One of the most prosperous countries on the African continent, Tanzania has come quite a long way from a low-income to a middle-income country. The country’s macroeconomic conditions support all kinds of industries. Tanzania’s geographical location also plays a significant role in its development.
Hospitality, tourism, mining, and electricity are some of the most profitable industries in the country. Therefore, several large businesses plan to establish their subsidiary business in Tanzania.
Even when the entire world struggled with the pandemic, Tanzania reported a 4.3% growth in its real GDP in 2021. Also, the poverty rates have declined as several companies are now setting up their subsidiaries here, creating employment for the locals of Tanzania. As per the World Bank’s report, Tanzania is reaching 4.5-5.5% GDP growth in 2022. The economic opportunities have widened for everyone, including women, who now hold positions and responsibilities across industries. In 2021, the female labour force in Tanzania was reported at 48.19%, as per the World Bank collection of development indicators.
Like any other country, you must understand the local laws before setting up a subsidiary in Tanzania. Several challenges may come your way. However, if you are well-versed in the subsidiary laws of Tanzania, you will easily navigate the process.
What are the Types of Subsidiaries in Tanzania?
When setting up a subsidiary company in Tanzania, you need to decide the type of company it will be. You can incorporate different kinds of companies under the federal laws of Tanzania. Make sure you consider the tax regimes, compliances, financial reporting, and other aspects of the type of company you plan to incorporate.
Types of companies that you can set up in Tanzania are listed below:
Limited liability company
- A limited liability company is one of Tanzania’s most commonly incorporated subsidiaries.
- It is an independent legal entity distinct from that its shareholders.
- The shareholders are responsible for the debts and other obligations to the extent of their contribution towards the share capital.
- In Tanzania, an LLC must have at least two shareholders and two directors. However, these people can be locals as well as foreign nationals.
- There is no limit on the minimum paid-up share capital for the country. If you want to set up a subsidiary that has a simple shareholding structure, you must opt for this kind of subsidiary.
- In this kind of company, the profits distributed to the shareholders are taxable, and the company’s reporting structure can get complex.
- You can hire a seasoned expert to help you understand these complexities and set up an LLC in Tanzania.
- A public company is also quite common in Tanzania. However, setting up a public company requires you to adhere to several compliances.
- You can buy ownership of these companies in the form of shares. The shares of a public company in Tanzania are floated in the market, and then the general public subscribes to these shares.
- You need a minimum of two directors and seven shareholders to start a public company in Tanzania. However, at least 1 of the two directors and the seven shareholders should be a Tanzanian national and own about 40% of the company’s shares.
- To start a public company in Tanzania, you must have a minimum share capital of $300,000. Therefore, you must only opt for this company type if you have the required funds and want to list your company on the National Stock Exchange in Tanzania.
How to Set Up Subsidiaries in Tanzania?
To incorporate a foreign subsidiary in Tanzania, you must know the process. It takes about four weeks to incorporate a subsidiary in Tanzania. Some of the steps involved in setting up a subsidiary include:
Step 1: Choose the type of company
Before setting up a subsidiary in Tanzania, you must decide the type of company you want to open. You must research the benefits and disadvantages and determine the kind of company you want to establish in Tanzania.
Step 2: Submit the application for the name of the company
Next, you must register the company name with the Business Registration and Licensing Agency (BRELA). Companies can prepare a list of three to four proposed names for a subsidiary in Tanzania. It is essential to know that if you have different businesses under the company, you can have other names for those businesses.
Once BRELA confirms the availability of the proposed name, applicants can reserve it by submitting a written application. The application form is also available on the official website of BRELA.
Step 3: Notarisation of declaration of compliance
You need to submit a declaration of compliance that is duly notarized. The document must be submitted to the Registrar of Companies directly.
Step 4: Submit the application for incorporation
According to the federal laws of Tanzania, you can only register a company in Dar es Salaam city. You can consult an expert or a lawyer to help you with the entire process. The Registrar will issue an incorporation certificate once you submit the following documents:
- 14a for ‘First Directors and Secretary and Intended situation of Registered Office’
- 14b for ‘Declaration of Compliance on Application for the Registration of a Company’
- Memorandum and Articles of Association
After submission, you will receive the certificate of incorporation in 2 days. You also need to pay the company registration fees for the process. The BRELA company registration fees range from TZS 50,000 to TZS 440,000. The final charge is decided based on the value of the share capital.
