Value Added Tax (VAT) in Tanzania: A Comprehensive Guide for Investors

Comprehensive Guide to Value Added Tax (VAT) in Tanzania

Value Added Tax (VAT) is a consumption tax charged on taxable goods, services, and immovable property. It is applied at every stage of production and at the final sale to the consumer. Both locally produced goods and services, as well as imports, are subject to VAT. Only persons registered for VAT are authorized to charge it, ensuring accountability and compliance with Tanzanian tax laws.

Scope of VAT in Tanzania

VAT is applied to all taxable supplies of goods, services, and immovable property within Mainland Tanzania, provided the transaction is conducted by a VAT-registered individual or entity. Additionally, imports into Tanzania are subject to VAT, with customs regulations overseeing the application.

Key VAT rates include:

1. 18%: Standard rate for local goods and services.

2. 18%: Imports of taxable goods and services.

3. 0%: Exports and certain ancillary services related to goods in transit.

Zero-rated Supplies:

• Exports of goods and services.

• Transport services integral to international shipping.

• Goods stored in ports or customs areas for up to 30 days pending onward transport.

How VAT Works in Tanzania

The VAT system is structured to ensure that businesses function as intermediaries in the tax collection process:

1. Input Tax: VAT paid on purchases or imports by a business.

2. Output Tax: VAT collected on sales of goods and services by the business.

3. VAT Payable: Calculated as the difference between output tax and input tax. If input tax exceeds output tax, the business may claim a VAT refund.

The ultimate burden of VAT falls on the final consumer, making it neutral for registered businesses.

VAT Registration in Tanzania

VAT registration is mandatory for businesses with an annual turnover exceeding TZS 200 million or those providing professional services, regardless of turnover. Registration is done through the Tanzania Revenue Authority (TRA) by completing the form ITX245.02.E.

How to Register for VAT

To register for VAT, follow these steps:

1. Complete the VAT Registration Application Form: Ensure all details are accurate and complete.

2. Submit Necessary Documents: These include:

   • Memorandum and Articles of Association

   • Lease Agreement or Title Deed

   • Business License

   • Tax Identification Certificate

   • Recent Photos

   • Evidence of sufficient turnover or contracts for professional service providers.

   Upon successful registration, businesses receive a VAT Registration Certificate, which must be displayed at the principal place of business.

Cost of Registration

There is no fee associated with registering for VAT.

VAT Rates in Tanzania

Type of Supply	VAT Rate
Local supply of taxable goods and services	18%
Import of taxable goods and services	18%
Export of goods and specific services	0%
Ancillary transport services of goods in transit	0%

VAT Refunds in Tanzania

Registered taxpayers may apply for VAT refunds if input tax exceeds output tax or if excess credits remain after deductions. Refunds are processed by the TRA and typically paid through the Interbank Settlement System (TISS) or directly into the taxpayer’s bank account.

Documents Required for a VAT Refund:

• Certificate of genuineness issued by a TRA-registered auditor.

• Computation of refund amount.

• Tax invoices and receipts.

• Supporting documents such as bills of entry, bills of lading, and summaries of purchases and sales.

Refunds must be claimed within six months from the date of the tax invoice or receipt.

VAT Exemptions in Tanzania

Certain goods and services are exempt from VAT, including:

1. Raw materials: Used in the manufacture of long-lasting mosquito nets.

2. Government projects: Supplies for projects funded by concessional loans or grants.

3. Natural disaster relief: Goods and services for disaster relief.

4. Strategic projects: Supplies for projects under agreements with the government.

Special VAT Relief for Investors:

Investors licensed under Export Processing Zones (EPZ) or Special Economic Zones (SEZ) Acts, as well as mining, oil, and gas companies, may apply for VAT relief.

Capital Goods and VAT Deferment

VAT on imported capital goods exceeding TZS 20 million may be deferred upon application to the TRA. The deferment period spans up to 10 years, easing cash flow constraints for businesses investing in significant capital assets.

Filing VAT Returns Online

VAT-registered businesses are required to file returns electronically through the TRA e-Filing System.

Steps to File VAT Returns:

1. Register for electronic filing via the TRA portal.

2. Log in using the provided credentials.

3. Complete and submit VAT returns, ensuring all invoices and records are accurate.

Advantages of Online Filing:

• Reduces queues at TRA offices.

• Minimizes errors.

• Enables businesses to interact with TRA from their offices.

Double Taxation Agreements (DTAs)

Tanzania has signed DTAs with various countries to prevent double taxation on the same income. Key partners include Canada, India, South Africa, the UK, and Zambia.

Key Challenges and Solutions

Challenges:

• Delays in VAT refunds.

• Complexity in compliance for new businesses.

• Strict penalties for non-compliance.

Solutions:

• Utilize the TRA's One-Stop Facilitation Centre.

• Engage tax consultants for accurate compliance.

• Regularly update business records and submit timely returns.

Conclusion

VAT in Tanzania is a critical component of the country’s tax system, designed to streamline revenue collection while encouraging business compliance. By understanding the VAT framework, rates, exemptions, and filing processes, businesses can operate efficiently and leverage available incentives, particularly those provided to investors under EPZ and SEZ regimes. For further guidance, businesses should consult the Tanzania Revenue Authority (TRA) or registered tax consultants.

Insights for Investors

For investors considering business establishment in Tanzania, understanding VAT is crucial. VAT registration is not only a legal obligation but also an important part of your financial strategy. Proper VAT management can optimize your tax liabilities and enhance your business's profitability.

For businesses reaching the VAT threshold, timely registration is essential to avoid penalties and ensure compliance with Tanzanian tax laws. As an investor, being proactive about VAT registration and compliance will protect your investment and build trust with local authorities, partners, and customers.