Employers in Tanzania have several tax responsibilities. One of these is the Pay As You Earn (PAYE) income tax. Employers must withhold PAYE from employee salaries and remit it to the Tanzania Revenue Authority (TRA). Progressive tax rates apply, and PAYE is due by the 20th of the month following the month of deduction.

Social Security Contributions

Employers also have a responsibility to contribute to various social security funds on behalf of their employees. These funds include the National Social Security Fund (NSSF), where both employer and employee contribute 10% of the employee's gross salary, and the Workers' Compensation Fund (WCF), where the employer contribution rate is 0.5% of gross salary. Other funds may apply depending on the sector. These contributions are typically paid along with PAYE on a monthly basis.

Skills and Development Levy (SDL)

Employers with ten or more employees must pay the Skills and Development Levy (SDL). The rate for this levy is 3.5% of total payroll costs, and it is paid monthly, alongside PAYE.

Other Potential Taxes

Employers may also be responsible for other taxes. For example, property tax may be applicable if the employer owns real estate property. Stamp duty is applicable to certain transactions and documents.

In Tanzania, all employees earning income are subject to Pay As You Earn (PAYE) income tax. This is a type of income tax on employment earnings. The rates for this tax are progressive, varying based on income level. The tax is calculated on the employee's gross salary after any applicable allowances.

Social Security Contributions

Mandatory contributions to various social security funds are another type of employee tax deduction. All employees in the formal sector must contribute to these funds. The rates for these contributions include a 10% of gross salary deduction for the National Social Security Fund (NSSF). Other funds may apply depending on the sector. These contributions are calculated based on a percentage of the employee's gross salary.

Other Potential Deductions

There are other potential deductions that employees may encounter. If the employee belongs to a private pension scheme, contributions may be deducted from their salary. Additionally, union dues may be deducted if the employee is a member of a trade union.

In Tanzania, the standard VAT rate is 18%. This rate applies to most services unless they are specifically exempted.

VAT Exemptions

Certain types of services are exempt from VAT in Tanzania. These include financial services such as banking, insurance, and some financial transactions. Specific categories of medical services outlined in the VAT Act are also exempt. Educational services provided by approved educational institutions are exempt as well. There might be a limited range of other exempt services, and it's essential to consult the Tanzania Revenue Authority (TRA) or the VAT Act for an updated list.

VAT Registration and Filing

Businesses with a taxable turnover exceeding TZS 100 million annually must register for VAT. VAT returns are generally filed monthly. VAT payments are due by the 20th of the month following the reporting period.

VAT on Imported Services

VAT on imported services is accounted for by the recipient of the service through a reverse charge mechanism. This applies if the business has exempt supplies of 10% or more of its total supplies.

The Tanzanian government provides a variety of tax incentives to stimulate economic activity and attract investment. These incentives range from Corporate Income Tax (CIT) exemptions and reductions to investment deductions and allowances, and benefits for businesses operating in Free Economic Zones (FEZs).

Corporate Income Tax (CIT) Exemptions and Reductions

There are two types of CIT incentives: complete exemption and reduced rates. The complete exemption is available for specific projects in priority sectors such as agriculture, mining, and manufacturing. Reduced CIT rates may apply for specific industries or newly listed companies on the Dar es Salaam Stock Exchange.

To qualify for these incentives, businesses must meet certain criteria. These include investment size thresholds exceeding a set amount (which varies by sector), the location of the business (may be specific economic zones or regions), and job creation and contribution to technology transfer. To apply, businesses should contact the Tanzania Investment Centre (TIC) for details and guidance on submitting an application outlining the investment project and demonstrating adherence to eligibility requirements.

Investment Deductions and Allowances

Investment deductions and allowances include capital allowances and import duty and VAT exemptions. Capital allowances are accelerated depreciation deductions for capital expenditures on machinery, equipment, and infrastructure. Import duty and VAT exemptions apply to specific imported machinery, raw materials, and construction materials used in qualifying projects.

The qualification criteria for these incentives include the nature of the investment project and its alignment with government priorities, and minimum investment thresholds. The application process is similar to the CIT exemption process, with applications typically submitted through the Tanzania Investment Centre (TIC).

Free Economic Zones (FEZs)

FEZs are designated areas offering significant tax and customs duty benefits to attract foreign and domestic investment. To qualify for these benefits, businesses must meet certain criteria, including the nature of the business activity (manufacturing, trading, services) and minimum investment thresholds (which vary depending on the type of business). For specific application procedures and required documentation, businesses should contact the relevant Free Economic Zone authority.