This piece highlights issues for consideration when starting a foreign business in Tanzania in four areas: 1) foreign business start-up, 2) access to industrial land, 3) foreign ownership issues across sectors, and 4) commercial dispute arbitration.
Foreign Business Start-Up
It takes 14 procedures and 38 days to establish a foreign-owned limited liability company (LLC) in Dar es Salaam, Tanzania. This is slower than both the IAB regional average for Sub-Saharan Africa and the IAB global average. Domestic as well as foreign-owned LLCs must have at least 2 shareholders. In addition to the procedures required of domestic companies, a foreign-owned LLC must authenticate the parent company’s documents abroad. If the company wants to engage in international trade, it must obtain a trade license from the Ministry of Industry and Trade. The Tanzania Investment Centre (TIC) offers fast-track service to establish a business in Tanzania. A foreign company is not required to obtain an investment approval in Tanzania, unless it decides to apply for TIC’s incentive certificate to benefit from tax incentives. The business registration documents are available online. Foreign companies are free to open and maintain bank accounts in foreign currency. There is no minimum capital requirement for foreign-owned LLCs unless the project is registered with TIC, in which case the minimum capital is $300,000.
Access to Industrial Land
In Tanzania, all land is publicly held, and the president acts as trustee. Foreign entities are prohibited from owning land, except in the following circumstances: as a right of occupancy for purposes of investment approved under the Tanzania Investment Act; as a derivative right for purposes of investment approved under the Investment Act; or as an interest in land under a partial transfer of interest by a citizen for purposes of investment approved under the Investment Act in a joint venture. Land may be leased for a maximum duration of 99 years. Lease contracts offer the lessee the right to sublease, subdivide, or mortgage the leased land or use it as collateral, subject to the terms of the contract. In the case of publicly held land, approval may be required from the Commissioner of Lands. There are regulations that govern the amount of land that may be leased. Most land-related information can be found in the registry.
Foreign Ownership Issues across Sectors
Of the 33 sectors covered by the report, 26 are fully open to foreign equity ownership in Tanzania, including manufacturing and primary industries. The country imposes foreign equity ownership restrictions on a number of service sectors. For example, foreign capital participation in the telecommunications sector is limited to a maximum of 65%. Furthermore, Tanzanian laws specify that at least one-third of the share capital of insurance companies must be owned by Tanzanian citizens. The media industry is subject to limits on foreign ownership as well. While the Broadcasting Services Act allows a maximum of 49% foreign ownership of Tanzanian TV stations, foreign capital participation in local nationwide newspapers is prohibited.
Commercial Dispute Arbitration
Tanzania’s Arbitration Act (2002) governs domestic arbitral proceedings and enforcement of foreign arbitral awards. It is available online. The act contains certain mandatory provisions. The courts have the power to extend the time for beginning arbitral proceedings, as well as to impose other time limits. If a dispute is related to ownership of immoveable property, it cannot be arbitrated. The law provides for arbitrators to act fairly and impartially, but not independently, unlike the UNCITRAL Model Law. The law does not recognize severability of the arbitration agreement from the underlying contract, although this is accepted in practice. Arbitration agreements can be concluded in any form, as long as they are in writing. It is not possible to conduct arbitrations online in Tanzania. The National Construction Council (NCC) and the Tanzania Institute of Arbitrators administer arbitrations in Tanzania. The Arbitration Act stipulates that arbitration awards are enforceable. On average, it takes around 61 weeks to enforce an arbitration award, from filing an application to a writ of execution attaching assets (assuming there is no appeal). If an appeal is made during the enforcement process, proceedings are likely to be extremely lengthy.
Source: Investment Across Borders Report by The World Bank. The World Bank authorizes the use of this material subject to the terms and conditions on its website, http://www.worldbank.org/terms.”
