Understanding cross-border taxation is a complex, taxing, yet important necessity for any company.
If you’re responsible for assignees or business travellers in Tanzania, this blog will help you to understand what’s what and stay compliant.
What do employers in Tanzania need to know?
- The tax year runs from 1 January to 31 December.
- An individual is not required to file a tax return if the only taxable income is employment income derived from a resident employer
- There’s a five-year time limit for the Tanzanian Revenue Authorities to adjust an income tax return filed by a taxpayer. The five years runs from the due date of filing the final tax return.
- There are foreign exchange controls for processing international money transfers
Income Tax for employees
Expatriate employees on a long assignment in Tanzania need to pay up to 30% of their worldwide income in tax.
An individual is classed as a “resident” in Tanzania in any tax year if they:
- have a permanent home in Tanzania and visits Tanzania in the year or
- have no permanent home but is present in the country for either 183 days in the year or an average of 122 days per year in the relevant year and the preceding two years.
‘Short-term residents’ and non-residents
An individual is considered a short-term resident at the end of any income year if during the whole of their life they’ve been resident in Tanzania for not more than two years in total.
These categories are taxable on income from a Tanzanian source only at a rate of 15% on employment income.
Income Tax for businesses
For individuals with business turnover not exceeding 100 million Tanzanian shillings (TZS) per year, specific presumptive income tax rates apply. For business income over this threshold, refer to the table.
Where the income from investment represents a ‘final withholding payment’, the tax rate applicable is the relevant withholding tax (WHT) rate. The disposal of an investment with a Tanzanian source is subject to tax at a rate of 10% if disposed by a resident and 30% if disposed by a non-resident. The disposal by a resident of an investment with an overseas source is subject to tax at a rate of 30%.
Resident rates - Mainland Tanzania
Resident rates - Zanzibar
Corporate income tax (“CIT”)
All companies are required to pay corporate tax on profits as below:
There are two categories of Consumption tax
- Value-added tax (VAT) : The standard rate of VAT is 18%, but the export of goods and certain services is eligible for zero rating.
- Skills and development levy: The skills and development levy is a tax on the employer calculated as 4.5% of cash emoluments of employees. It is not a tax on the individual, but is a cost that needs to be borne in mind when considering the overall cost of employment of employees.
State Social Security Scheme - National Social Security Fund (NSSF)
Every employer must contribute to this at a rate of 20% of the employee’s salary/cash remuneration. This is normally split equally between employer and employee (i.e. 10% each).
Similar contribution rates apply to alternative schemes such as the Parastatal Pension Fund (PPF) scheme. In the PPF scheme, the contribution by employer and employee is 15% and 5% respectively.
Companies should also be aware of the Workers compensation fund tariff which is charged at 1% or 0.5% of cash sums paid to employees.
Income from employment includes cash emoluments and the value of benefits in kind (generally the market value). There are special rules for taxing the provision of residential accommodation, motor vehicles, and preferential loans, as set out below.
Housing benefit is the lower of:
- Market value rental of the premises and the higher of the following:
- 15% of the employee’s total annual income (excluding housing benefit) and
- the expenditure claimed as a deduction by the employer in respect of the premises.
- No benefit is assessable in respect of the car where the employer does not claim a deduction in respect of the ownership, maintenance, or operation of the vehicle.
Foreign tax relief
- A tax credit is available to a resident individual for any income tax paid in another country in respect of income sourced from that other country. Such credit cannot exceed the Tanzanian tax rate applicable to that income. Any unrelieved amount of foreign tax credit can be carried forward. An election can also be made to claim relief as an expense instead of as a credit.
- Where the income arises in a country with which a double tax treaty (DTT) is in force, the treaty governs relief.
- Double taxation treaties are in force with Canada, Denmark, Finland, India, Italy, Norway, South Africa, Sweden, and Zambia. An East African DTT has been signed but not yet ratified.
The statutory interest rate is determined by the prevailing rate as provided by the central bank. This is the rate to consider in assessing any taxable benefit in relation to preferential loans.
NES and Tanzania
Getting your head around tax obligations in Tanzania can be challenging. If you’re a company looking to invest or mobilise your workforce in the region, our dedicated Global Mobility professionals can offer consultancy, policy reviews and benchmarking, compliance audits, vendor management and more to alleviate the mobility burden. If you need support, get in touch with our experts today.
Looking for more information about doing business in Africa? Listen to our podcast epsiode on 'Managing a Flexible Workforce in Africa'.