Tanzania or to persons outside Tanzania through exporting the minerals specified in their licence.

Gem Trade Fairs

As per Regulation 2 of the Mining (Minerals and Mineral Concentrates Trading) Regulations, 2018, a Gem Trade Fair means an exhibition or trading event, organized periodically, aimed at allowing many buyers and sellers to meet for purpose of trading gemstones and gems at a fair market price and promoting mineral trading or value addition activities of gems or other precious minerals.

Since Gem Trade Fairs are state established, the conditions for participation by mineral rights holders are two-fold depending on the level of participation.

Where a person wishes to sell minerals in a Gem Trade Fair, they must make an application for an import permit for the minerals to be traded at the Gem Trade Fair. A requirement for a permit also applies where a person wishes to export minerals acquired through a Gem Trade Fair.

This right is also granted to a non-resident with a special permit who acquires minerals from an authorised miner, licensed dealer or a Gem Trade Fair in Tanzania and exports the same after fulfilling specified legal requirements provided by the law highlighted below.

THE EXPORTATION OF MINERALS FROM TANZANIA

The law prohibits an authorised miner, licensed dealer or any other person to export minerals without having an exportation permit of minerals from an authorised officer. In this case, any mineral produced by any authorised miner or minerals purchased by a licensed dealer from either an authorised miner or licensed broker, shall not be exported from Tanzania without having an exportation permit.

The Right to Export Minerals

The Tanzanian government as the owner of minerals in Tanzania  charges royalties based on two factors: the gross value of the minerals to be exported and the type of minerals to be exported. For instance, gemstones and diamonds are charged 5% of the gross value of the consignment while the rate for gold, copper, silver, and platinum minerals is 4% and a gem is charged 1% of the gross value. All minerals within the industrial mineral, including building material and salt are chargeable at a rate of 3%.

The right to trade or export minerals has been given to the classes of people with the right to possess minerals in Tanzania.

A special export permit is granted to non-residents to export minerals from Tanzania while export permits for minerals from a gem trade fair are granted after payment of requisite fees and royalties.

A major limitation is that non-residents are not be permitted to export minerals more than twice a year. A non-resident with a tourist visa is permitted to export minerals after paying the required export permit fee for minerals not exceeding a value of USD 1,000. The application fee is USD 200 for minerals worth USD 1,000 or less. However, if the value of minerals is above USD 1000, the amount of export permit fee payable is USD 2,000 regardless of the excess of value over USD 1000.

1. Requirements for Export Permit

An authorised miner and licensed dealer must pay the applicable royalties, fees and taxes due for a particular export before they can be granted with an export permit. Therefore, a permit is issued only upon application, approval of applicant and payment of all government fees. The Permit expires once a specified Mineral consignment has left the Tanzania customs barrier.

These minerals are exported pursuant to the conditions, set out in the Act and applicable regulations, as outlined in the permit. In the case of geological samples, cores or chips, an export permit from the authorised officer.

A holder of a processing, smelting or refining licence is not permitted to export any mineral which has been processed, smelted or refined by the license holder themselves unless they have obtained from the Commissioner a permit to export the mineral which evidences the payment by the authorised miner of royalty or provisional royalty.

In the case of a holder of a processing, smelting or refining licence, they may only export minerals upon making a provisional payment, as per the provisions of the law, instead of royalties.

The exported minerals are expected to meet the conditions set out in the Act or applicable regulations and also outlined in the permit. The application fees also have to be paid in all cases.

1. Application for Export Permit

The application for an export permit of mineral by either an authorised miner, licensed dealer or holder of a processing, smelting or refining licence shall be done to the authorised officer appointed by the Commissioner for Mineral through Form MTF. 1 (Application for Permit to Export Minerals and Samples of Minerals). An application for a permit to export processed minerals shall be made in Form MBF. 1.

1. Issuance of Export Permit

A permit to export minerals and samples of minerals shall be issued only in respect of minerals and samples of minerals which have first been examined and weighed by the authorised officer and packed in a container the outer cover of which has been sealed at every opening with the seal of the Minerals Division or such other seal as the Commissioner may, in writing, may approve.

A permit to export processed minerals shall be issued only in respect of processed minerals which have first been examined and weighed by the Commissioner and packed in a container the outer cover of which has been scaled at every opening with the seal of the Minerals Division or such other seal as the Commissioner may, in writing approve.

1. Cessation of Export Permit

A permit to export minerals, samples of minerals or processed minerals shall cease to be valid if any of the seals affixed to the container are broken before export.

The time limitation for the exportation of minerals is stated on the permit Form MTF.2 titled “Export Permit for Minerals and Samples of Minerals” as under the Mining (Minerals and Mineral Concentrates Trading) Regulations, 2018.

