Taxation for Non-profit Organizations in Tanzania: A Step-by-Step Guide
Navigating the taxation landscape for non-profit organizations (NPOs) in Tanzania can be challenging. This guide, based on the Second Revised Edition 2024 of the TAXATION FOR NONPROFIT ORGANISATIONS IN TANZANIA, A guide for Civil Society Organizations, provides a detailed, step-by-step approach to help NPOs understand their tax obligations and rights.
1. Defining a Nonprofit Organization
Nonprofit organizations in Tanzania include various entities such as NGOs, charitable organizations, faith-based organizations, trusts, associations, community-based organizations, cooperative societies, legal aid providers, and philanthropic organizations. A nonprofit organization is characterized by its operation for purposes other than profit generation, and any profits made must be reinvested into the organization’s objectives.
For personalized advice on establishing and maintaining a nonprofit organization, consider consulting with experts like S R Auditors to ensure compliance with all regulatory requirements.
2. Obligations of Nonprofit Organizations under Tax Laws
Nonprofit organizations in Tanzania are required to comply with several tax obligations:
2.1. Registration as a Taxpayer
Nonprofit organizations must acquire a Taxpayer Identification Number (TIN) immediately after formation. The process involves applying through the Taxpayer Portal and providing necessary documentation, including the registration certificate, constitution, valid identification for office bearers, an introduction letter from the Ward Executive Officer, and a lease agreement or title deed of the office premises.
2.2. VAT Registration
A nonprofit organization is required to register for VAT if its turnover from taxable supplies (excluding grants and donations) is equal to or greater than TZS 100 million in six months or TZS 200 million in twelve months. This requirement applies mainly to NPOs involved in business-related activities.
2.3. Use of Electronic Fiscal Devices (EFDs)
A nonprofit organization conducting any economic activity with a turnover of TZS 11 million and above is required to issue fiscal receipts using Electronic Fiscal Devices (EFDs).
2.4. Timely Payment of Taxes
Every taxpayer has a duty to pay tax promptly as and when they fall due. Failure to comply with this obligation results in interest, penalty, and fines.
2.5. Filing of Tax Returns
Any organization registered as a taxpayer must file tax returns within the prescribed time under respective tax laws. Tax returns must be filed electronically for convenience.
2.6. Record Keeping
An organization is required to keep all business records relating to tax matters for a period of five years from the relevant date or until a final decision is made on the documents in case of dispute resolutions.
2.7. Notification of Change of Particulars
Organizations are required to notify the Commissioner General of any change of particulars of the organization such as office location, contact numbers, and amendments to constitutive documents.
2.8. Full Disclosure of Business Activities
Organizations have an obligation to disclose to the Commissioner General all matters relating to business activities conducted by the respective organizations.
To navigate these obligations seamlessly, professional assistance from S R Auditors can be invaluable. Their expertise can help ensure that your organization remains compliant with all tax laws.
3. Rights of Nonprofit Organizations under Tax Laws
Nonprofit organizations have several rights under Tanzanian tax laws, including:
3.1. Privacy and Confidentiality
An organization has the right to privacy and confidentiality for private and business information supplied to the TRA unless the law provides otherwise.
3.2. Tax Incentives and Exemptions
Like any other taxpayer, non-profit organizations have the right to tax incentives and exemptions allowed under the tax laws. The type of tax relief depends on the nature of activities that a non-profit organization undertakes as well as adherence to proper applicable procedures.
3.3. Objections and Appeals
An organization has the right to object an assessment or tax decision made by the Commissioner General to the extent that such a right is provided for under the tax laws.
3.4. Correction of Errors
When an organization makes an error on issuance of a fiscal receipt, it should report in writing to the nearest TRA office for rectification and maintain a copy for future reference.
Ensuring that your nonprofit fully understands and exercises its rights can be complex. S R Auditors can provide detailed guidance and support to help you navigate these processes effectively.
4. Common Taxes Payable by Nonprofit Organizations
Nonprofit organizations in Tanzania are eligible to pay the following taxes:
4.1. Corporate Tax
Nonprofit organizations like any other taxpayers are eligible for paying corporate tax arising from undertakings or business/investments carried out by the organizations. The applicable rate of corporate tax for nonprofit organizations is 30% on annual taxable income.
4.2. Withholding Taxes
A nonprofit organization has an obligation to withhold tax at the rate provided upon making payment for professional services rendered. The rate is 5% for resident and 15% for non-resident persons. Nonprofit organizations renting office premises or other spaces for commercial purposes are required to withhold tax at the rate of 10% before making payment to landlords/managing agents. Additionally, upon payment of interest in respect of money borrowed from non-financial institutions or from non-resident lenders, nonprofit organizations are required to withhold tax at the rate of 10%.
