Tanzania Business 101: What you need to know - Part B

This article is part of a series exploring key aspects of doing business in Tanzania. Part A covers the incorporation process and regulatory framework, Part B examines foreign exchange controls and export considerations, Part C discusses taxation, property ownership, and investment regulations, and Part D focuses on dispute resolution and choice of law.

35. Are there forex exchange controls in Tanzania?

Yes. Residents, which includes entities registered in Tanzania are allowed to open and maintain bank accounts with banks and financial institutions in Tanzania and hold local and foreign currencies in those bank accounts. 

Note that, in principle all incomings and remittances transactions and accounts must be through and by banks and financial institutions which are registered and licenced in Tanzania. Smaller remittances and incomings can be through cross border mobile money transfer and the likes of WesternUnion. 

There are restrictions imposed on:

1. Residents regarding undertaking investments outside of Tanzania except those within the East Africa Community and SADC. 
2. Foreign credit accommodation by residents in favour of nonresidents and these are subject to the prior approval from the Central Bank of Tanzania (BOT) (). Foreign credit accommodation means loans, overdrafts and advances, leasing, acceptances, performance and bid bonds, letters of credit, guarantees, foreign exchange contracts or any other form of a direct or indirect financial obligation including interest due and unpaid to a bank or financial institution. 

All loans with the tenure exceeding 360 days should be registered with the BOT, otherwise repayment will be impossible, and penalties will apply. Note that, if the investor intends to recover the initial costs and capital injection through a loan repayment, it is advisable to enter into and register the loan with the BOT early on to avoid any future issues.

There will be tax obligations to withhold tax prior to remittance of interest to the lender. You can read further on withholding tax obligations here: https://www.tra.go.tz/index.php/withholding-tax.

Useful links:

• https://www.bot.go.tz/Publications/Acts,%20Regulations,%20Circulars,%20Guidelines/Regulations/en/2023101310363815.pdf
• https://www.clydeco.com/en/insights/2023/09/banking-in-tanzania-new-amendments-to-the-foreign
• https://www.clydeco.com/en/insights/2022/05/the-tanzania-foreign-exchange-regulations-2022

36. If a foreign investor supplies goods or services to a Tanzania entity, is payment subject to any local taxes?

Yes. Ordinarily payments to nonresident service providers are subject to withholding tax. Rates may differ. Similar obligations are imposed on payments to and between resident service providers. 

37. Is offsetting of financial claims allowed? What about electronic transactions?

No. Offsetting of financial claims between residents and nonresidents is not allowed. Electronic transactions are allowed and there is an Electronic Transactions Act. 

38. As a foreign investor can I register a bank account with a Tanzania bank?

Yes. This is possible provided that the company has at least Category A – Part A licences and permits. Some banks impose additional requirements including physical presence of directors and such directors having work and residence permits in place. These requirements differ from bank to bank. 

39. Can a nonresident procure escrow services from a bank registered in Tanzania?

It is unlikely this will be acceptable by banks in Tanzania. Usually banks require the person to be resident i.e. incorporation to be completed or have work and residence permit for individuals before banks can offer escrow services. It is worth chequeing with various banks in Tanzania to determine if any can provide such services for nonresidents. 

40. Can an investor invest in crypto currencies trade in Tanzania?

The Bank of Tanzania issued caution against trading in crypto currencies and makes it illegal. The public notice is: https://www.bot.go.tz/Adverts/PressRelease/sw/2020031307240424208.pdf. Hence, currently trading in crypto currency is illegal. 

41. Are Tanzania residents allowed to trade in stock exchanges outside of Tanzania? 

Yes, provided its stock exchanges within the East Africa Community and SADC. 

42. Is exports of goods allowed in Tanzania?

Yes. Exports of goods is allowed in Tanzania subject to forex and customs controls. The Foreign Exchange Act imposes a number of obligations to exporters when it comes to exporting goods outside of Tanzania, which includes notification to their bankers prior and after export and disclosures of amounts expected to be received following such exports. 

43. Can a nonresident take security over an asset in Tanzania or procure guarantee from a resident entity in Tanzania?

Yes. This is possible provided that there is prior registration of the facility at the Bank of Tanzania. Please note that, in our experience taking security over an asset of a resident entity or a resident entity issuing a guarantee to a nonresident whilst there is no clear flow of funds into Tanzania from the nonresident taking such security to a resident entity issuing the security is likely to be rejected by the Bank of Tanzania. Emphasis is put on guaranteeing that there is flow of fund into Tanzania to justify the local entity issuing the security to a nonresident. Instances where the nonresident company borrowing and pledging as security the assets or of its resident subsidiary or asking the resident subsidiary to issue a guarantee can prove difficult to get the consent of the Bank of Tanzania unless there is a flow of funds into the country.