Employee Share Schemes Tanzania: Tax and Exchange Control

Groups with staff in Dar es Salaam, Arusha or Zanzibar often extend a global share plan to them. Local founders also want to give key staff a stake. This guide explains how employee share schemes Tanzania employers run are taxed, who withholds, and what exchange control allows. It covers options, restricted shares, share units and trust schemes, for the Mainland and for Zanzibar.

The short version is that the law treats a share award as pay. The hard questions are timing, valuation, cash to cover PAYE, and whether a resident employee may hold the shares at all.

What the law says

No Tanzanian statute has a chapter on employee share schemes. Five sets of general rules apply together.

• Income tax. The Income Tax Act, Cap. 332 taxes "gains or profits" from employment under s.7(1). Section 7(2)(f) brings in any "other payment made in respect of employment including benefits in kind". Section 3 defines a payment to include "the transfer of assets or money". Shares are assets.
• Valuation. Section 27(1)(e) values such a payment at market value where no regulation applies. Section 27(3) says market value is fixed "without regard to any restriction on transfer of the asset". A lock-up does not reduce the taxable value.
• Exchange control. The Foreign Exchange Regulations, 2022 (GN 294 of 2022) govern residents who acquire securities issued abroad.
• Company law. The Companies Act, Cap. 212 R.E. 2023 governs allotment, financial assistance and private company limits.
• Securities law. The Capital Markets and Securities Act, Cap. 79 requires an approved prospectus for an offer of shares to the public.

The income tax sections quoted here were read in the Revised Edition 2019 copy published by the Ministry of Finance. Sections 1 to 57 kept their numbers in the Revised Edition 2023, so s.3, s.7 and s.27 still apply as cited. Paragraph letters inside s.7 may have moved with later Finance Acts, so check them before quoting them to TRA.

Who should read this

HR, payroll and tax teams at Tanzanian subsidiaries of listed foreign groups whose staff receive options or share units. Founders of Tanzanian private companies planning an option pool for managers. Trustees of employee share trusts. And the employees themselves, because PAYE errors on share awards surface late, often in a TRA payroll audit.

Cash bonuses linked to the share price, often called phantom shares, are covered too. They are ordinary cash pay and the simplest case.

What counts as an employee share scheme in Tanzania?

Any arrangement under which an employee gets shares, or a right to shares, because of the job. The common forms each raise a different timing question.

The right-hand column is our reading of the general rules. It is not a TRA ruling. The Act does not say when an option is taxed, and we found no published TRA practice note on it.

When is an employee taxed on shares or options?

Section 7(1) taxes gains from employment "for the year of income". The question is the year in which the employee gains something of value.

For options, two readings exist. On grant, the employee receives a right, and a right is an asset. But an option with an exercise price at market value has little measurable value on that day. On exercise, the employee receives shares worth more than the price paid, which is a clear transfer of an asset. Most groups withhold at exercise, and that matches how the value is measured. The safer course for a large plan is a private ruling from TRA before the first exercise. Our TRA advance ruling guide explains the process.

For RSUs, value passes when shares are delivered at vesting. For restricted shares issued up front, s.27(3) points to taxation at issue on full market value, even though the employee cannot sell yet. That can mean tax on shares the employee later forfeits. A plan that issues restricted shares to Tanzanian staff should model that risk first.

For trust schemes, a 2015 note by Breakthrough Attorneys argues that distributions from an employee trust are trust income rather than employment income. The same note reports that TRA treats them as employment income subject to PAYE. Assume TRA's view unless you hold a ruling that says otherwise.

How is the benefit valued?

At market value under s.27(1)(e), with no discount for a lock-up under s.27(3). The taxable amount is the market value received less anything the employee paid for it.

• Listed shares. Use the closing price on the exchange on the exercise or vesting date, converted to shillings.
• Unlisted shares. Use a documented valuation. Recent third-party share sales, a funding round or a net asset basis all serve. Keep the working paper with the payroll file.
• Foreign currency. Section 27 sits beside s.28, which deals with quantification in shillings. Convert at a documented rate on the taxable date and record the source.

