Tax obligations and compliance for non-profit organisations in Tanzania.

INTRODUCTION

Nonprofit organizations in Tanzania are varied and include Non-Governmental Organizations (NGOs), charitable organizations, faith-based institutions, trusts, associations, cooperative societies, legal aid providers and philanthropic entities. These organizations operate with the primary objective of serving public or community needs rather than generating profits. However, like any entity engaged in activities that involve income or transactions, Nonprofit organisations must comply with tax laws to remain operational and legally recognized.

KEY TAX OBLIGATIONS.

1. Registration as a Taxpayer

Upon formation, all Nonprofit organisations must apply for a Taxpayer Identification Number (TIN) as part of their registration process. Obtaining a TIN is a legal requirement and ensures the organization is recognized as a tax entity under Tanzanian law. This step is necessary even if the organization’s primary funding comes from donations or grants, as it lays the foundation for compliance with the country’s tax administration.

2. Value Added Tax Registration and Tax Compliance

Nonprofit organisations are not automatically required to register for Value Added Tax (VAT) because their primary revenue typically comes from donations, grants or similar contributions that are not subject to VAT. However, if a Nonprofit organisation engages in business activities or investments, such as running a side enterprise to support its projects, it may become subject to VAT requirements. The Value Added Tax Act and the Tax Administration Act outline specific thresholds and activities that trigger mandatory Value Added Tax registration:

1. Turnover Threshold: Nonprofit organisations must register for Value Added Tax (VAT) if they generate TZS 100 million or more from taxable supplies over six months or TZS 200 million over twelve months. Note that this threshold applies only to income derived from business activities, excluding grants and donations.
2. Provision of Professional Services: Nonprofit organisations that provide consultancy, training or other professional services must register for Value Added Tax (VAT) regardless of their turnover. Once registered, Nonprofit organisations must comply with Value Added Tax (VAT) filing obligations including submitting VAT returns by the 20^th day of the following month and ensuring timely remittance of VAT payments.
3. Tax Filing and Payment Obligations
4. Electronic Fiscal Devices (EFDs): Nonprofit organisations engaged in economic activities with a turnover exceeding TZS 11 million are required to issue fiscal receipts using EFDs for every transaction. This measure, outlined in the Tax Administration Act ensures transparency and accountability in reporting income.
5. Record Keeping: It is crucial for Nonprofit organisations to maintain all tax-related records for at least five years. These records must be accessible for review during audits or in the event of tax disputes.
6. Timely Payment of Taxes: All taxes must be paid promptly when due. Delays can result in fines, interest charges and other penalties.
7. Filing of Tax Returns: Registered Nonprofit organisations must file tax returns electronically through the Tanzania Revenue Authority (TRA) system. Regular filing ensures that the organization stays compliant, and it is advisable to maintain open communication with the TRA if operations are temporarily inactive.
8. Tax Obligations
9. Income Tax: Nonprofit organisations are generally exempted from paying income tax on donations and grants, but if they derive income from business or investment activities, they are subject to a 30% corporate tax rate on taxable income. This includes funds from economic activities, member subscriptions and investment income.

1. Withholding Taxes: Nonprofit organisations must withhold tax on specific transactions, including Professional Services (5% for resident persons and 15% for non-resident persons) and Investment Income (10% for income from rent, royalties and interest)

1. Capital Gains Tax (CGT): Nonprofit organisations are liable for Capital Gain Tax on gains from the sale of property or shares in Tanzania. The tax rates are 10% for resident entities and 20% for non-residents.

1. Pay-As-You-Earn (PAYE): As employers, Nonprofit organisations must withhold PAYE from employee salaries and remit the collected amounts to the Tanzania Revenue Authority (TRA), in accordance with Tanzanian labour and tax laws.

OTHER TAXES

3. Skills Development Levy (SDL): Nonprofit organisations employing 10 or more employees must pay the Skills Development Levy which is calculated at 3.5% in Mainland Tanzania and 4% in Zanzibar. This tax is based on the gross monthly salary paid to employees.

1. Stamp Duty: This tax applies to various legal instruments such as contracts, agreements and property transfers. Nonprofit organisations are required to pay stamp duty within 30 days of executing any document that falls under the Stamp Duty Act [Cap 189 R.E. 2019].

1. Import Duty and VAT Exemptions: Nonprofit organisations engaged in government-approved projects may apply for exemptions from VAT and import duty on goods and services imported to support their work. This exemption is contingent upon meeting specific criteria and securing approval from the Tanzania Revenue Authority (TRA).

CONCLUSION

Tanzania’s tax laws impose significant obligations on Nonprofit organizations, primarily to ensure transparency and accountability in their operations. By adhering to these laws, Nonprofit organizations can avoid financial penalties, maintain their legal status and focus on fulfilling their mission.

DISCLAIMER

This article provides a general overview of tax obligations for nonprofit organizations in Tanzania. It is not intended as legal or tax advice. For specific legal guidance or to ensure compliance with applicable regulations, please consult us at info@gerpatsolutions.co.tz , +255 742 826 955. You can also visit our website for more Articles at www.gerpatsolutions.co.tz