Following the recent amendments passed on 01st July 2022 that saw the establishment of Digital Service Tax (DST) to non-resident electronic service providers in the Income Tax Act, 2004 and the Value Added Tax Act, 2014, the Tanzania Revenue Authority (TRA) have now operationalized the online portal for enabling such registration.
Furthermore, the Government through GN No. 478U and GN No. 478Q had published the Income Tax (Registration of Non-Resident Electronic Service Providers) Regulations, 2022 and the Value Added Tax (Registration of Non-Resident Electronic Service Suppliers) Regulations, 2022 respectively with a sole purpose of providing guidelines and clarity on how taxpayers who are non-resident electronic service providers can register and make the necessary tax payments to the TRA with respect to the digital services.
The launched online portal now supplements the provisions that were already placed by the aforementioned regulations. In a nutshell, the regulation required any non-resident electronic service provider (whether an individual or entity) who earns an income from a resident individual in Tanzania to register for obtaining Taxpayer Identification Number (TIN) and Value Added Tax Registration Number (VRN).
1. Registration procedure
The regulations that were also effective from 01st July 2022 had given such non-resident electronic service providers, a timeline of 6 months to complete the registration process.
However, it is only on 30th December 2022 that the TRA issued a public notice explaining the establishment of the simplified online registration framework, including details of the portal that will be used. It is therefore of paramount importance to note that such timelines have passed, and therefore, the eligible taxpayers should make necessary efforts to complete the required registration in order to be compliant.
Such registration can be processed through their website.
The applicant will be required to provide information about their business that includes the following:
- name of the business including the business trading name;
- business sector, activity and sub-activity (if any) performed;
- certificate of incorporation;
- details of the contact person for tax matters;
- registered physical address of the business;
- website or uniform resource locator of the supplier through which the business is conducted;
- details of social media accounts; and
- any other information as the Commissioner General may require.
The applicant will also be required to attach a copy of the business certificate and certificate of incorporation (in case of an entity).
Upon successful application, the applicant will be able to track the registration process through the portal and once all is done, the TIN and VRN information will be shared via email to the contact person’s address.
2. Tax payment and return compliance
It should be noted that, income tax is charged at 2% of the gross payment (not including VAT) received from the resident individual. On the other hand, VAT is levied at 18% of the consideration. Therefore, the non-resident person should provide for mechanism that will be able to capture the sales to a resident individual so as to be able to collect the resultant VAT upon sale.
The non-resident person will be required to account for the income earned from resident individuals when supplying the electronic services and as such, will be liable for filing and payment of taxes.
For purposes of income tax and VAT as ascribed in the Acts and Regulations, the non-resident person will be liable to file the prescribed monthly income tax and VAT returns online on or before the 7th day of the month following the month to which the return relates. For example the tax and VAT for the returns of January 2023 should be filed on or before 7th of February 2023. To avoid potential system challenges and imposition of unnecessary late filing penalties and late payment interest, it is advised that non-resident persons file their monthly returns on an ample time before the due date. Furthermore, since most non-resident persons do not have physical presence in Tanzania, and in order to simplify the compliance and administrative burden, the government should consider to change the filing timeline to quarterly or semi-annually. Other countries such as United Kingdom, Spain, Austria and France are not requiring monthly returns due to the same reason.
These amounts will be deposited to the designated account maintained by the Commissioner General in Tanzanian shillings or its equivalent convertible currency at the Bank of Tanzania’s prevailing exchange rate on the date of payment.
3. Other important aspects to note!
When operating in Tanzania as a non-resident electronic service provider, there will be no obligation to acquire and use an electronic fiscal device (EFD).
With regards to the VAT return, no input tax will be claimed by the non-resident person. Therefore, the vatable services that the non-resident person will procure locally will not be liable for input VAT claiming purposes. There is a need to engage both parties and check whether the non-claimable input VAT creates a significant business cost to the non-resident persons and whether a change can be made to allow them to claim input VAT on local purchases.
Furthermore, the TRA have issued a user manual that also provides a step-by-step guide for the registration process.
4. Conclusion
It is vital that eligible non-resident electronic service providers earning income from resident individuals in Tanzania take this opportunity to register themselves for tax purposes. It should be noted that by not complying with the registration, the non-resident person will be liable for a fine of between Tanzania shillings 1,500,000 and 4,500,000 or to imprisonment for a term not exceeding three years or to both.
Moreover, should there be any amount of tax evaded by not being registered, in addition to the aforementioned fine, a fine twice the amount of tax evaded or imprisonment for a term not exceeding three years will be imposed.
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