In this week’s second article of our Tanzania market entry series, we continue the discussion on some of the most important initial legal considerations that foreign businesses need to consider when entering the Tanzanian market.
Development over the past several decades has given rise to various intellectual property rights (IPRs) such as patents, trade and service marks, copyrights, designs, plant-breeders’ rights and utility models. Tanzanian law offers protection of IPRs.
Thus, when seeking to sell goods in Tanzania it is imperative for a foreign business to assess what intellectual property is key and to register the patents and trademarks that have not been registered in Tanzania subject to the eligibility criteria under the Patents Registration Act, Cap 217 (R.E. 2002) and the Zanzibar Industrial Property Act, 2008. In addition to intellectual property protection, consideration should be given to whether online trading is expected and to the appropriateness of registering a dot(.)tz domain name.
Most especially, a foreign business and its Tanzanian business partner must take sufficient steps to treat their own confidential information as confidential and to protect trade secrets, confidential information and intellectual property.
A preeminent approach for disclosing confidential information is to ensure that the non-disclosure agreement (NDA) stipulates that all non-public information that is disclosed is confidential heedless whether it is marked confidential and notwithstanding the form in which it is disclosed.
Tanzania has comparatively tight foreign exchange control regulations. Although foreign investors are ranked in priority to be issued with foreign exchange credit by financial institutions, Regulation 6(b) of the Banking and Financial Institutions (Foreign Exchange Exposure Limits) Regulations 2014 provides that no lending in foreign currency shall be made unless borrowers operating and investing in Tanzania are granted with foreign exchange credit facilities.
In a single transaction, any Tanzanian shillings or foreign currency transaction that is equivalent to $10,000 or more and any Tanzanian Shillings or foreign currency electronic funds transfer (EFT) that is equivalent to $1,000 or more triggers a reporting obligation under Regulation 5 of the Anti-Money Laundering (Electronic Funds Transfer and Cash Transactions Reporting) Regulations, 2019, requiring the relevant bank, accountant, regulator, attorney, notary or other ‘reporting person’ to report the transaction to the Financial Intelligence Unit.
Consequently, a foreign business should evaluate if the existing foreign exchange control regulations in Tanzania have any ramifications on the proposed business, trade or investment transaction or arrangement.
In relation to tax liability, depending on the structure of the transaction or arrangement, a foreign business may incur Tanzanian income tax for certain Tanzania-sourced income (such as, interest and royalties). Also, a foreign business creates a permanent establishment (PE) if carries on business in Tanzania. This includes (a) a place where the foreign business is carrying on business through a dependent agent; (b) has used or installed, or is using or installing, substantial equipment or machinery; and (c) is engaged in a construction, assembly, or installation project for six months or more, including a place where the foreign business is conducting supervisory activities in relation to such a project.
The income of the PE is taxed at the normal rate for entities of 30 per cent on net income or 5 per cent of the turnover for technical and management service providers to mining, oil and gas entities. As well, the PE is subject to tax on ‘repatriated income’ at the rate of 10 per cent.
The income tax paid in Tanzania may be eligible for foreign tax credit provided under the tax laws of the country where the foreign business is incorporated. Where the income arises in a country with which Tanzania has a double tax agreement in force, the treaty governs relief.
Furthermore, VAT will apply to all taxable goods and services supplied, or imported into, Mainland Tanzania. The standard rate of VAT is 18 per cent. VAT on imported goods is payable at the time of importation plus any customs and excise duties.
It’s important for a foreign business to understand these issues in advance. In particular, tax issues can be rather complex and the consequences vary depending on the particular transaction or arrangement.
This five-part Tanzania market entry strategies article series continues next Saturday, 27 July 2019 to its third part.
Paul Kibuuka (email@example.com) is a tax and corporate lawyer, tax policy analyst and the chief executive of Isidora & Company.