July 22, 2022
2022-1110 Tanzania issues regulations on taxation of electronic services - The Regulations are effective 1 July 2022 following the amendments introduced by the Finance Act, 2022 on taxation of electronic services provided by nonresidents.
- A simplified registration process will apply to nonresident suppliers of electronic services to account for income tax and value-added tax.
- Nonresident suppliers of electronic services are required to register within six months from 1 July 2022. There is no threshold for registration.
|
Executive summary On 28 June 2022, the Tanzanian Parliament passed the Finance Bill, 2022. On 30 June, the Bill was assented to by the President to become the Finance Act, 2022. The Act amended the Income Tax Act, CAP 332 by imposing income tax by way of single installment on a nonresident who receives a payment that has a source in Tanzania from an individual, other than in conducting business, for services rendered through a digital marketplace. The Act also amended the Value-Added Tax Act, CAP 148 by requiring a nonresident supplier who has no presence in Tanzania but makes taxable supplies for which value-added tax (VAT) is payable to apply to the Commissioner General (CG) of the Tanzania Revenue Authority, for registration where it is impracticable for the nonresident supplier to appoint a VAT representative because of business circumstances. The Act granted powers to the Minister for Finance to issue regulations prescribing procedures for assessing and collecting income tax on digital services. Ministerial powers to issue regulations prescribing procedures for assessing and collecting VAT were already in place. On 1 July 2022, the Minister for Finance issued the following regulations in line with the amendments introduced by the Finance Act, 2022: - The Income Tax (Non-Resident Electronic Services Provider) Regulations, 2022
- The Value Added Tax (Registration of Non-Resident Electronic Service Suppliers) Regulations, 2022
Both sets of Regulations are effective 1 July 2022. Detailed discussion Interpretation A harmonized definition will apply for both income tax and VAT purposes. Electronic service is defined to have the meaning ascribed to it under Section 51 of the Value Added Tax Act, CAP 148. Section 51 defines an "electronic service" to mean any of the following services provided or delivered through a telecommunications network: - Websites, web-hosting, or remote maintenance of programs and equipment
- Software and the updating thereof
- Images, text, and information
- Access to databases
- Self-education packages
- Music, films, and games, including gaming activities
- Political, cultural, artistic, sporting, scientific, and other broadcasts and events including broadcast television
Scope of electronic services Electronic services provided or delivered through the internet, or any other electronic means include the following: Categories | Sub-categories | - Websites
- Webhosting
- Remote programs and equipment
| - Search engines
- Automated helpdesk services
- Customizable search engine services
- Downloadable digital content including:
- Downloadable mobile applications
- E-books
- Films
| Software and updating thereof | - Application software
- System software
- Drivers
- Filters and firewalls
- Plugins
| | - Desktop themes
- Photographic images
- Pictorial images
- Screensavers
- Any right to view any item listed herein
| Access to database | - Subscription-based media:
- News
- Magazines
- Journals
- Periodicals
- Publications
- Blogs
- Database
- Information system services
- Games
- Internet-based auction services
- Social networking services
- Webcasts
- Webinars
- Websites
- Web applications
- Webs
- Electronic data management:
- Online data warehousing
- File sharing
- Cloud storage services
- Sharing and gig economic services including:
- Transport hailing services or platforms
- Electronic booking or electronic ticketing services
| Self-education packages | - Distance teaching program
- Educational webcast
- Internet-based course
- Internet-based education program
- Webinars
- Digitized content of any book or electronic publication
| | - Audio clips
- Broadcasts not simultaneously broadcast over any conventional radio network
- Jingles
- Live streaming performances
- Ringtones
- Songs
- Broadcasts not simultaneously broadcast over any conventional television network in Mainland Tanzania
- Documentaries
- Home-made videos
- Streaming services
- Movies
- Music videos
- Programs
- Television series
- Video clips
- Sound effects
- Games and games of chances:
- Internet-based game, including electronic game and multiplier role-playing game
- Interactive games, where such interactive game is a game of chance or game where the result is influenced by the skill of the player and game which is a combination of chance and skill
- Electronic betting or wagering
| Political, cultural, artistic, sporting, scientific and other broadcasts and events including broadcast television | |
Source rule and place of supply Source of payment for income tax purposes A payment for electronic services is deemed to be sourced in Tanzania where the recipient of the services is in Tanzania. A recipient is deemed to be in Tanzania if: - The payment proxy including credit or debit card information and bank account details of the recipient of the electronic services is in Tanzania
- 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
Place of supply for VAT purposes A supply of electronic services by a nonresident person is treated as a supply delivered in Mainland Tanzania when supplied to a non-VAT registered person if: - The payment proxy including credit or debit card information and bank account details of the recipient of the electronic services is in Mainland Tanzania.
