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U.S. Income Tax Return Preparation and Advice for American Citizen (Expatriates) Living in Tanzania




At Taxes for Expats we have been preparing U.S. tax returns for U.S. Citizens and green card holders working in Tanzania for over 8 years. Our clients hail from all parts of the country - Dar es Salaam and Mwanza, Zanzibar and Morogoro, Dodoma and Tanga.





As a U.S. Citizen or green card holder you are legally required to file a U.S. tax return each year regardless of whether you already pay taxes in your residence country. 


We offer professional tax services. That means we figure out the best and most optimal way to file your U.S. tax return and avail you of all possible exclusions and deductions. But just as importantly - avoid the errors that would allow IRS to disallow your return and levy fines & penalties on top. You can also do them yourself - not that we recommend it. For more information please see IRS


The expatriate Foreign Earned Income Exclusion can only be claimed if you file your tax return on a timely basis. It is not automatic if you fail to file and can even be lost.


We have many clients living in Egypt and know how to integrate your U.S. taxes into the local income taxes you pay.  Any Egyptian income tax you already pay can be claimed as against the tax liability on your U.S. 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 calendar year as is standard in Egypt for U.S. tax purposes). You must, however, 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 form 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.

We have helped hundreds of expats around the world catch up with their past U.S. taxes because they have failed to file U.S. tax returns for many years. This is, in fact, our specialty and we offer a 10% discount to clients to wish to file multiple tax returns at once and get in full compliance with the IRS.

Work with a recognized expert to help you prepare your American tax return. We can also provide tax planning and advice with other expatriate tax; we look forward to working with you.

 

Below we include information on the Tanzanian Tax System for the American Expatriates.

Tanzania Individual Income Tax rates are progressive to 30%.

Monthly Income (Shs)           Tax Rate

0 - 135,000                             Nil
135,000 - 360,000                  14% of revenues in excess of 135,000
360,000 - 540,000                  Shs.31,500 + 20% of revenues in excess of 360,000
540,000 - 720,000                  Shs.67,500 + 25% of revenues in excess of 540,000
Over 720,000                         Shs.112,500 + 30% of revenues in excess of 720,000

Annual tax threshold is Shs. 1,620,000.

For non-resident employees of a resident employer the income is subject to withholding tax at the rate of 15%. However the total income of a non-resident individual is charged at the rate of 20%.

Basis – Tanzanian residents are taxed on their worldwide income. Nonresidents are taxed only on Tanzanian-source income.

Residence – An individual is resident in Tanzania for the tax year if he/she: (a) has a permanent home in Tanzania and is present in Tanzania during any part of the year; (b) is present in Tanzania during the year for a period(s) amounting in the aggregate to 183 days or more; (c) is present in Tanzania during the year and in each of the 2 preceding years for periods averaging more than 122 days in each tax year; or (d) is an employee or an official of the government of Tanzania posted abroad during the tax year.

Tax Filing status – Each individual must file a return; joint filing is not permitted.

Taxable income – Income is taxed on a graduated scale: TZS 112,500 is charged on the first TZS 720,000 per month, and 30% on the excess. Taxable employment income includes both cash and non-cash benefits. Income derived by an individual in conducting a business is taxed in the same way as a company, although special rates apply if the turnover is less than TZS 20 million.

Capital gains – Gain or loss is included in business or investment income and taxed at 30%. For land and buildings, a single instalment is payable at 10% for residents and 20% for nonresidents at the time of transfer, which is creditable against the final tax liability.

Tax Deductions and allowances – Medical expenses, health insurance premiums and onsite meals provided by an employer to employees on a non-discriminatory basis do not form part of taxable employment income. Social security contributions are not taxable.

 

Other taxes on individuals:

Capital duty – No
Stamp duty – Stamp duty may be levied either as a specific amount or at progressive rates up to a maximum of 1% of the value of consideration.
Capital acquisitions tax – No
Real property tax – No
Inheritance/estate tax – No
Net wealth/net worth tax – No
Social security – The employer and employee each contribute 10%, with the employer deducting the employee's contribution from wages.
Tanzania tax year – Tanzania tax year is the calendar year

Filing and payment of tax – Except for resident individuals who have no income tax payable for a year of income or who only derive employment income subject to PAYE, every person is required to file an income tax return no later than 6 months after the end of the year and attach any withholding tax certificates supplied with respect to payments received during the year of income. An estimated tax return is due within the first 3 months of a tax year, with estimated tax due in quarterly instalments.

Tax on employment income is withheld by the employer under the PAYE system and remitted to the tax authorities. Income not subject to PAYE is self assessed and 4 instalments are payable in advance with the final balance paid 6 months after the year end.

Penalties – Individuals are subject to penalties for late filing.

 

TAX RATES FOR SMALL BUSINESSES

Income tax rates for small and medium enterprises are as follows:

Turnover (Shs)                              Tax Payable Per Annum (Shs)
0 - 3,000,000                                35,000 or 1.1% of the turnover
3,000,001 - 7,000,000                   95,000 or 33,000 plus 1.3% of turnover in excess of 3,000,000
7,000,001 - 14,000,000                  291,000 or 85,000 plus 2.5% of turnover in excess of 7,000,000
14,000,001 - 20,000,000                520,000 or 260,000 plus 3.3% of turnover in excess of 14,000,000

 

Tanzania Corporate Taxation

The general rate of company tax in Tanzania is 30%.

