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Details

  • Service: Tax, Global Indirect Tax
  • Type: Regulatory update
  • Date: 11/1/2012

Tanzania: VAT essentials 

Essential information regarding VAT as it applies in Tanzania.


Scope and Rates

What supplies are liable to VAT?


Value-added tax (VAT) is due on every taxable supply by a registered person. A supply includes any supply of goods or services in the course or furtherance of a taxable activity. A supply of goods or services includes the leasing or letting of goods on hire; the appropriation of goods for personal use of consumption by the taxable person or by any other person; barter trade and exchange of goods. Supply does not include anything done other than for a consideration.


What is the standard rate of VAT?


The standard rate of VAT is 18 percent.


Are there any reduced rates, zero rates, or exemptions?


Yes. There is an extensive list of zero-rated supplies, including:


  • export of goods
  • supply of goods, including food and beverages, for consumption or duty free sale on aircraft or ships on journeys to destination outside the United Republic of Tanzania
  • supply which comprise of the transport of or any service ancillary to transport of or loading, unloading, wharfage, shore-handling, storage, warehousing and handling, supplied in connection with goods in transit through the United Republic of Tanzania, whether such services are supplied directly or through an agent to a person who is not a resident of the United Republic of Tanzania
  • supply of services which comprise the handling, parking, pilotage, salvage or towage of any foreign going ship or aircraft while in Tanzania Mainland
  • supply of services which comprise the repair, maintenance, insuring, broking or management of any foreign going ship or aircraft
  • supply of agricultural produce intended for export by cooperative unions and community based societies registered with the Tanzania Revenue Authority
  • supply by a local manufacturer of tractors for agricultural use, planters, harrows, combine harvesters, fertilizer distributors, liquid or powder sprayers for agriculture, spades, shovels, mattocks, picks toes, forks and rakes, axes and other tools of a kind used in agriculture, horticulture or forestry
  • supply by a local manufacturer of fertilizers, pesticides insecticides, fungicides, rodenticides, herbicides, anti-sprouting products, and plant growth regulators and similar products which are necessary for use in agricultural purposes
  • supply of medical and paramedical services.

The list of exempt supplies includes:


  • supply of medical and paramedical services
  • food, crops and livestock supplies
  • pesticides, fertilizers
  • health supplies
  • educational supplies
  • veterinary supplies
  • books and newspaper
  • transport services
  • housing and land
  • finance and insurance services
  • water
  • funeral services
  • petroleum products
  • agricultural implements
  • tourist services
  • postal supplies
  • aircraft
  • fishing gears
  • games of chance
  • computers
  • wind generator and liquid elevators,
  • photovoltaic and solar thermal
  • fire fighting equipment
  • burning jelly
  • natural gas
  • agricultural services
  • dairy, dairy products and equipment
  • services related to mobile phones
  • livestock farming
  • packaging material

Note: it is not possible to recover input VAT incurred to purchase supplies used in the course of making exempt supplies.


It is also worth noting that the Finance Bill of 2012/2013 has Introduced Value Added Tax rate of 10 percent for selected persons, including private companies, individuals and holders of Certificates of Incentives issued by the Tanzania Investment Centre (TIC), except those who are enjoying exemptions under already existing agreements. Furthermore, it will affect non governmental organizations except those which are providing donations such as food supplies and medicaments to children and orphanage care centers and schools.


What are the other local indirect taxes beside VAT?


Import duty, excise duty, stamp duty, and levies such as Service Levy and the Energy & Water Utilities Regulatory Authority (EWURA) Levy.

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Registration

Who is required to register for Tanzanian VAT?


Any person, who carries on a taxable activity and whose value of taxable supplies exceeds, or is likely to exceed TShs 40 million in a 12-month period or 10 million shillings in any three consecutive months must register for VAT within thirty days from becoming liable to make such application. The Commissioner can also register a person if he is satisfied that there is good reason to do so, on grounds of national economic interest or for the protection of government revenue, whether or not an application to be registered has been made, regardless of the taxable turnover of the person. A taxable activity includes any activity continuously or regularly carried on in, or partly in Tanzania, whereby goods and services are supplied to another person for a consideration.


Are there penalties for not registering or late registration?


Not registering on time for VAT is an offence and upon conviction, the offender may be liable to a fine not exceeding two hundred thousand shillings or to imprisonment for a term not less than two (2) months but not exceeding twelve (12) months or to both the fine and imprisonment.


Where a person fails to register, the person will be liable for penalties and interest on any arrears of tax due to be paid in accordance with the Value Added Tax Act 1997.


Is voluntary VAT registration possible for an overseas company?