4.3. Capital Gains Tax (CGT)
When an organization derives a gain from the realization of an interest in land or buildings situated in Tanzania, it shall pay income tax by way of single installment equal to 10% for resident organizations and 20% for non-resident organizations.
4.4. Pay As You Earn (PAYE)
Employees under nonprofit organizations are subject to remittance of PAYE as long as remunerations to their respective employees exceed the prescribed minimum taxable salary threshold.
4.5. Skills Development Levy (SDL)
SDL is charged under section 14 of the Vocational Education and Training Act (VETA) and collected by the Commissioner General of TRA from gross emoluments payable by employers with ten (10) or more employees in the payroll month. The levy chargeable is equal to 3.5% of the total gross monthly emoluments payable by a nonprofit organization to all employees in respect of that month for Tanzania Mainland and 4% for Zanzibar.
4.6. Stamp Duty
Payment of Stamp Duty is guided by the Stamp Duty Act, [Cap. 189 R.E. 2019]. Section 5 of the Act provides that, all documents (instruments) listed in the schedule of the Stamp Duty Act and which are executed in Tanzania Mainland or executed outside Tanzania Mainland but, relate to any property, or any matter to be performed in Tanzania Mainland, shall be chargeable with stamp duty.
For a chargeable instrument to be admitted as evidence before the court of law must be duly stamped as provided for under Section 47 (1) of the Stamp Duty Act under otherwise such a chargeable instrument will be inadmissible. In case of doubt as to whether an instrument is required to be stamped or as to the amount of the Stamp Duty, contact the nearest TRA Office.
The most common instruments for nonprofit organizations include:
- Conveyancing documents (transfer of ownership)
- Commercial contracts
- Valuation reports
- Memoranda and Articles of Association
- Powers of Attorney
Due date and persons liable to pay stamp duty:
- Within 30 days from signing an instrument, the instrument holder is required to take the instrument to TRA for stamp duty assessment and payment. Due date is within 30 days from the date of signing/execution of an instrument.
- Section 41 of the Act gives room for parties to agree on who shall be liable to pay the stamp duty. In the absence of an agreement, the stamp duty may be paid by either drawer, maker, or executor depending on the nature of an instrument.
Offenses:
- Penalty/Fines: Covered under Sections 73, 74, 75, and 76 of Stamp Duty Act and Section 91 of the Tax Administration Act, [Cap 438 R.E. 2019].
4.7. Import Duty and VAT Exemptions
A nonprofit organization may apply for VAT exemption to the Commissioner General on importation or supply of goods or services to be used solely for projects implemented by the respective nonprofit organization. Such exemptions are provided under the Value Added Tax Act and related amendments.
Given the complexity of these taxes, S R Auditors can assist in ensuring accurate calculations and timely payments to avoid penalties and ensure compliance.
5. Important Considerations
5.1. Timely Submission of Applications
Most organizations eligible for exemptions do not submit applications on time. Organizations are advised to send the application as early as possible to have the ruling made before arrival of the goods to avoid storage and demurrage charges.
5.2. Accountability for Past Exemptions
For accountability purposes, organizations receiving exemptions are required to provide utilization reports accounting for the remission previously granted.
To manage these considerations effectively, partnering with professionals like S R Auditors can streamline the process and provide peace of mind.
6. Becoming a Charitable Organization for Tax Purposes
Nonprofit organizations can apply to become a charitable organization for tax purposes, which provides additional tax relief. The application involves submitting a form and supporting documents to the Commissioner General.
By following these guidelines, nonprofit organizations in Tanzania can ensure compliance with tax laws while benefiting from available tax incentives and exemptions. For more detailed advice and assistance with tax compliance, consider consulting with professional advisors like S R Auditors.
This article aims to provide a comprehensive overview of the taxation requirements for nonprofit organizations in Tanzania. For specific queries and personalized assistance, contact S R Auditors for professional advisory services.
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The information provided in this website is for general informational purposes only and should not be construed as legal, financial, or professional tax advice. While we strive to ensure the accuracy and relevance of the content, we do not warrant or guarantee the completeness, reliability, or suitability of the information for any purpose. Readers are advised to consult with a qualified tax professional or legal advisor before making any decisions or taking any actions based on the information presented in this article. We disclaim any liability for any loss or damage incurred as a result of reliance on the content provided herein.
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