Prohibition of lending without a licence
In this article, we review the newly enacted Tanzania Investment Act No. 10 of 2022 (the New Act). The New Act was passed by Parliament on 2 December 2022 after being published in the Government Gazette. The New Act repeals the Tanzania Investment Act No. 26 of 1997 (the Old Act). We highlight the key changes made by the New Act and how these changes may affect doing business in Tanzania. The changes brought in by the New Act are less consequential than initially anticipated, however they do provide clarity on several key issues, including on procedure.
The New Act
The Old Act
Investment capital for a Tanzanian investor reduced
The New Act has reduced the minimum investment capital threshold for a business owned by a Tanzanian from USD 100,000 to USD 50,000.The minimum investment capital threshold for foreigners remains USD 500,000.
|In the Old Act, the minimum investment capital threshold for a business owned by a Tanzanian was USD 100,000.|
Added functions for the NISC and TIC
The New Act has added some functions of the NISC to include approving incentives for strategic investors and specific strategic investors.
Additional members of the NISC include:
a) the Minister responsible for the constitution and law; and
b) the Minister responsible for policy and coordination.
Added functions of the TIC include:
a) implementation and coordination of efforts to improve the country’s image and investment climate as well as investment promotion in Tanzania;
b) keeping records of all investors and investments in general;
c) initiating and maintaining a database of Tanzanian investments abroad;
d) dealing with complaints relating to investment; ande) monitoring and evaluating investment projects that fall under its purview.
The added functions for the NISC and the TIC were not provided under the Old Act.Under the Old Act, members composing the NISC included the Executive Director of the Public Private Partnership (PPP) Centre, who was the secretary of the NISC.
Establishment of an integrated electronic system (section 8)
The New Act mandates the TIC to establish an integrated electronic system for investment promotion and facilitation. The system will enable efficient data integration between all the relevant regulatory authorities involved in issuing appropriate licences, permits, approvals and consents required by investors.
|This is a new concept.|
Removal of the automatic immigration quota incentive
The New Act provides that every commercial institution that has been granted a certificate of incentive will be permitted to employ foreign workers up to the number specified in the law governing foreign worker employment.Despite the New Act excluding automatic quota incentives, section 19 of the Non-citizens (Employment Regulation) Act, 2015 specifically allows for an immigrant quota of up to five employees for entities registered with TIC. We assume that the reason the quota was withdrawn from the New Act is to encourage investors to deal with the Ministry responsible for labour and immigration.
The Old Act accorded an automatic quota of five (5) expatriates who an investor could employ during the start-up period.
Removal of time to appeal to the Minister (section 18 (6))
The New Act has removed the time limitation to appeal in relation to an investor's rejected application for permit or approval. All appeals concerning permits and approvals will be guided in accordance with the specific laws governing the said licences and approvals and such appeals may be addressed to the relevant Minister.The potential challenge of removing the appeal timeframe is that appeals may take longer than they did in the old act.
In the Old Act the timeline was seven (7) days.The Old Act enabled the TIC to object to the decision of the Minister within seven (7) days, and the Minister was required to reply to the TIC with his decision within seven (7) days.
Clear timeframe for an issued certificate of incentive
The New Act stipulates a clearly defined timeframe in which incentives attached to a certificate will remain active. Section 20 of the New Act provides that:
a) financial incentives shall be active for a period not exceeding five (5) years from the date issued; and
b) non-monetary incentives shall be active throughout the project implementation period.
The New Act further provides that upon formal application with underlying reasons, the life of a financial incentive certificate can be extended for another period determined by the TIC.
Furthermore, the New Act provides that the TIC can cancel an incentive certificate if:
a) the certificate was obtained through fraud or false information;
b) the certificate holder violated any of the conditions for provision of incentives;
c) the certificate was transferred to another person or investment without TIC’s permission;
d) the certificate holder has not started implementing the project within the first two (2) years of its issuance without valid reasons; or
e) the certificate holder has not submitted annual information on the implementation and development of the investment project for two (2) consecutive years.
The timeframe and disqualification criteria above were not covered in the Old act. As such, investors should be keen to avoid violation of the conditions provided in the New Act.
|This is a new concept.|
Added requirements for investors under strategic investment or special strategic investments (section 23)
The New Act has added more requirements for a commercial enterprise to be considered a strategic investment if it:
a) creates at least one thousand (1,000) local jobs with a sufficient number of senior positions on projects that do not require advanced and modern technology;
b) is capable of increasing exports by at least 50% of the goods produced;
c) has the ability to stimulate production by establishing economic incentives in various social and economic sectors;
d) improves technical skills by introducing new technologies to Tanzanians; and
e) has the ability to produce goods or provide services required for development in social and economic sectors based on priorities at that time.
Please note, commercial enterprise is considered a strategic investment if:
|The minimum investment capital for a local business and a foreign owned business or joint venture (JV) remains the same.|
Higher fines for non-complianceThe New Act provides that a person who, in the course of his official duties, has disclosed unauthorised documents or information to another person will have committed an offence and, upon conviction, shall be fined TZS 5 million or imprisoned for a term not exceeding one (1) year. In certain instances, both a fine and imprisonment may be imposed.
|In the Old Act the fine was TZS 350,000 or imprisonment of not more than one (1) year and in some instances, both a fine and imprisonment.|
Access to international arbitration (section 33)
The New Act has granted foreign investors access to settle disputes with TIC or the Government through arbitration. The decision to utilise local or foreign avenues has been left for parties to a dispute to agree mutually.
The New Act has promoted the settlement of disputes amicably through negotiation. Parties are free to utilise local and international avenues for dispute settlement where they fail to arrive at a consensus through negotiation.
The New Act specifically states that parties are free to settle their disputes:
in accordance with Tanzanian arbitration laws;
in accordance with the International Centre for the Settlement of Investment Disputes (ICSID); or
within the framework of any bilateral or multilateral agreement on investment protection agreed to by the Government of Tanzania and the Government of the country from which the investor originates.The challenge the parties may face is that they may fail to agree on the choice of the dispute forum.
|The position was broadly the same under the Old Act.|
Protection of the existing certificates of incentives (section 37)
In spite of the Old Act being repealed, agreements entered into under the Old Act and certificates of incentives issued under the Old act will continue to be valid until the end of the period under which the owner or beneficiary was entitled.
The above provision has the following effect:
The Old Act did not provide for a transitional period.
As a general point, land remains a challenging area for foreign investors and their interaction with TIC. It had been assumed that TIC would oversee a ‘land bank’ where land designated for investment purposes would be readily available. Such a system is yet to be put in place. Foreign investors must therefore continue to go through an occasionally lengthy process of (a) identification and (b) conversion of land from one category to another (village to general land for example) in order to obtain derivative rights from TIC.