The validity period on an export permit is prescribed on a case by case basis. Where the period for exportation lapses, the permit becomes invalid.

1. Requirement for Export Permit by Non-Resident

The Tanzanian law prohibits any mineral acquired by a non-resident either from an authorised miner, licenced dealer or gem trade fair to not being exported by a non-resident without having an exportation permit to export those minerals. The permit obtained by the non-resident to export minerals from Tanzania may be either a special export permit or an export permit.

1. Special Export Permit

This type of permit is issued to a non-resident who intends to export minerals that had been originally purchased from a licensed dealer or an authorized miner. The non-resident shall apply and pay the application fee before the Commissioner for Minerals is to issue this permit. The application for Special Export Permit shall be done through Form MTF. 13.

However, the payment of the application fee can differ in case a non-resident is in Tanzania by virtue of a tourist visa and the value of the mineral to be exported is less than USD 1,000 and the royalty for the mineral is proved to be paid.

1. A special export permit is granted to a non-resident only once a year.
2. Export Permit

This permit is only granted to a non-resident who intends to export minerals that they purchased from the gem trade fair. The Commissioner will grant this permit after receiving a request from a non-resident and receiving payment of the requisite fee. The application to the Commissioner shall be through a special Form.

Once issued, every export permit for tanzanite minerals must be accompanied by a certificate of origin issued by an officer authorised for that purpose. The custom official or any authorised officer shall have the power to confiscate any tanzanite minerals being exported without a certificate of origin.

1. Re-Export Permit of Minerals from Tanzania

Where a person had previously imported minerals into Tanzania under a valid import permit as per the old and revoked Mining (Mineral Trading) Regulations, 2010 they shall be required to apply for an export permit where they wish to re-export the minerals out of Tanzania for instance where they are unable to market the minerals.

For the exportation the Commissioner examines the import permit for those minerals and upon satisfaction that the minerals to be exported consist entirely or in part of the minerals to which the import permit refers he shall issue an export permit.

1. Surrender of Export Permit

At the point of exit from Tanzania, the holder of any permit to export minerals, samples of minerals, or processed minerals must present the original relevant permit to a government official (customs or postmaster). The original permit is then forwarded to the authorized officer by whom it was issued.

CONCLUSION

The mineral export permit is an essential document that  allows dealers and miners to export minerals out of Tanzania. It is important to note that mineral export permits are issued only once per consignment and are valid only for the period specified on a permit and the period shall be dependent on the nature of minerals and discretion of the Commissioner.

Since permits and licences are subject to the payment of prescribed fees and royalties, persons must ensure that all payments are made on time and at the amounts billed/levied by the State.

Where a person fails to pay annual rent, royalty or to make payment in lieu of royalty payable by him they shall be subjected to pay a penalty of:

• Twenty five per centum of the amount which is due, in case of an individual person
• Fifty per centum of the amount which is due, in case of a body corporate.

Failure to pay penalties and the other fees, annual rents, royalty or payments in lieu of royalty shall create a debt which shall be recovered in a court of competent jurisdiction by the Court for the State.

Where a person exceeds the scope of his licence or permit or acts without a permit or licence in dealing of minerals they are regarded to commit an offence as per Section 18 of the Mining Act of 2010. Upon conviction, such person shall be liable to:

• In the case of an individual, to a fine of not less than five million shillings but not exceeding ten million shillings or to imprisonment for a term of not less than one year but not exceeding three years or to both
• In the case of a body corporate, to a fine of not less than twenty million shillings but not exceeding fifty million shillings.

Contact Person and Contributors

Comfort Mugisha Blandes- Managing Partner

blandes@cymbellattorneys.com

Harry Godfrey Mbise- Associate

hmbise@cymbellattorneys.com

Disclaimer:

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 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 partners, 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.

The post The legal and procedural requirement for establishing mineral trading and export operations in Tanzania appeared first on Cymbell Attorneys.

On the 24th of January 2023, the Ministry of Community Development, Gender, Women and Special Groups (MOHCDGEC) issued a notice to the public on the dissolution of 4,898 Non-Governmental Organizations (NGO’s) pursuant to Section 7(1)(e) of the Non-Governmental Organization Act CAP 56 of the laws of Tanzania.

Out of those, 4,879 NGO have been dissolved for non-compliance with the requirements of the laws and regulations. The remaining 19 NGO’s have ceased their activities in the country voluntarily.