A stamp duty charge of TZS 5,000 is also applicable while submitting the memorandum and articles of association.
Step 5: Application for TIN
You must submit an online application to the Tanzania Revenue Authority (TRA) to procure your taxpayer identification number (TIN). The application takes around two business days to process. Once you get TIN, TRA will open a tax file for the company wherein you need to fill out the tax return form.
Step 6: Apply for a business license
Once all the documents are ready, you can submit an application for a business license. Depending on the nature of the business, the license will either be issued by the Ministry of Industry and Trade or the Municipal Council of the business location. Listed below are the documents to submit along with the application:
- Certificate of incorporation
- Memorandum and Articles of Association
- Proof of company’s address
- Proof of the citizenship of the local director/shareholder
- Application for employer registration
- Passport copies of the directors and shareholders
Step 7: Apply for VAT
Once you receive your business location, you must apply for VAT. You need to apply to the Tanzanian Revenue Authority.
Step 8: Register with the workers’ compensation insurance
Every employer must complete the Workmen’s Compensation Tariff Proposal Form at the National Insurance Corporation or another provider to sign up for workers’ compensation insurance.
Step 9: Register to social security accounts
Once the business gets incorporated, you get a social security number. You need to register all the employees to the social security schemes.
It takes about 15 weeks for all the steps to get processed. Also, you must pay a registration fee based on your share capital to incorporate the subsidiary.
Benefits of Setting Up a Tanzania Subsidiary
Setting up a subsidiary company in Tanzania comes with different kinds of benefits. These perks are not just limited to the subsidiary. Even the parent company gets to expand in new territories and make the most of its resources.
- By setting up a subsidiary, you get the legal ability to commence business operations or any other commercial activities in Tanzania.
- It gives your company an immense opportunity to expand, grow, and learn from a new market.
- Also, in the case of an LLC, the parent business is not responsible for any losses or legal issues the subsidiary may encounter.
- Since the subsidiary has complete flexibility and autonomy to conduct business, create its corporate laws, and function independently, it is a win-win situation.
- The economy of Tanzania is flourishing, and it supports foreign investments. Hence, it is apt to set up a subsidiary in the country.
- The African market is relatively unexplored but has enormous potential. A subsidiary in Tanzania can act as your doorway to this vast and culturally diverse market.
- By entering overseas markets, a parent firm can expand its brand recognition on a global scale by gaining new clients and sales prospects.
Documents to Prepare When Opening a Subsidiary in Tanzania
While setting up a subsidiary business in Tanzania, you must have all the relevant documents handy. You must submit all these documents to the Registrar of Companies so the company can be incorporated.
Enclosed below is a list of documents required for opening a subsidiary in Tanzania:
- Audited financial statements of the parent company
- Copy of the constitution of the parent company
- Names of the directors of the company
- Name of the company secretary
- Names of the people who will act as legal representatives of the company in Tanzania
- The proof of address for your company location
- A legal declaration from one of the directors or the secretary attesting to the type of business that will take place in Tanzania
- Memorandum and Articles of Association
- A duly filled application form for incorporation of the company
- Copy of passports of all the shareholders and the directors
- Resolution of the Board establishing the branch or subsidiary and designating an authorized manager
- VAT application form and registration form
- Employer registration form
The memorandum contains information such as the company’s name, the amount of share capital brought together to start the subsidiary, the names, and addresses of the directors, etc.
What Business Forms Can Tanzania Subsidiaries Take?
Several companies are recognized under the federal law of Tanzania. Foreign investors can open a subsidiary as an LLC, a public company, a branch, or a representative office. A subsidiary can also be a partnership or a sole proprietorship firm.
An LLC is the most common type of subsidiary opened by foreign companies. Setting up an LLC is comparatively more straightforward than other types of companies. Also, you do not have a minimum capital requirement for opening an LLC in Tanzania.
You can also go for a public company, but you will need a minimum share capital of $300,000 to incorporate a public company in Tanzania. Tanzania also offers the option of establishing a wholly-owned subsidiary in the form of a branch.
Forming a limited liability company is desirable because it establishes a distinct legal entity and prevents the parent firm from being held responsible for any risks or responsibilities. Alternatively, opening a branch office in Tanzania enables a business to conduct direct business there. Although the branch is technically an extension of the foreign firm and not a separate legal entity, the foreign company is responsible for any branch-related liabilities.
