1. Overview
In most cases, incentives apply equally to domestic and foreign investors except for an entry amount of capital for investment which is US$ 100,000 and 300,000 respectively for registration with the Investment Promotion Agency.
The major goals of incentives are: to attract investors into productive areas of the economy for the purposes of improving economic growth; create employment opportunities and export enhancement.
The investment legislation, the Tanzania Investment Act, 1997 is aimed at creating a sound regulatory framework for investment promotion and the administration of incentives. Tax incentives are provided in tax legislations.
The Tanzania Investment Center (TIC) is responsible for the administration of the investment legislation.
Both tax and non-tax incentives are gauged against those in neighbouring countries to gain competitiveness.
The investment regime has been divided into two main areas namely lead sector and priority sector.
There are also arrangements for transfer of technology, and investment protection guarantees.
2. Investment Policy
The objectives of the Policy are:
a) Maximum mobilization and utilization of domestic capacity including cooperation with other developing as well as industrialized countries;
b) Maximum promotion of exports of goods and services to enhance the development of a dynamic and competitive export sector;
c) The encouragement of inflows of the external resources to complement national efforts;
d) Encouragement and facilitation of the adoption of new technologies in activities that especially have direct bearing on productivity, quality and increased competitiveness;
e) Enhancement of transparent framework that facilitate the promotion and protection of all investments deregulation of the investment approval process;
f) Redefine the role of the private sector and put it into a more central role;
g) Create a balance between administrative controls and market force as a means of allocating resources;
h) Re-emphasis political pluralism to enhance democracy; and
i) Re-dedicates the nation's adherence of rule of law.
3. General Incentives
The incentives are mainly classified into Lead Sector and Priority Sector.Lead sectors include agriculture, agro-based industries, mining, tourism, petroleum and gas and economic infrastructure.
Agriculture: All tax items - Import duty is zero and VAT is exempted or deferred Corporation tax is 30% (standard rate); Capital allowance is 100%; withholding tax on interest on foreign sourced loan is 0%; withholding tax on dividends is 10% and losses carried forward for 5 years.
Mineral sector: All tax items - Import duty is zero and VAT is relieved up to the first anniversary of the mine; Corporation tax is 30% (standard rate); Capital allowance is 100% and residential and non-residential withholding tax on technical services is 3%.
Other applicable tax and levies on mineral sector
- Royalty 3% except for diamonds, which is 5%
- No tax, duty, fee or other fiscal impost on dividends
- No capital gain tax
- Losses carried forward for unrestricted period.
- Duty rate of 5% and VAT will be charged after the first five years of commercial production
- Yearly appreciation of unrecovered capital in investment
- Importation by or supply to a registered licensed exploration, prospecting, mineral assaying, drilling or mining company, of goods which if imported will be eligible from relief from duty under customs law, and service for exclusive use in exploration, prospecting, drilling or mining activities.
Economic Infrastructure
All tax items - Import duty is zero and VAT is deferred (not paid); Corporation tax is 30% (standard rate); Capital allowance is 100%; withholding tax on interest on foreign sourced loan is 0%; withholding tax on dividends is 10% and losses carried forward for 5 years.
Other incentives as applicable in mining sector;
Provision of Strategic Investors Status with incentives beyond those provided to normal investors.
Tourism
All tax items - Import duty is zero and VAT is deferred (not paid); Corporation tax is 30% (standard rate); Capital allowance is 100; withholding tax on interest on foreign sourced loan is 0%; withholding tax on dividends is 10% and losses carried forward for 5 years.
Petroleum and gas· Tax exemption of equipment and material used for exploration;
- Negotiated levels of cost oil or gas split after the discovery of oil or gas for the purposes of recovering costs for exploration, development and production;
- Negotiated levels of profit from oil or gas operations split;
- For the oil marketing companies operating in downstream, the incentives being granted are those provided by Tanzania Investment Centre (TIC) they follow the standard regime;
- Importation by or supply to a registered licensed exploration, prospecting, mineral assaying, drilling or mining company, of goods which if imported will be eligible from relief from duty under customs law, and service for exclusive use in exploration, prospecting, drilling or mining activities
Priority Sectors
Priority sectors include manufacturing, natural resources such as fishing and forestry, aviation, commercial building, financial services, transport, broadcasting, human resource development and export oriented projects.