No. However, if the overseas company conducts a taxable activity in Tanzania or partly in Tanzania and has a fixed place of business in Tanzania, the company is ideally required to register its presence officially (branch or subsidiary), and the registered presence can then apply for VAT registration.


Are there any simplifications that could avoid the need for an overseas company to register for VAT?


No.


Does an overseas company need to appoint a fiscal representative?


Where a non-resident company is liable to register for VAT purposes, a fiscal representative is ideally expected to be appointed.


The VAT representative, who is a natural person, will be responsible for the duties and obligations of the company, as imposed by the VAT Act.

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VAT grouping

Is VAT grouping possible?


No.


Can an overseas company be included in a VAT group?


N/A.

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Returns

How frequently are VAT returns submitted?


VAT returns are submitted on a monthly basis, and are due to be lodged on the last working day of the month following that to which the return relates. June 2012 VAT returns are therefore due to be filed by the last working day of July 2012.


Are there any other returns that need to be submitted?


No.


If a business receives a purchase invoice in foreign currency, which exchange rate should be used for VAT reporting purposes? (e.g. central bank’s exchange rate applicable on the date of the invoice)


Invoices denominated in foreign need to be converted to Tanzanian Shillings (TShs) at the exchange rate quoted by the Bank of Tanzania and applying between the currency and the shilling at the time the amount is taken into account for tax purposes.

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VAT recovery

Can a business recover VAT if it is not registered?


No. The only exception is individuals not holding a Tanzanian passport and who have acquired goods in Tanzania of a value not less than TShs 400,000. If such person proceeds to remove the goods (in their un-used form) from Tanzania as personal accompanied baggage to any other country, he/ she is eligible to reclaim VAT incurred on purchasing the items, at the port of exiting Tanzania. This scheme is mainly aimed at tourists, but is not restricted to them.


Does your country apply reciprocity rules for reclaims submitted by non-established businesses?


N/A


Are there any items that businesses cannot recover VAT on?


In general, registered persons cannot recover VAT (input tax) in respect of the following:


  • acquisition of goods and services for the purpose of entertainment or providing entertainment, except in certain circumstances. For example, fees or subscription paid by the registered person in respect of membership of any club, association or society of a sporting, social or recreational nature
  • input tax on acquisition or importation by a taxable person of a motor car
  • no VAT can be recovered on the supply or import of goods or services received which is directly connected with the making of exempt supplies in Tanzania  

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International Supplies of Goods and Services

How are exports of goods and services treated?


Goods


Where goods are exported to a customer (business or private) outside of Tanzania, VAT is chargeable at zero percent, provided the supplier retains the prescribed documentary proof of the sale and export.


Services


Export of services is also subject to zero-rated VAT.


In order for a service to be considered to be exported, such service must be physically carried out/ performed outside Tanzania. The exceptions to this rule are:


  • services connected to immovable property (experts, estate agents, hotel services, preparation and coordination of construction work, etc) can be deemed as exported provided the immovable property is situated outside Tanzania
  • supply of services of an intermediary (agent) acting in the name of and on behalf of a principal can be deemed as exported provided the underlying transaction is supplied outside Tanzania and the intermediary receives a commission from the principal only
  • consultancy (engineers, lawyers, accountants, etc) can be deemed as exported if supplied to an un-related non-resident person and the services do not relate to a business (to be) established in Tanzania
  • telecommunication, radio and television broadcasting services can be deemed exported if effective use and enjoyment of the service takes place outside Tanzania.

How are goods dealt with on importation?


When goods are imported into Tanzania, import VAT and customs duty may be due. This has to be paid or secured before the goods will be released from Customs' control. VAT paid on importation by a vendor can be claimed as an input tax deduction, provided the vendor makes taxable supplies. It should be noted that special valuation rules apply for VAT purposes.


How are services which are brought in from abroad treated for VAT purposes?


Services supplied to a resident person by a non-resident person or by a business carried on by a resident person outside Tanzania, which services are utilized or consumed in Tanzania, will be regarded as imported services to the extent that the services are acquired for the purpose of making non-taxable supplies (reverse charge VAT). This is intended to take away any VAT advantage of buying those services from outside Tanzania.


Some services are exempt from VAT, and therefore when imported, ‘reverse charge’ VAT does not apply.


Where VAT is payable upon an imported service, the recipient/ importer of the service is liable for the VAT. It is necessary to account for a notional amount of VAT on the Import VAT return form covering the period in which payment is made. This VAT will be charged at a rate of 18 percent of the value of the imported service.

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Invoices

Is a business required to issue tax invoices?


Yes. For VAT-registered business, the requirement is to issue Fiscal Receipts, and not just tax invoices.


What do businesses have to show on a tax invoice?


