Worldwide VAT, GST and Sales Tax Guide
Non-established businesses. A “non-established business” is a business that does not have a fixed place of business in Tanzania. The law requires a person without a fixed place of business to appoint a resident person in Tanzania to act on its behalf in matters relating to VAT (see the Tax representatives subsection below). A permanent establishment or branch of a foreign business must register for VAT if it makes taxable supplies of goods or services. A person importing goods or services from a nonresident must pay the Tanzanian VAT due.
As per the 2022 VAT regulations, a nonresident taxable person who supplies electronic services to an unregistered person (i.e., business-to-consumer [B2C] supplies) in Tanzania who does not appoint a tax representative, regardless of the registration threshold, shall be required to apply for VAT registration as a taxable person to the Commissioner General. The regulations further provide that a person registered under the regulations shall not claim input tax.
Tax representatives. Where a nonresident carries on economic activities in Tanzania without having a fixed place making taxable supplies, the nonresident is required to appoint a resident VAT representative in Tanzania to act on its behalf in matters relating to VAT. Upon acceptance of the VAT representative appointed by the Commissioner, the VAT representative will perform for the taxable person all activities required under the VAT act 2014, including the following:
• Applying for registration, canceling registration and fulfilling other obligations relating to registration
• Paying any VAT or fine, penalty or interest imposed on the nonresident
The non-established business must notify the Commissioner, in writing, that a VAT representative has been appointed. A resident person who is a VAT representative of more than one nonestablished business must register separately for VAT for each non-established business.
Reverse charge. The reverse charge is applicable for imported services supplied by non-established businesses to business (B2B) customers in Tanzania (i.e., the customer is VAT registered in Tanzania). The customer (i.e., the recipient of the service) is considered to be the service supplier, and the input tax is the same as the output tax for the imported service. The obligation to account for VAT on imported services lies with a person whose taxable supplies are less than 90% of their total supplies.
Domestic reverse charge. There are no domestic charges in Tanzania.
Digital economy. Nonresident providers of electronically supplied services for B2C i.e., private individuals and non-VAT-registered businesses, are required to register and account for VAT in Tanzania. The nonresident provider who does not have a fixed place of business in Tanzania must opt to register as a taxable person or appoint a VAT representative. The VAT registration is done online through a simplified registration procedure accessible at https://taxpayerportal.tra.go.tz/. After successful registration, a nonresident will be required to file monthly VAT returns through the same portal.
A supply of electronic services by a nonresident person to an unregistered person (B2C) shall be treated as a supply made in Tanzania when the payment proxy includes credit or debit card information and bank account details of the recipient of the electronic services is in Tanzania; or the resident proxy, including the billing or home address or access proxy including internet address, mobile country code of the SIM card of the recipient is in Tanzania.
The definition of “electronic services” has been extended to online intermediation, online advertisement services and online data services.
Nonresident providers of electronically supplied services for B2B are not required to register and account for VAT in Tanzania. The customer is liable to self-account for the VAT via the reversecharge mechanism (see the Reverse-charge subsection above).
• Supplies of goods and supplies of immovable property to an address outside Tanzania
• Exports of taxable services to an address outside Tanzania
• Supplies of goods to a tourist or visitor by a licensed duty-free vendor who holds documentary evidence that the goods have been removed from Tanzania
• Supply of ancillary transport services for goods in transit through mainland Tanzania, where the service is an integral part of the international transport service and in respect of goods stored at the port, airport or a declared customs area for not more than 30 days while awaiting onward transport
• Supplies of gold to a licensed refinery in Mainland Tanzania and the Bank of Tanzania.
A special relief remains in place for taxable persons who entered into a binding agreement relating to exploration and prospecting of minerals, gas or oil with the government of Tanzania before 1 July 2015, the effective date of the VAT Act, 2014.
The term “exempt supplies” refers to supplies of goods and services that are not liable to VAT and that do not qualify for input tax deduction.