It is very important to comply with the set requirements of the laws and regulations for smooth operations of NGO’s. Some of these compliances in terms of Section 29 of the NGO Act include but not limited to;

1. Submission of annual activity and audited reports after completion of each year of the NGO’s operations
2. Payment of the respective Annual fees being Tshs 50,000 or USD 100 for International NGO’s

It is important to note that penalties (Tshs 100,000/- for Local NGOs and USD 300 for International NGOs) are imposed for late submission of annual activities and audited reports. Deadlines for submission of annual returns are indicated in the guidelines for filing annual returns.

For further guidance and advise reach out to us at law@cymbellattorneys.com or www.cymbellattorneys.com

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1. INTRODUCTION

Occupational health and safety are related with economic activities undertaken in the country. As the economic activities grow and expand, occupational injuries and diseases are more likely to increase among workers in different sectors of economy such as agriculture, mining, transport, and manufacture. The ILO Convention No. 161 on Occupational Health Services, the World Health Organization (WHO) Global Strategy on Occupational Health for All, and the WHO Global Plan of Action for Workers’ Health, 2008-2017, call for the organization of occupational health services to all working people of the world.

In Tanzania there are various laws, rules, and regulations on occupational health and safety formulated and implemented under different ministries, departments, and agencies. Although there are various legislations in this area, issues relating to occupational health and safety are mainly governed by the Occupational Health and Safety Act, 2003 (The Act) and the Employment and Labour Relations Act 2004, and Occupational Safety and Health Authority, which is mandated by the law to ensure compliance of Occupational Health and Safety is the Act.

The Act contains provisions seeking to protect the health and welfare of workers and improve working environment. The Act also requires the employers to provide the employees with protective equipment, by clearly stating that “Where in any factory or workplace, workers are employed in any process involving exposure to any injurious or offensive substance or environment, effective protective equipment shall be provided and maintained by employer for the use of the persons employed including supply of drinking water, washing facilities, first aid facilities, protective equipment and medical Examination.

1. Duties of employees imposed under the law

The duty to ensure occupational health and safety is not on the employers only. The act imposes duties and obligations upon employees to ensure their safety. The Act requires the employees to take reasonable care for the health and safety of themselves and any other persons who may be affected by their actions or omissions at work. They also have a duty to cooperate with the employer to enable the duty or requirement imposed by the employer to be performed or complied with.

They have a duty to carry out any lawful order given to them and to obey the health and safety rules and procedures laid down by employer or an authorized person in the interest of health and safety. To report to their employers or health and safety representative any unsafe or unhealthy situation coming to their attention. To report to their employers or health and safety representative any incident or accident which may cause injury to their health as soon as practicable (not later than the end of a shift unless circumstances prevent so).

1. Compliance Issues under the Act.

Generally, the act requires employers to be compliant with the following issues to ensure occupational health and safety to employees. The following are the duties imposed to employers.

1. To register the factory/workplace/business with the Occupational Health and Safety Authority.
2. To conduct regular medical examinations of employees in accordance With the Act;
3. To choose health and safety representatives in a workplace with four or more workers.
4. To formulate the Occupational Health and Safety policy.
5. To conduct Occupational Health and Safety Baseline risk assessment.
6. To ensure the workplace has an active safety and Health committee.
7. To ensure that the workplace has been inspected by the authority on Occupational Health and Safety matters.
8. To ensure the workplace has a trained first aid personnel; and
9. To ensure that medical examinations (fitness to work) for employees have been conducted by the Authority.

Employers must make sure that the workplace is safe and healthy and must not allow any worker to do work that is potentially dangerous. The employer shall have the duty to ensure that factories or workplaces are provided and maintained in an accessible position, and there is a supply of fire extinguishing equipment which shall be adequate and suitable having regard to the fire risk involved.

They must inform workers of any possible dangers in the workplace. They must give necessary training to workers who use dangerous machines and materials, to make sure they know the safety precautions. They must reduce any dangers to a minimum before issuing protective clothing. They must issue protective clothing where necessary. They must prevent workers from using or working with dangerous materials or machines unless all safety rules have been followed. They must ensure that dangerous machines are in good working order and are safe to work with. They must make sure that dangerous machinery carries warnings and notices. They must make sure that somebody who knows the work is supervising the operations to ensure the safety of workers. They must keep the workplace open so that workers can escape from danger if necessary.

The employer is required to report any incident or accident which has occurred at a place of work and has resulted in death, body injury, and loss of conscious, occupational illness or has permanently incapacitated a worker, within twenty-four hours from the time the incident has occurred. Within seven days from the day the incident was reported the employer is required to send a duly completed prescribed form containing information on the incident.