PwC's Worldwide Tax Summaries, last reviewed 9 September 2026, describe Tanzanian employment income as cash plus "the value of benefits in kind (generally the market value)". That matches the reading above. Housing and car benefits have their own formulas, covered in our benefits in kind guide. Shares have none, so the market value default applies.

Does the employer withhold PAYE, SDL, NSSF and WCF?

PAYE, yes. The employer withholds under s.104 of the Act (R.E. 2023 numbering), as the TRA PAYE page explains for bonuses and benefits in kind. A share award is usually paid without cash, so the employer must fund the tax. The usual methods are selling enough shares to cover it, withholding from the next salary run, or the employee paying the employer in cash.

The other payroll charges depend on whether a share benefit counts as cash pay. That is less clear.

The NSSF Act, Cap. 50 defines wages as "remuneration in money paid to an employee under his contract of service". PwC describes SDL as 3.5% of gross cash emoluments and WCF as 0.5% of cash sums paid. On those texts a share award delivered in kind falls outside NSSF and probably outside SDL and WCF. A cash-settled phantom award falls inside all three. We have not seen a TRA, NSSF or WCF statement on share awards, so treat this as unconfirmed.

What happens on dividends and on sale?

Once the employee owns the shares, employment tax stops and investment tax starts.

• Dividends from a Tanzanian company. The company withholds 10% (F0207), or 5% for a company listed on the Dar es Salaam Stock Exchange (F0205). The TRA withholding tax page sets the same rates and requires payment within seven days after the end of the month.
• Dividends from a foreign parent. PwC reports a 10% rate for a resident individual, with credit for foreign tax. The foreign withholding often exceeds the Tanzanian rate.
• Sale of shares in a resident company. A resident pays 10% of the gain and a non-resident 30% (F0236). Our capital gains tax on shares guide covers the single instalment.
• DSE-listed shares. PwC lists gains on DSE shares held by a resident as exempt. See our guide to buying shares on the DSE.
• Stamp duty. A transfer of shares, for example from a trust to an employee, carries 1% of the value approved by the Board (F0264). Our share transfer guide sets out the steps.

The cost base on sale matters. If the employee was taxed on TZS 5,000 per share at vesting, the gain on sale should be measured from that figure, not from nil. The Act's cost rules in ss.36 to 38 support that reading, but confirm it in the ruling request so the employee is not taxed twice.

Can a Tanzanian employee hold shares in a foreign parent?

This is the question most global plans miss. The answer depends on where the parent's shares are issued.

Regulation 19(1) of GN 294 of 2022 lets residents buy, issue, sell or transfer securities with residents of a "prescribed territory". Regulation 2 defines that as a member of the East African Community or SADC. Regulation 19(5) allows dealings with non-residents outside that territory only where the purchase is funded "exclusively by externally acquired funds". Regulation 28(2) requires Bank of Tanzania approval for investment outside the prescribed territory. Regulation 37(a) keeps outward portfolio investment outside it restricted.

Commentary from Bowmans (27 May 2022) and FB Attorneys (31 May 2022) reads the regulations the same way. Outward portfolio investment outside the EAC and SADC remains restricted. Residents may not hold foreign bank accounts without the Governor's permission, outside the EAC and SADC settlement exception.

The regulations do not mention employee share schemes. Whether free RSUs delivered into a foreign broker account count as a resident "purchase" is not settled. Neither is whether exercising an option with shillings sent abroad needs approval. Our view is that remitting shillings to pay an exercise price outside the EAC and SADC needs Bank of Tanzania approval. A cashless exercise, where the broker sells shares and pays the net in cash, avoids the remittance. Ask the Bank in writing before a plan launch with many participants.

Foreign dividends and sale proceeds received by the employee are foreign income. Bring them in through a bank and keep the broker statement for the tax return.