Tanzania Subsidiary Laws
While setting up a subsidiary in Tanzania, you must adhere to all the laws governing the incorporation of the subsidiary. Listed below are some of the rules you must take care of while setting up a subsidiary company in Tanzania:
For limited liability company
The employers must make sure of the following while setting up an LLC in Tanzania:
- The company must have at least two shareholders
- It must have at least two directors
- The shareholders are subject to limited liability
- All the profits earned by the company should be taxed
- The company must pay the corporate tax on its corporate income
- You need to obtain a business license to perform commercial activities in the country
For public company
- There must be at least seven shareholders in the company.
- You need to have two directors and seven shareholders, out of which one should be a resident of Tanzania.
- Minimum capital of $300,000 is required
- To engage in business operations nationwide, you must obtain a business license.
- The firm is required to pay corporate tax on its corporate revenue.
Additionally, all companies must submit their audited financial statements to the Business Registrations and Licensing Agency (BRELA). Companies with revenue above TZS 100 million in Mainland and TZS 50 million in Tanzania Zanzibar will have to register for VAT mandatorily. You must comply with all the rules to successfully run your subsidiary in Tanzania.
Post Incorporation Compliance
There are a few post-incorporation compliances that you must adhere to if you are setting up a subsidiary business in Tanzania:
- The company must submit the audited financial reports to the Business Registrations and Licensing Agency (BRELA)
- The companies with shareholders must conduct an annual shareholders’ meeting.
- Every company registered in Tanzania is required by law to submit its annual returns to the Registrar of companies that were prepared no later than the return date.
- Every corporation is required by law to convene an annual general meeting and any other meetings that may be held during that year.
- Whenever a company with limited shares or guarantee allocates its shares, it must deliver the same information to the Registrar for registration within 60 days.
- The company must maintain proper books of accounts, either in English or Swahili.
- The company should maintain a register of all its members. The register should contain their address, date of birth, etc.
Taxes on Subsidiaries in Tanzania
Regarding the taxation of foreign subsidiaries in Tanzania, the companies must pay corporate tax and VAT. However, a VAT only applies to companies with an annual turnover of more than TZS 100 million.
- The Tanzanian corporate income tax rate is 30%. However, if the company has listed at least 30% of its shares on the Dar es Salaam stock exchange (DSE) for three consecutive years, the corporate tax rate for those companies reduces to 25% for three years.
- VAT is levied on imports from anywhere outside mainland Tanzania and on providing products and services within the country. Imports are subject to 18% VAT.
Tax Incentives for Businesses Establishing a Subsidiary in Tanzania
Foreign investors get some tax incentives for setting up a subsidiary business in Tanzania. These incentives include:
- The companies with a minimum of 30% shares issued to the public enjoy a low corporate tax rate of 25%.
- If you are opening a subsidiary in pharmaceuticals or leather products, you will have to pay a corporate tax at a reduced rate, i.e., 20%, for up to 5 years.
- Only 10% corporate tax is applicable for the first five years on subsidiaries working in the assembly of tractors, fishing boats, and vehicles.
Other Important Considerations
You must take assistance from someone aware of the Tanzania labor laws quite well. An expert will help you navigate the process and avoid any delays. When setting up a subsidiary company in Tanzania, you must comply with all the local laws.
Also, it is essential to budget properly to account for all the expenses you might encounter while setting up your subsidiary in Tanzania. It would be best to make regular travel arrangements to Tanzania once you set up a subsidiary here.
How Can Multiplier’s Employer of Record Help You Hire & Expand in Tanzania?
Setting up a subsidiary in Tanzania can seem like a daunting task. Several laws govern the incorporation of subsidiaries. It consumes valuable company time, which they can invest in growth and profit-earning. Therefore, it is always suggested to collaborate with professional EOR service providers like Multiplier.
Multiplier offers you the resources and experts needed to expand overseas. We help you, onboard talented individuals to work for your company and aid in its incorporation.
While adhering to foreign country rules, our experts will assist you in engaging with international staff. To facilitate your seamless development into global markets, Multiplier offers a wide range of solutions, such as employment contract production, payroll management, multi-currency payments, insurance and benefits, workforce management, etc.