1. Punishment for non-compliance Act by employer or employee

The act imposes punishments for non-compliance to both the employees and employers, where such a contravention has been occasioned by an employer and as a result an employee is killed or suffers serious body injury the employer may be liable to a fine of not less than 10 million or to imprisonment for a term not exceeding two years or both imprisonment and fine. The Court may in addition to a fine or instead of imposing a fine may also order the cause of contravention to be remedied.

If an employee contravenes the provisions of this law relating to health and safety, they will be liable for penalty or imprisonment or both penalty and imprisonment depending on the offence.

1. Conclusion

Employers must make sure that occupational health and safety regulation and policy are being complied with effectively at their workplaces by arranging regular intensively inspections and supervision within their organizations. This supervision will effectively ensure the safety of the workers in their working environment; and must done regularly. By doing this, unnecessary penalties and punishments shall be avoided by employers.

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.

The post Occupation Health and Safety in Tanzania appeared first on Cymbell Attorneys.

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.

The post Tech Investment Incentives in Zanzibar appeared first on Cymbell Attorneys.

Salient features of the amendment:

1. Definition

The amendments have amended the defining regulation by deleting the definition of the following terms and substituting them for the following;

1. Mining Activities

Mining activities include provision of goods and services for purposes of mining operations. The Amendments now define mining activities as any activity engaged in within and outside Tanzania related to the exploration for, development and production of minerals, the acquisition of data, mining and extraction or mining of minerals, storage, transportation and decommissioning and the planning, design, construction, installation, operation, provision of goods, services and use of any facility for the purpose of the mining operations.

1. Contractor

The amendments define a contractor as a person who has entered into a contract with a licensee within or outside the United Republic for provision of goods and services in mining operations. Previously, a person became a contractor upon acquiring a mining agreement with the United Republic to undertake mining exploration and production activities under the Mining Act.

With these amendments, the subjects to which the Regulations apply is widened, such that, all persons who are contractually obliged to provide services or goods to the mining sector are required to comply with the Regulations as contractors. Thus, service providers such as law firms, telecom companies, financial institutions, and caterers are now required to comply with reporting requirements under the Regulations, including submission of local content plans and performance reports to the Mining Commission.

1. Subcontractor

The term ‘subcontractor’ is amended, to the extent that, a subcontractor is a third party to whom a corporation or contractor has entered into a contract for provision of goods and services for mining operations. Before these amendments, a subcontractor ought to have a mining contract with a corporation or contractor for provision of services for mining operations.

2. Procurement of Goods and Service for mining operations

The amendments have introduced the conditions where a proposed contract for goods and services for mining operation shall be deemed to be sole sourced. The conditions are where:

1. a contractor, subcontractor, licensee or other allied entity has issued an advertisement relating to expression of interest for the provision of the particular goods or services and is only able to obtain one particular tenderer who is suitable for the provision of the goods and services; or

1. there is an urgent need for the goods and services and engaging in tendering proceedings would therefore be impractical, where the circumstances that gave rise to the urgency were neither foreseeable by a contractor, sub-contractor, licensee, other allied entity nor the result of dilatory conduct on its party.

The conditions have been put in place to encourage the competitive bidding procedures in procuring goods and service providers to the mining operations.

3. Submission of Annual and Quarterly Local Content Performance Reports

The amendments now require submission of annual local content performance reports to the Mining Commission within sixty days of the beginning of each year after commencement of mining activities.  To make the process easy, the Fourth Schedule to the Regulations, provides for the format of the annual and quarterly performance reports. Failure to submit any quarterly or annual performance report within the required time is punishable by payment of a fine of Tanzanian Shillings Ten Million (TZS 10,000,000/-). Furthermore, failure to effect payment or continuous non-submission of the report leads to prohibition of bidding on provision of goods and services until the requirement for submission of the reports is complied with.

4. Penalty to the Contractor, Subcontractor, Licensee or Other Allied entity.

The amendments still requires the contractors, subcontractors, licensees or other allied entities to carry out mining activities by adhering to the local content requirement, submission of local content plan and inform the Mining Commission of each proposed contract or purchase order. Failure to satisfy the content requirement of a local content plan; and failure to inform the Mining Commission of each proposed contract or purchase order shall lead to cancellation of a contract in respect of mining activities and payment of administrative penalty of five percent of the value of the proceeds obtained from the mining activity in respect of which the breach is committed or Tanzanian Shillings Fifty Million (TZS 50,000,000/-) whichever is greater. The amendment has reduced the penalty which initially was USD 5 Million.

Conclusion

Tanzania local economy depends on effective integration and involvement of local stakeholders. The Amendments are aimed at putting this phenomenon into reality. We call upon every stakeholder to participate fully and comply with the requirements of the law to avoid unwanted liabilities.

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.

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