Company law and CMSA points for a local scheme

A Tanzanian company issuing its own shares to staff has five checks.

1. Member limit. Section 29 of Cap. 212 limits a private company to fifty members, "not including persons employed by the company or former employees who remained members". Staff shareholders do not break the cap.
2. No public invitation. The same section requires a private company's articles to prohibit any invitation to the public to subscribe. An offer confined to staff should be framed as a private offer.
3. Allotment. Sections 56 and 57 govern allotment and the return of allotments to BRELA. Our allotment of shares guide covers Form 57a and the deadline. Each filed document costs TZS 22,000 (F0005).
4. Financial assistance. Section 59 prohibits a company giving financial assistance for the purchase of its own shares. A loan to staff or to a trust to buy shares may be caught. Whether an exception covers employee schemes needs an advocate's reading of s.59 before any loan is made.
5. Subsidiaries. Section 26 bars a subsidiary from holding shares in its holding company, except as trustee without a beneficial interest. A group trust must be structured with that in mind.

On securities law, the CMSA Act defines a prospectus as an invitation "offering to the public" shares or debentures, and s.131 requires the Authority's approval of a prospectus. The Act does not mention employee offers. A plan offered to a few dozen managers is unlikely to be a public offer. A plan offered to thousands of staff of a listed company may be, so confirm with CMSA first.

Put the plan rules, the articles and any shareholders' agreement in line on leaver terms, drag-along and pre-emption before the first grant.

How do Mainland and Zanzibar differ?

Section 2 of the Income Tax Act says it "shall apply to Tanzania Mainland as well as Tanzania Zanzibar". The employment income rules above therefore apply to staff in Zanzibar too. Payroll levies, social security and company registration are separate.

For the Zanzibar payroll side, see our guide to Zanzibar payroll taxes. For which taxes are Union matters, see Union and non-Union taxes. A Zanzibar company issuing shares files with BPRA, not BRELA, as our Zanzibar company guide explains.

Worked example: options and RSUs in TZS and USD

Amina is a resident finance manager in Dar es Salaam earning TZS 3,000,000 a month. Her salary already sits in the top PAYE band (F0180), so each extra shilling of employment income bears 30%.

Case 1, options in a Tanzanian private company. She holds 1,000 options at TZS 2,000 per share. On exercise the documented market value is TZS 5,000.

The sale line assumes her cost is TZS 5,000 a share: the TZS 2,000 she paid plus the TZS 3,000 already taxed. If TRA measured the gain from TZS 2,000, the tax would be TZS 500,000. That difference is why the ruling request should cover cost base. If a trust transferred the shares to her instead of the company issuing them, stamp duty of 1% (F0264) on TZS 5,000,000 would add TZS 50,000.

Case 2, RSUs in a US-listed parent. 40 RSUs vest when the share price is USD 250. At an illustrative TZS 2,500 per dollar, the shares are worth USD 10,000, or TZS 25,000,000. PAYE at 30% is TZS 7,500,000, about USD 3,000. The broker sells 12 shares to cover the tax and the employer remits it to TRA. She keeps 28 shares in a US account, which is the exchange control question above. If the parent were listed in Nairobi or Johannesburg, reg. 19(1) would permit the holding.

What to do now

1. Map the plans. List every share, option, RSU and phantom plan reaching Tanzanian staff, with grant, vesting and exercise dates.
2. Fix the tax point. Decide when each plan type is taxed and, for a material plan, request a TRA private ruling before the first event.
3. Set the valuation method. Document market value for each event, with the exchange rate source for foreign shares.
4. Fund the PAYE. Choose sell-to-cover, salary deduction or employee top-up, and write it into the plan rules.
5. Settle the payroll levies. Ask TRA, NSSF and WCF in writing whether in-kind share awards fall in SDL, NSSF and WCF bases.
6. Check exchange control. For a parent outside the EAC and SADC, use cashless exercise or apply to the Bank of Tanzania before launch.
7. Align the company papers. For a local plan, check the articles, allotment filings, s.59 financial assistance and any trust deed.
8. Brief employees. Tell staff what is withheld, what they owe on dividends and sale, and which records to keep.
9. Treat Zanzibar separately. Apply the same income tax rules, but run Zanzibar levies, ZSSF and BPRA filings through their own channels.