Examples of exempt supplies of goods and services
• Agricultural, horticultural or forestry machinery for soil preparation or cultivation, except lawn mower or sports ground rollers and parts
• Agriculture implements (e.g., liquid and powder sprayers, spades, shovels, mattocks, picks, hoes, forks, tractor trailers)
• Agriculture inputs (e.g., fertilizers, pesticides, fungicides, herbicides, rodenticides, fungicides)
• Fishery implements (e.g., nets, vessels, factory ships and other vessels for processing or preserving fishery products)
• Beekeeping implements (e.g., beehives, honey strainers, beehive smokers)
• Crop agricultural insurance
• Dairy equipment (e.g., milking machines, cream separators, milking machines)
• Medicine or pharmaceutical products including food supplements or vitamins supplied to the government entities
• Articles designed for people with special needs (e.g., spectacle lenses, sunscreen used by albinos)
• Educational materials (e.g., dictionaries, encyclopedias, other printed books, instructional chats, diagrams)
• Health care services (e.g., medical, dental, nursing, convalescent, rehabilitation) provided by an institution approved to provide such services, under the supervision or control of a person who is registered as being qualified to perform the services under Tanzania laws or whose qualifications to perform the services are recognized in Tanzania
• Transportation of persons by any means of conveyance other than taxicab, rental car or boat
• Petroleum products and equipment for natural gas (e.g., petrol, diesel, kerosene, compressed natural gas (CNG) plants equipment, natural gas pipes, transportation and distribution pipes)
• Intermediary services (e.g., financial services supplied free of charge, insurance premiums for aircraft)
• Import of goods by a registered and licensed explorer or prospector for exclusive use in oil, gas or mineral exploration or prospection activities, if also relieved from customs duties
• Educational services
• Immovable property (e.g., sale of vacant land)
• Tobacco not stemmed or stripped
• Preparations of a kind used in animal feeding
• Fertilized eggs for incubation
• A motor vehicle designed for use by persons with disability
• Importation of an ambulance by a registered health facility other than a pharmacy, health laboratory or diagnostic center
• Financial services for which no consideration is charged
Nondeductible input tax. VAT may not be recovered on purchases of goods and services that are not used for business purposes (for example, goods acquired for private use by a taxable person). In addition, input tax may not be recovered with respect to certain business expenses.
The following lists provide some examples of items of expenditure for which input tax is not deductible and examples of items of expenditure for which input tax is deductible if the expenditure is related to a taxable business use.
Examples of items for which input tax is nondeductible
• Purchase of a passenger vehicle or of spare parts, repair services or maintenance services for a passenger vehicle, unless the person’s economic activity involves hiring out or providing transport services in passenger vehicles (with seating capacity of more than 16 persons) and the vehicle was hired for that purpose
• Business entertainment unless involved in the ordinary course of the person’s economic activity
• Membership or right of entry for any person in a club, association or society of a sporting, social or recreational nature
Examples of items for which input tax is deductible (if related to a taxable business use)
• Purchases of goods for furtherance of economic activity
• Payments for services, such as audit fees
• Advertising
• Consultancy fees
• Accommodation
Partial exemption. A supplier of both taxable and exempt supplies is required to apportion input tax incurred in respect of supplies made by them. A taxable person may claim the whole of input tax directly attributable to taxable supplies but is not allowed to claim input tax directly attributable to exempt supplies.
VAT directly related to making exempt supplies is not recoverable. A taxable person who makes both exempt and taxable supplies cannot recover input tax in full. This situation is referred to as “partial exemption.”Under the Tanzanian VAT law, there is only one method for calculating the amount of credit recoverable for input tax purposes if a taxable person supplies both taxable and exempt goods, services or immovable property.
The following are the bases of recovery of input tax:
• If taxable supplies are greater than 90% of total supplies, credit is allowed for all the input tax.
• If taxable supplies are less than 10% of total supplies, credit is not allowed for any of the input tax.
• In all other cases, there will be partial recovery of the input tax.
Approval from the tax authorities is not required to use the partial exemption standard method in Tanzania. Special methods are not allowed in Tanzania.
Capital goods. Capital goods are defined in Tanzania to those classifiable under Chapters 84, 85 and 90 of Annex 1 to the protocol on the establishment of the East African Community Customs Union provided they are not imported for the purpose of resale in the ordinary course of carrying on the person’s economic activity.
Input tax credit for capital goods is only allowed where a person incurs input tax on capital goods for purposes of making taxable supplies only. Input tax incurred for purposes of making exempt supplies is not recoverable.
Where a person incurs input tax on capital goods partly for the purpose of making taxable supplies (that is input tax incurred for the purpose of making both taxable and exempt supplies), a
Supplies to nontaxable persons. It is a mandatory obligation for suppliers to use an electronic fiscal device to issue invoices (i.e., fiscal receipts) for all supplies made irrespective of whether the customer is a taxable person or not. Noncompliance with the requirement to issue invoices through an electronic fiscal device is subject to penalties.
Records. In Tanzania, examples of what records must be held for VAT purposes include records of all accounts, documents, tax returns, as well as other records that are required to be maintained under other tax laws, including but not limited to:
• Tax invoices and adjustment notes issued and received by the person.
• Customs documentation relating to imports and exports of goods by the person.
• Records relating to supplies of imported services to the person, whether or not those supplies were taxable supplies.
• A VAT account that records, for each tax period, all the output tax payable by the person in that period, or the input tax credit the person is allowed in that period, and all the increasing and decreasing adjustments that the person is required or entitled to make in that period.