Holders of Certificate of Incentives
All tax items - Import duty on capital goods is zero and VAT is deferred; except for one utility administrative vehicle, VAT is 20%; Corporation tax is 30% (standard rate); Capital allowance is 100; withholding tax on dividends is 10% and losses carried forward for 5 years.
Transfer of capital
Regulations permit unconditional transferability (of net profits, repayment of foreign loans, royalties, fees, charges in respect to foreign technology, remittance of proceeds and payment of emoluments and other benefits to foreign employees working in Tanzania) through any authorized bank in freely convertible currency.
Transfer of Technology
There are no restrictions in enterprises entering into technology transfers. But every agreement for transfer of technology must be registered with the Tanzania Investment Centre as soon as concluded.
4. Free Trade Zones
A: The Zanzibar Free Economic Zones Authority (ZAFREZA) or Export Processing Zone ( EPZ)
ZAFREZA was established basically to promote investments and economic growth, with suitable guarantees following the liberalisation of the economy. ZAFREZA is export oriented and therefore, invites and gives preference to manufacturing projects producing mainly for export. To facilitate the promotion of investments through EPZ, various incentives have been put in place including the following:
(i) 10 years Corporate Tax holiday followed by a reduced corporation tax rate of 25% for 5 years and thereafter 50%.
(ii) No customs duty and other taxes charged on imports of machinery, equipment, spare parts, raw materials and other supplies necessarily required for the projects established
(iii) Exemption from local taxes on goods and services purchased from domestic territory for use in the EPZ.
(iv) Withholding tax exemptions for the initial period of 10 years.
(v) Exemption from income tax for the initial period of 10 years on dividends, interest on shareholders, loans or any other type of income received by the investors.
(vi) Personal effects of eligible directors and expatriates are exempt from import duties within a period of six months from their first arrival in Zanzibar.
B: Zanzibar Free Port Authority (ZFPA)
The main objective of establishing the ZFPA is to diversify the Zanzibar economy and hasten the development of the isles. In order to meet the main objectives, the following incentive are offered:
(a) A licensee shall be exempted from payment of import duty and excise duty on imports into the freeport.
(b) Sales Tax/VAT Act and the Excise Duty Ordinance do not apply to any goods produced or procured in a Freeport zone unless such goods are entered for local consumption in the customs territory.
(c) A company operating in the free port is exempted from payment of corporate tax for 20 years.
C: Mainland Export Processing Zones (EPZs)
In Tanzania Mainland, the following incentives are offered to investors in the Export Processing Zones.
1. An investor in the Export Processing Zones (EPZs) is entitled to the following incentives:-
(i) Exemption from foreign exchange control or restrictions on operations carried on in an EPZs;
(ii) Exemption from payment of corporate tax for an initial period of ten years and thereafter a corporate tax is chargeable at the rate of not more than twenty five percent;
(iii) Exemption from payment of withholding tax on dividends and interest for the first ten years;
(iv) Remission of customs duty, Value Added Tax and any other tax payable in respect of goods purchased for use as raw materials, equipment, machinery including all goods and services delivery related to the manufacturing in EPZs but does not include motor vehicles, spare parts and consumables.
(v) Exemption from payment of all taxes and levies imposed by local government authorities for goods and services produced or purchased in EPZs.
(vi) Exemption from pre-shipment inspection requirements;
(vii) Accessibility to high quality infrastructure;
(viii) On site customs inspection of goods in lieu of off-part inspection;
(ix) Provision of temporary visas at the point of entry to key technical, management, training staff for a period of thirty days.
2. The agent may, subject to such condition relating the grant of investment incentives, recommended to the Minister, variations, additions, and alterations or general amendments to the type of investment incentives to grant to the persons who are doing business in the Export Processing.
3. The investor is allowed to sell up to thirty percent of total production of goods produced in the EPZs in to the customs territory;
4. The agent may, depending on the nature of the industry or goods and market circumstances, authorize an investor to sell in the customs territory the amount exceeding that prescribed in 3 above;
5. The government provides work permits for management and technical staff for skills that are not locally available, the number is determined by the Agent after consultation with the Ministry responsible for Labour;
6. Subject to 5 above the Agent can make recommendations to the government with a view to exempt from payment of training levy, an investor who has trained local employees, about fifty percent of the said training levy.
