Tax Guide for US Expats Living and Working in Tanzania
Who Is Liable For Income Taxes in Tanzania
Residents are subject to income tax on worldwide income. Nonresidents are subject to tax on Tanzania-source income only. All expatriates are required to pay tax on income earned in Tanzania, except for those who enter the country under special agreements with the government.
Individuals are considered residents if they meet any of the following conditions:
- They are present for 183 days or more in the income year.
- They are present for an average of 122 days or more in the income year and in each of the two preceding income years.
- They have a permanent home in Tanzania and are present for any length of time during the income year.
Income subject to tax. The taxation of various types of income is described below.
Employment income. Taxable employment income includes any compensation for employment received in cash, plus the value of employer-provided benefits. Directors’ fees are generally included in employment income. However, non-executive directors are subject to a 30% secondary employment tax on their directors’ fees. For employees and directors, employer-provided housing is valued at 15% of gross salary less the amount of rent paid.
Nonresidents are taxed on employment income that is sourced in Tanzania.
The cost of other benefits is also included in employees’ income. These benefits include the payment of utility expenses, tuition expenses and the services of a watchman or gardener. An education allowance provided by employers to their expatriate or local employees’ children under 18 years of age is taxable income and is also included in income for national social security computation purposes. Taxable benefits are included in taxable employment income.
The following benefits are specifically exempt from tax:
- The traveling costs for passage of the taxpayer, spouse and up to four children, if the individual is domiciled more than 20 miles from his or her place of employment and performs services for the employer only
- Cafeteria services on the business premises that are available on a nondiscriminatory basis
- Contributions to approved pension funds and provident funds
- The value of medical services granted on a nondiscriminatory basis to a full-time employee or a director providing full-time services, the spouse and four children
- Benefit for use of motor vehicle if the employer does not claim any deduction or relief with respect to the vehicle
Self-employment and business income. Self-employment and business income is added to other income and taxed at the rates.
Nonresidents are subject to tax on business activities carried out in Tanzania at the rates that apply to residents.
Investment income. The following nonresident withholding taxes apply.
Taxation of employer-provided stock options. The method of taxing employer-provided stock options has not yet been determined in Tanzania.
Capital gains. Capital gains derived from the sale of real property by individuals not engaging in business are subject to tax at a rate of 10%.
Deductions
Deductible expenses. For expenses to be deductible from employment income, an employee must generally establish that the expenses were incurred wholly and exclusively in the production of income. This is a narrower standard than that required for deductible expenses for self-employed persons (see Business deductions).
Business deductions. Expenses directly related to accrued business income, including the cost of goods sold and sales and administrative expenses, are allowed as deductions.
Relief for losses. Losses resulting from an individual’s trade, vocation or business activities may be carried forward indefinitely. They may not be carried back.
B. Estate and gift taxes
Tanzania does not impose estate duty or gift tax.
C. Social security
Tanzania does not have a comprehensive social security system. However, the following pension funds are available:
- The Parastatal Pension Fund and the National Social Security Fund, for employees in the private sector
- Public Service Pension Fund for central government employees
- The Local Authorities Provident Fund for local government employees
For the Parastatal Pension Fund, the employer contributes 15% of the employee’s gross salary and the employee contributes 5%. For the National Social Security Fund, the employee and employer each contribute 10% of gross salary, provided that the employee joins the fund before reaching 40 years of age. Contributions may be claimed in full after reaching 50 years of age. Employees who claim their pension before reaching 50 years of age are paid only the surrender value, that is, the amount of the contributions made by the employee to the fund, excluding contributions from the employer. In exceptional cases, membership in the fund may continue after the employee reaches 50 years of age, but in all cases, membership ceases at 60 years of age.
For the Public Service Pension Fund, central government employees contribute 5% of gross salary, and the government contributes 15%.
For the Local Authorities Provident Fund, both the employer and the employee contribute 10% of gross salary. Full payment is made at retirement between 50 and 55 years of age.
No ceiling applies to the amount of salaries subject to social security contributions in Tanzania.
E. Tax treaties
Tanzania has entered into double tax treaties with the following countries.
Canada
India
South Africa
Denmark
Italy
Sweden
Finland
Norway
Zambia
The 15% rate of withholding tax on pension or retirement annuities is reduced to 12.5% if the recipient is resident in a country that has entered into a tax treaty with Tanzania.
To learn more about the history, culture, economy and other information about Tanzania
We have been preparing US income tax returns for US Citizens and permanent residents living in Tanzania for over 15 years. As a US Citizen or permanent resident (green card holder) you are required to file a US return each year regardless of the fact that you file and pay taxes in your residence country. The expatriate earned income exemption ($100,800 for 2015) can only be claimed if you file a timely tax return. It is not automatic if you fail to file.
We have scores of clients located in Tanzania and know how to integrate your US taxes into the local income taxes you pay. Any income tax you pay there can be claimed as a dollar for dollar credit against the tax on your US return on the same income.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the tax fiscal year for US tax purposes). You must pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these forms or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
There are certain times you may wish to make elections with respect to your Corporation or Investment Company which will give you US tax benefits. There are other situations where forming a US corporation to receive your business income may be more advantageous than using a corporation in your resident country. We can help you with these decisions.
If you are self-employed, you will have to pay US self-employment taxes (social security). If you are a bona-fide employee you do not have to worry about paying US social security on your wages earned in Tanzania.
We have helped hundreds of expats around the world catch up because they have failed to file US returns for many years. Unfortunately, unlike India, Canada, UK, etc. you must also file so long as you are a US citizen or resident. You can if you follow proper IRS and State Department procedures surrender your US Citizenship and therefore cut off your obligation to pay US taxes in the future. You must surrender that Citizenship for non-tax avoidance reasons and then can usually not return to the US for more than 30 days per year for the subsequent ten years.
Let us help you with your US tax returns, US tax planning and other US tax and legal concerns. Download our expat tax questionnaire or request a request a consultation by phone, skype or email