As Tanzania’s government rolls out measures to halt spread of the coronavirus disease (Covid-19) pandemic, multinational companies (MNCs) and international organisations (IOs) with operations in the country are also reviewing their processes for employee mobility, also known as global mobility.
Significant expansion of Covid-19 across borders prompted the public and private sectors in Tanzania, represented respectively by the Ministry for Health and TPSF, to hold discussions on urgent measures to fight coronavirus’s effects on business and industry.
For MNCs and IOs operating in Tanzania, the heightened likelihood for global mobility heralds a myriad of unanticipated tax risks. To understand and address these risks, MNCs and IOs need to monitor and review the Tanzania government’s response to the Covid-19 pandemic with respect to statutory and regulatory compliance matters related to various sectors of the economy.
The government is yet to announce any changes in current tax practices to adapt to the new, but impermanent, coronavirus situation. In neighbouring Kenya, however, President Uhuru Kenyatta announced tax reliefs to ease the economic impact of the deadly virus (Wafula, P. “Uhuru offers tax breaks to cushion Kenyans, traders”. Daily Nation. March 26, 2020). Until Tanzania takes note of what Kenya has done, MNCs, IOs and employees should continue with the usual tax obligations so as to eschew potential penalties.
U.S. citizens have a duty to report and pay tax on worldwide income, regardless of whether the employer is located in Tanzania or that the U.S. citizen was paid in Tanzania Shillings U.S. citizens in Tanzania still have to report their income to the Internal Revenue Service (IRA) which administers and enforces U.S. federal tax laws. Therefore, for those U.S. citizens who may have Tanzania and U.S. tax return filings, normal compliance obligations should be presumed for Tanzania where, unlike in the U.S., no tax filing extensions have been announced.
Nevertheless, Tanzania’s Finance and Economic Planning Minister Dr. Philip Mpango will likely address the economic impact of Covid-19 in forthcoming 2020/21 National Budget by proposing measures designed to assist business survival and to spur the economy in the wake of the global outbreak of Covid-19. Such proposals would help small and medium-sized companies engaging in domestic or global business.
Many MNCs, IOs and other businesses operating in Tanzania are granting or have granted flexible work arrangements that give employees freedom over when and where they fulfil their job responsibilities. This amplified flexibility can add to the complexity of tax risk management amid Covid-19 downturn.
Under section 66(4)(b) of the Tanzanian Income Tax Act, Cap 332 (‘the ITA’), “[a] corporation is a resident corporation for a year of income if at any time during the year of income the management and control of the affairs of the corporation are exercised in the United Republic”. Consequently, if employees perform their job responsibilities from Tanzania where a company is not “incorporated or formed” as contemplated under section 66(4)(a) of the ITA), the company is at risk of creating an unintended taxable presence in Tanzania.
In light of this, MNCs and other investors should review whether their international assignees, or expatriates, sent to work in Tanzania are creating corporate income tax (CIT) risks and, if that be the case, develop practical strategies for minimising the CIT risks. This is even more critical because Tanzania has a small tax treaty network which may imply less generous relief, compared to countries with big treaty networks.
Aside from triggering CIT risks, relocating foreign employees to Tanzania may precipitate personal income tax (PIT) risks. Expatriate employees or secondees need to make sense of the tax ramifications of their presence in Tanzania and, depending on their home countries, structure the employment or secondment to mitigate potential double taxation under a relevant double taxation agreement.
In efforts to manage global tax compliance and deal with tax risks, MNCs, IOs and other employers need to understand the payroll tax obligations for their Tanzania-bound expatriate employees. Employers may also be required to contribute 10 percent of the cash emoluments to the National Social Security Fund (NSSF); an additional 5 percent is contributed by the employee.
Since impact of these liabilities will likely be high in the Covid-19 landscape, there is a need to understand and to effectively manage the tax implications of employee mobility for the foreseeable future. Tax lawyers who know the importance of transferring employees internationally can play a critical role to play in helping in-house HR and tax teams to identify and deal with tax risks as MNCs and IOs optimise global operations.
Paul Kibuuka (firstname.lastname@example.org), a tax and corporate lawyer and tax policy analyst, is the chief executive of Isidora & Company and the executive director of the Taxation and Development Research Bureau.