• Records showing the deposit of amounts paid to the Commissioner General under the VAT Act.
In Tanzania, VAT books and records can be held outside the country. There are no restrictions as to the location where a taxable person can keep and maintain records. Documents can be maintained outside or inside Tanzania, provided they can easily be accessible once requested by the TRA. However, the Finance Act 2021 outlined that every taxable or liable person that maintains documents in electronic form must maintain a primary data server in Tanzania. A “primary data server” is defined to mean a physical, virtual or any other server that stores data created or collected by a taxable or liable person in the ordinary course of business. The abovementioned server must be accessible by the Commissioner General for the purpose of tax administration in the manner and time prescribed under the Tax Administration Act 2015. This requirement is due to take effect from 1 January 2024.
Record retention period. A taxable person is required to maintain documents for a period of at least five years from the end of the tax period to which they relate; or until a later date on which the final decision is made in any audit, recovery proceedings, dispute, prosecution or other proceedings under the VAT Act relating to that tax period.
Electronic archiving. Electronic archiving is allowed in Tanzania. Records can be archived in whichever method that is convenient to the business, either electronically or paper. There is no limitation on the methods of document retention.
I. Returns and payment
Periodic returns. The VAT period is one month. Returns must be filed by the 20th day of the month following the end of the tax period. If the 20th day falls on a public holiday or a weekend, the VAT return must be submitted on the next working day after that day.
A nil return must be filed regardless of whether there is VAT payable or not.
An electronic document is considered filed by a person and received by the Commissioner when a document registration number is created using the person’s authentication code.
Periodic payments. Payment of VAT is due in full on the same date as the submission, i.e., by the 20th day of the month following the end of the tax period. Payments are made online through a TRA taxpayer portal.
Electronic filing. Electronic filing is mandatory in Tanzania for all taxable persons. Taxable persons are required to file monthly VAT returns by using the TRA taxpayer portal. Daily reports (z-reports) are filed electronically to record all transactions.
There is a VAT e-filing system in place that simplifies the VAT filing process. The system among others, allows amendments of minor errors during filing and it also accommodates for input tax apportionment for taxable persons making both exempt and taxable supplies.
Payments on account. Payments on account are not required in Tanzania.
Special schemes. No special schemes are available in Tanzania.
Annual returns. Annual returns are not required in Tanzania.
Supplementary filings. No supplementary filings are required in Tanzania. However, a supplier of financial services is required to issue periodic statements to customers that shall be deemed to be tax invoices. The periodic statement must be issued within 10 days following the end of the month to which the tax period relates.
Correcting errors in previous returns. A taxable person may apply to the Commissioner to correct genuine omissions or incorrect declarations made in VAT returns. The application must be made within three years after the end of the relevant tax period. Correction of minor errors where the VAT amount does not exceed TZS1 million is through making an increasing or decreasing adjustment in the VAT return for the tax period in which the error is discovered.
Digital tax administration. Daily reports. Daily reports (z-reports) issued by an electronic fiscal device) are submitted electronically to the TRA to record all transactions. The are no exemptions as to issuance of daily z-reports. All taxable persons with an electronic machine for issuance of tax invoices are required to issue daily z-reports to capture all sales made during a particular day. The reports are to be issued even on days where no sales are made, except for weekends and public holidays. In addition, the reports are electronically submitted to TRA using the electronic machine by keying certain functions on the machine.
J. Penalties
Penalties for late registration. Traders that meet the registration threshold but do not register are liable for a fine of from 100 to 200 currency points (one currency point equals TZS15,000) where failure is made knowingly or recklessly, and a fine of from 50 to 100 currency points in any other case.
Notwithstanding any penalties imposed for late registration, a person is liable to pay interest on the VAT due. In addition, serious failures may lead to criminal proceedings that could result in a custodial sentence.
A taxable person who ceases to be liable for registration must notify the Commissioner in writing within 14 days after ceasing to become liable. Failure to make such notification, where such failure is made knowingly and recklessly punishable by a fine of 100 to 200 currency points.
Penalties for late payment and filings. The late filing of a VAT return or failure to pay tax by the due date is subject to a penalty of 2.5% of the amount of tax assessable with respect to the tax return less tax paid by the start of the period or 15 currency points, whichever is higher. The penalty is payable for each month or partial month for which the failure continues.
Penalties for errors. A person is liable for penalty upon making a false or misleading statement. The penalty is where the statement or omission is made without reasonable excuse, 50% of the tax shortfall or where the statement or omission is made knowingly or recklessly, 75% of the tax shortfall.
In the case of second or subsequent errors or omission, the penalty will be increased by 10%. Where a taxable person makes a voluntary disclosure, a penalty will be reduced by 10%.