A tax invoice should contain the following information:


  • the words "tax invoice" in a prominent place
  • the name, address, TIN and VAT registration number of the supplier
  • the name and address of the recipient
  • an individual serialized number and the date of invoice
  • full and proper description of the goods or services supplied
  • the quantity or volume of the goods or services supplied
  • the rate of tax (VAT) charged, the total amount of tax charged, the consideration for the supply, the consideration including tax
  • an electronic fiscal signature.

Can businesses issue invoices electronically?


Yes.


Is it possible to operate self-billing?


If necessary, yes. We, however, do not envisage why this would be necessary.


Can a business issue VAT invoices denominated in a foreign currency?


Yes. However, since the introduction of Electronic Fiscal Devices (EFDs), which are configured to capture data in TShs, most foreign currency invoices end up producing a translated TShs invoice amount as well.

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Transfers of Business

Is there a relief from VAT for the sale of a business as a going concern?


Yes, provided the following conditions are met:


  • the supply constitutes a supply of a business, or part thereof
  • as a going concern
  • by a registered person
  • to another registered person
  • the parties inform the Commissioner within 30 days after the supply takes place.

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Options to Tax

Are there any options to tax transactions?


No.

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Head Office and Branch transactions

How are transactions between head office and branch treated?


Transactions between branches and head-office are not any different from transactions between a company and its subsidiary.


A branch, for tax purposes, is viewed as independent from its head-office – and supplies made between the two are therefore subject to the same VAT considerations as would apply in a normal transaction:


  • if a Tanzanian branch is deemed to be making local supplies to its foreign head office, the branch will be required to charge VAT
  • if the Tanzanian branch is importing services from its foreign head office, it will be required to account for ‘reverse charge’ VAT
  • if the Tanzanian branch is exporting goods or services to its foreign head-office, it would be eligible to apply zero-rate when invoicing the head-office
  • if the Tanzanian Revenue Authority is of the view that pricing between the parties is not arm’s length, the pricing can be adjusted and VAT applied on the adjusted prices.

The above would also be the case if the Tanzanian head-office is making/ importing supplies from its foreign branch office.

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Bad Debt

Are businesses able to claim relief for bad debts?


Yes

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Anti-Avoidance

Is there a general anti-avoidance provision under VAT law?


Yes. Where the Tanzanian Revenue Authority determines that a person has entered into a scheme for obtaining undue tax benefits, they may determine the liability for VAT as if the scheme had not been entered into. The determination of the undue tax benefit shall be deemed to be an assessment.

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Penalty Regime

What is the penalty and interest regime like?


Penalty is mainly charged where a taxpayer fails to file a return or files a return past the due date.


Interest is mainly charged where a taxpayer fails to pay due VAT, or pays VAT past the due date. Where there are strong grounds for failure to comply with requirements of the Act, a taxpayer can apply to the Commissioner for remission/ waiver of penalties and/ or interest.


Most omissions/ errors are also considered criminal offences under the VAT Act, in which case fines and imprisonment can be imposed in case the taxpayer is found guilty of the offence.

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Tax authorities

Tax audits


How often do tax audits take place?


No set parameters. The Revenue Authority carries out audits on a very random basis, and may carry out an audit whenever it deems necessary.


Are there audits done electronically in your country (e-audit)? If so, what system is in use?


No.


Advance rulings and decisions from the tax authority


Is it possible to apply for formal or informal advance rulings from the (indirect) tax authority?


It is possible to apply for rulings, but these are not statutorily provided for under the VAT Act. For this reason, such ruling would not be binding on the Tanzania Revenue Authority, should they agree to issue a ruling.


Are rulings and decisions issued by the tax authorities publicly available in your country?


No. These are issued on a case by case basis, and relate to specific taxpayers.

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Miscellaneous

In your country, are there unique specific indirect tax rules (regimes) that differ from standard indirect tax rules in other jurisdictions?


The most unique feature of Tanzania’s VAT system is that most services that would ordinarily be considered exported services in many other jurisdictions end up being considered as local supplies in Tanzania. In most jurisdictions, if a service is carried out in the country but for the benefit/ consumption of a non-resident person, such service is deemed exported, and therefore zero-rated for VAT purposes. In Tanzania, most services need to be physically carried out outside the country in order for them to be considered exported services for VAT purposes.


Are there indirect tax incentives available in your country (e.g. reduced rates, tax holidays)?


Yes. Holders of Certificates of Incentives issued by the Tanzanian Investment Centre are eligible to import capital goods without paying VAT (VAT relieved). Further, most business imports of companies registered and operating within a Special Economic Zone (SEZ) or Export Processing Zone (EPZ) can be so imported without application of import VAT.

 

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