7. The agent may enter into a contractual agreement with an investor on the grant of such investment incentives and the conduct of business within the EPZ.
5. Export Incentives
Incentives offered to enhance production for export include:
- Duty Draw back scheme i.e. refund of import duty paid on inputs used to produce exported goods.
- Export Promotion Zones
6. Financial Assistance
A foreign investor may, in relation to the business enterprise he operates, obtain a credit from domestic bank and financial institutions up to the limit established by the bank of Tanzania in consultation with the Tanzania Investment Center. The whole of the income tax is remitted in respect of
7. Regional Incentives
The 20 years period incentive package that continues up to June 30th 2008 was designed to institute appropiate fiscal and other economic measures for attraction an benefit of investors in the Dodoma Capital Development Area. This package includes:
Remission Of Custom Duties:
The whole of the custom duties is remitted in respect of ;
1) Specified products imported or locally produced, by or on behalf of the Capital Supply Company.
2) Product imported or purchased locally by any company or other corporate body fifty percent or more of whose share capital is held by the Capital Development Authority is remitted.
Remission Of Income Taxes.The whole of the income tax is remitted in respect of:
1) A specified industry whose annual turnover is not less than five million shillings for the first five years, and for the remaining part of the period, only fifty percent of the income tax payable is remitted.
2) Any company or corporate body fifty percent or more of whose share capital is held by the Capital Development Authority for the first ten years, and for the remaining part of the period, only fifty percent of the income tax payable is remitted.
3) Any company or corporate body less than fifty percent of whose share capital is held by the Capital Development Authority for the first five years, and for the remaining part of the period, only fifty percent of the income tax payable is remitted.
Remission Of Sales Tax/Vat
The whole of the Sale tax /VAT is remitted in respect of:
1) All specified products imported or purchased locally by or on behalf of the Capital Supplies Company.
2) Any specified product imported or purchased locally, by any company or corporate body fifty percent or more of whose share capital is held by the Capital Development Authority for the first ten years, and only fifty percent of the sales tax payable/VAT is remitted for the remeining period.
Other Incentives.
1) Fifty percent remittance of the charges payable in respect of the electric power and or water consumed is granted to every specified industry established in the Dodoma Capital Development Areas.
2) The Minister for Finance may, after consultation with appropriate persons involved in the banking sector, and with the prior consent of the President, may facilitate the availability to investors in Dodoma of more favourable loan terms from all or any of the banks in the United Republic.
3) Within the initial period of five years, all the income tax payable in respect of income derived from the rental of buildings as residential housed, hotels, business premises, stores, godowns, warehouses and garages is remitted; upon the expiration of five years, fifty percent of the income tax payable on such income shall be remitted.
8. Industrial Financing
There is no specific financing schemes for industrial development; how ever an investor can apply for a loan like any other investor from domestic banks and fiancial institutions.
9. Development Programmes And Incentives For Specific Industries
There are no specific programmes and incentives for specific industries apart from the classification according to Tanzania’s Investment priorities in the areas of Lead and Priority sectors.
10. Tax
10.1. Rates
Tax rates are fixed and altered by Parliament for all types of taxes; and there is no discretional power invested to any person or institution to change them.
10.2. Deferral Period
Deferral period is six months (for self assessments) after the submission of return of income received or accrued; one for month for other assessments. In case of provisional tax instalments, the taxpayer is supposed to pay immediately upon submission of return.
10.3. Tax Holiday
Currently there are no tax holidays in Tanzania.
10.4. Depreciation
Wear and Tear: This is a capital deduction granted (on reducing balance basis) to a person who owns machinery and uses that machinery for the purpose of his business. The machineries are classified into three categories for wear and tear deductions depending on the type of machinery as follows:
Class I: Heavy self-propelled machinery 37.5% p.a
Class II: Light self-propelled machinery including aircraft 25% p.a
Class III: Non self-propelled machinery including ship 12.5% p.a.
10.5. Other