Companies listed on the Dar es Salaam Stock Exchange that have issued at least 30% of their share capital to the public are subject to a corporate income tax rate of 25%.

Alternative minimum tax – A company making tax losses for 3 consecutive years becomes liable to a minimum tax at 0.3% on turnover.

Residence – A corporation is a resident if it is incorporated under the Tanzanian Companies Act or, at any time during the tax year, management and control of its affairs are exercised in Tanzania.

Basis – Residents are taxed on worldwide income. Nonresidents are taxed on income sourced in Tanzania. Foreign-source income for residents is taxed under the same rules as Tanzanian-source income, although foreign source losses may only be offset against foreign-source income. Branches of foreign corporations are taxed in the same way as resident companies, with an additional tax on branch profits.

Taxable income – Taxable profit is obtained by adjusting income under specific tax rules. Generally all expenditure incurred wholly and exclusively in the production of income from any business or investment is deductible. Capital expenditure is subject to specific depreciation rates.

Taxation of dividends – Dividends received by a resident company from another resident company are exempt if the recipient holds 25% or more of the payor's shares.

Taxation of capital gains – Gain (or loss) is included in business or investment income and taxed at 30%. For land and buildings, a single instalment is payable at 10% for residents and 20% for nonresidents at the time of transfer, which is creditable against the final corporate income tax liability.

Losses –Subject to continuity-of-ownership and same business tests, losses may be carried forward indefinitely. The carryback of losses is not permitted.

Foreign tax credit – Foreign tax paid may be credited against Tanzanian tax on foreignsource income, but the credit is limited to the amount of Tanzanian tax payable. Excess credits may be carried forward.

Surtax – No
Participation exemption – No, but see under "Taxation of dividends".
Holding company regime – No

Tax Incentives – Companies in export processing zones are exempt from income tax and withholding tax on dividends, interest and rent for the first 10 years.



Withholding tax:

Dividends – Dividends paid to a resident company controlling 25% or more of the distributing company's shares are exempt. Dividends paid by a company listed on the Dar es Salaam stock exchange are taxed at 5%; otherwise, the rate is 10%. Dividends paid to nonresidents are subject to a 10% withholding tax.

Interest – The general rate on interest paid to residents and nonresidents is 10%; exemptions are available for interest earned by nonresidents on deposits in banks registered by the Bank of Tanzania and on interest paid to resident financial institutions.

Royalties – The withholding tax on royalties paid to residents and nonresidents is 15%.

Branch remittance tax – A branch profits tax is imposed at a rate of 10%.

 

Other taxes on corporations:

Capital duty – No
Payroll tax – The Skills and Development Levy, payable by the company, is calculated at 6% of cash emoluments to employees.
Real property tax – No
Social security – The employer and employee each contribute 10%, with the employer deducting the employee's contribution from wages.
Stamp duty – Stamp duty may be levied either as a specific amount or at progressive rates up to a maximum of 1% of the value of consideration.
Transfer tax – A TZS 50,000 transfer tax applies to motor vehicles.
Other – A City Service Levy is imposed at a rate of 0.3% of turnover.

 

Anti-avoidance rules:

Transfer pricing – Taxpayers are required to apply the arm's length principle to transactions between associates, both resident and nonresident. Transfer pricing guidelines are being drafted.

Thin capitalisation – An interest deduction for payments made by an exempt controlled resident entity (as defined) is limited to the sum of interest income plus 70% of total income, excluding interest income and interest expenses. Non-deductible amounts may be carried forward.

Controlled foreign companies – Under Tanzania's CFC rules, the attributable income less distributions from a controlled foreign trust or company is included in the income of a "controlling person."

Other – Taxpayers are subject to a general anti-avoidance rule when the main purpose of an arrangement is the avoidance or reduction of tax liability. Specific rules negate income splitting

Disclosure requirements – The following disclosures must be made in the Return of Income of an Entity form: whether the entity is dormant; whether the entity is a Tanzanian resident as a result of its place of effective management in Tanzania; whether the entity is exclusively a tax resident of another country as a result of the application of a tax treaty; whether the entity has a participation right in a CFC; and whether the return is in respect of a branch of a foreign company.

Tanzania Tax year – The calendar year is used unless the taxpayer has received approval to use a different 12-month period.

Consolidated tax returns – Consolidated returns are not permitted; each company must file a separate tax return.

Tax Filing requirements – Under the selfassessment regime, an estimated return is filed 3 months after the start of the tax year. Estimated tax is payable in 4 instalments. The tax return must be filed within 6 months from the tax year end.

Penalties – Penalties apply for late filing of returns and late payment.

Rulings – Taxpayers may request a private ruling setting out the Commissioner's position with regard to the application of the tax code on a proposed or actual arrangement. Rulings are binding on the Commissioner where, before its issuance, full and true disclosures of all aspects of the arrangement relevant to the ruling were made.

Tanzania vat (Value Added Tax) rates

 

The standard rate of Value Added Tax in Tanzania is 18%.

A zero rate mainly applies to exports of goods and professional and communications services.

Taxable transactions – VAT is levied on the supply of goods and services.

Registration – The registration threshold is  a turnover of TZS 40 million over a period of 12 consecutive months.

Filing and VAT payment – Monthly returns and payment are due by the last business day of the month following the supply.