Key dates

How Zatra helps

Zatra's tax advisory team reviews share plan rules for Tanzanian staff, models PAYE and capital gains, and drafts private ruling requests. Our payroll compliance service runs PAYE on vesting and exercise events and reconciles SDL, NSSF and WCF. Our share transfer and restructuring team handles allotments, trust transfers and BRELA filings.

Government charges are paid to TRA, BRELA or the relevant fund at the official rate against a control number. They are separate from Zatra's professional fee, which we quote in writing before work starts. Zatra does not decide or guarantee any authority's outcome. TRA, the Bank of Tanzania, CMSA and BRELA decide.

Legal opinions on s.59 financial assistance or CMSA exposure, tax disputes before the Tax Revenue Appeals Board, and any prosecution or seizure are matters for an advocate. We work alongside your advocate or introduce one. To start, contact Zatra with the plan rules and a list of participants.

Sources and status

Accurate as at 6 November 2026.

• Income Tax Act, Cap. 332 R.E. 2019, ss.2, 3, 7 and 27. Ministry of Finance, published 2023. Accessed 6 Nov 2026.
• Foreign Exchange Regulations, 2022, GN 294. Bank of Tanzania, 13 May 2022. Accessed 6 Nov 2026.
• Companies Act, Cap. 212 R.E. 2023. BRELA, 2023 edition. Accessed 6 Nov 2026.
• Capital Markets and Securities Act, Cap. 79. CMSA, published 2019. Accessed 6 Nov 2026.
• Understanding PAYE. Tanzania Revenue Authority, 2026. Accessed 6 Nov 2026.
• Withholding tax. Tanzania Revenue Authority, 2026. Accessed 6 Nov 2026.
• National Social Security Fund Act, Cap. 50. TanzLII, consolidation of 2019. Accessed 6 Nov 2026.
• Tanzania, individual income determination. PwC Worldwide Tax Summaries, reviewed 9 September 2026. Accessed 6 Nov 2026.
• Tanzania, individual other taxes. PwC Worldwide Tax Summaries, reviewed 9 September 2026. Accessed 6 Nov 2026.
• Key highlights of the Foreign Exchange Regulations 2022. Bowmans, 27 May 2022. Accessed 6 Nov 2026.
• New Foreign Exchange Regulations issued. FB Attorneys, 31 May 2022. Accessed 6 Nov 2026.
• Employees share option schemes. Breakthrough Attorneys, 5 March 2015. Accessed 6 Nov 2026.

Figures to confirm before you act

• Whether an option is taxed at grant or at exercise: not stated in the Act; confirm by TRA private ruling.
• Whether in-kind share awards fall in the SDL (F0276), NSSF (F0279) and WCF (F0281) bases: unconfirmed; ask each body in writing.
• The cost base for capital gains after a taxed vesting or exercise: confirm with TRA.
• Whether free RSUs in a parent outside the EAC and SADC need Bank of Tanzania approval: unknown; ask the Bank.
• Whether an all-staff offer by a listed company is a public offer needing CMSA approval: confirm with CMSA.
• The Zanzibar skills levy rate, recorded as 4% in the register (F0278): confirm with ZRA.
• The paragraph letters of s.7(2) in the Revised Edition 2023: check the TRA text.
• The exchange rate of TZS 2,500 per US dollar is illustrative. Use the documented rate on the taxable date.

This article is general information based on official sources available at the date of publication. It is not legal, tax or financial advice. Laws and notices change. Verify with the issuing authority or consult Zatra before acting.