- 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 Mainland Tanzania.
Registration The following are required to register with the CG: - A nonresident who provides electronic services to a resident individual.
- A nonresident who supplies electronic services to a non-VAT registered person in Mainland Tanzania and who does not appoint a VAT representative, regardless of the registration threshold.
- The VAT registration threshold is Tanzania Shillings (TZS) 100 million (m) annually.
Registration is required to be made within six months from 1 July 2022. An application for registration shall be made online using a prescribed form and must contain the following information: - Name of the business including the business trading name
- Certificate of incorporation
- Details of the contact person for tax matters (name, telephone number, email)
- Email and registered address of the business
- Website or uniform resource locator of the supplier through which the business is conducted
- Any other information required by the CG
Upon registration, the CG shall: - For income tax purposes: issue the nonresident with a Taxpayer Identification Number (TIN) for purposes of payment of tax and filing of tax returns.
- For VAT purposes: issue the nonresident with a Value Added Tax Registration Number (VRN) for purposes of payment of tax and filing of tax returns.
Compliance Income tax compliance A registered nonresident is required to: - File a return online in a prescribed simplified form stating the tax payable in respect of electronic services rendered in the tax period
- The amount of income tax payable is equal to 2% of gross payments received in a calendar month
- "Gross payment" is the payment made to the nonresident but excludes VAT
- Pay income tax to a bank account designated by the CG in TZS or its equivalent convertible currency at the prevailing exchange rate as published by the Bank of Tanzania (BOT) on the date of payment. BOT is the Central Bank of Tanzania
- Pay income tax and file the return on or before the seventh day of the following month
VAT compliance A registered nonresident is required to: - File a return online in a prescribed simplified form stating the tax payable in respect of electronic services rendered in the tax period
- The current standard VAT rate is 18%
- Pay VAT to a bank account designated by the CG in TZS or its equivalent convertible currency at the prevailing exchange rate as published by the BOT
- Pay VAT and file the return on or before the seventh day of the following month
A correction of errors with the effect of increasing or decreasing VAT payable shall be made in the VAT return for a subsequent tax period. A registered nonresident is not entitled to claim any input tax credit. Electronic fiscal device compliance Both Regulations exempt a registered nonresident from acquiring or using an electronic fiscal device (EFD). An EFD is used to issue tax invoices. Deregistration A nonresident who ceases to render electronic services permanently is required to inform the CG in a prescribed format and stating: - Reasons for deregistration
- Date of cessation of business
- Any outstanding taxes.
The CG has discretionary powers to deregister a nonresident whenever he deems fit. Non-compliance Penalty for false or misleading statements Making a false or misleading statement, or omitting to include material facts in a statement made to a tax officer attracts penalties as follows: - Where the statement or omission is made without reasonable excuse, 50% of the tax shortfall.
- Where the statement or omission is made knowingly or recklessly, 75% of the tax shortfall.
Interest for late tax payment Failure to pay income tax or VAT on the due date attracts interest at the statutory rate compounded monthly. - The statutory rate is the prevailing discount rate determined by the BOT.
- The current statutory rate is 5%.
Offense Noncompliance with any of the Regulations is an offense. Upon conviction, the following shall be imposed: - A minimum fine of TZS3m but not exceeding TZS4.5m or to imprisonment for a term not exceeding three years, or both
- Where the noncompliance results to tax evasion, in addition to the fine set out above, a fine of twice the amount of tax evaded or imprisonment for a term not exceeding three years
__________________________ For additional information with respect to this Alert, please contact the following: Ernst & Young (Tanzania), Dar es Salaam Ernst & Young Société d'Avocats, Pan African Tax – Transfer Pricing Desk, Paris Ernst & Young LLP (United Kingdom), Pan African Tax Desk, London Ernst & Young LLP (United States), Pan African Tax Desk, New York | 
