VAT Registration in Tanzania: Understanding Liability, Rates, and Compliance

Introduction:

In Tanzania, Value Added Tax (VAT) is governed by the Value Added Tax Act, Cap. 148 (Revised Edition) and administered by the Tanzania Revenue Authority (TRA). VAT is a consumption tax imposed on the supply of goods and services in mainland Tanzania and on the importation of goods and services into the country. The standard VAT rate is 18%, and businesses meeting certain thresholds are required to register and comply with TRA regulations.

Understanding who is liable to pay VAT is critical for businesses, importers, and service providers operating in Tanzania. Depending on the nature of the transaction, the responsibility for VAT payment shifts between the importer, local supplier, or purchaser of imported services.

In the following section, we will break down who is responsible for VAT in different scenarios, the standard rate, and key compliance obligations every business must be aware of.

1. Importation of Goods – Importer Pays VAT

If you import goods into Tanzania, you pay VAT at the border.

Example:

You import construction equipment worth TZS 50,000,000.

TRA charges 18% VAT = TZS 9,000,000 before you can clear the goods.

2. Local Taxable Supplies – Supplier Pays VAT

When you buy goods or services from a VAT-registered supplier in Tanzania, the supplier collects VAT and pays it to TRA.

Example:

A hotel buys furniture worth TZS 10,000,000 from a local supplier.

The supplier adds 18% VAT = TZS 1,800,000 on the invoice and later sends it to TRA.

3. Imported Services – Purchaser Pays VAT

If you buy services from outside Tanzania, you pay VAT directly using the reverse charge method.

Example:

Your company subscribes to QuickBooks Online for TZS 2,000,000 per year.

You must calculate and pay 18% VAT = TZS 360,000 to TRA yourself.

What VAT Is Charged On:

In Tanzania, VAT is charged on the total consideration of a transaction, which includes not only the price of goods or services but also any duties, levies, and other related costs. This means that if you import goods, VAT will be calculated on the entire landed cost, not just the purchase price.

Who Must Register for VAT

Under the Tanzania VAT Act, any person or business that sells taxable supplies and has reached the annual VAT registration threshold is required to register for VAT with the Tanzania Revenue Authority (TRA). Once registered, the business must charge VAT on taxable supplies, file monthly VAT returns, and remit collected VAT to TRA.

Businesses that have not reached the registration threshold may still choose to register voluntarily, particularly if they deal with VAT-registered suppliers or clients who require tax invoices. However, for many small businesses, staying below the threshold helps avoid the added costs and administrative burden that come with VAT compliance.

Why There Is a VAT Registration Threshold

The VAT registration threshold exists to make tax compliance more practical and to reduce the burden on small businesses. VAT compliance requires a proper accounting system, accurate financial records, and structured business operations, which can be expensive to maintain. For smaller businesses with lower earnings, these compliance costs can outweigh the benefits of being VAT-registered.

By setting a threshold, TRA helps reduce potential disputes between tax authorities and small taxpayers, ensuring that only businesses with significant turnover are required to manage VAT obligations. This allows smaller businesses to focus on growth while larger businesses contribute more to VAT collections.

VAT Registration Threshold in Tanzania

As of July 2024, the VAT registration threshold in Tanzania was increased from TZS 100 million to TZS 200 million in annual taxable turnover. This change is designed to reduce the compliance burden on smaller businesses while enabling TRA to focus on larger taxpayers who contribute the most to VAT revenues.

Historically, the VAT threshold in Tanzania has been reviewed and adjusted multiple times to reflect changes in the economy, inflation rates, and the need for efficient tax administration. The recent adjustment continues this trend, aligning the threshold with the current business environment and supporting small enterprises by easing their reporting obligations.

Steps for VAT Registration in Tanzania

Before registering for VAT in Tanzania, you must first meet the requirements set by the Tanzania Revenue Authority (TRA). The main requirement is reaching the annual VAT registration threshold of TZS 200 million in taxable supplies. Once your business reaches or exceeds this threshold, you are legally required to apply for VAT registration.

Step 1: Apply Within 30 Days

Once your business crosses the TZS 200 million threshold, you must apply for VAT registration within 30 days. The application is submitted through the TRA Online System (https://www.tra.go.tz).

Failing to apply on time can lead to penalties and interest charges on unpaid VAT. Therefore, businesses must closely monitor their annual turnover to avoid missing this deadline.

Step 2: TRA Review and Physical Office Visit

After submitting your application online, TRA will review your details and contact you for a physical verification visit. During this visit, TRA officers will:

• Confirm your business location
• Review your business activities
• Assess whether you meet all registration requirements

This verification is a critical step, as TRA must confirm that your business is genuine and operational before completing the registration.

Step 3: Documents Required During TRA Visit

When TRA officers visit your business premises, you must provide several documents to support your VAT registration, including:

• Business TIN Certificate
• Business Registration Certificate / Incorporation Documents
• Lease Agreement or proof of business premises ownership
• Recent financial statements or sales records
• A list of directors/shareholders and their TINs (for companies)
• Copies of contracts or invoices showing taxable supplies
• Memorandum of association and articles of association

If these documents are in order and you meet the criteria, TRA will approve your VAT registration and issue a VAT Registration Certificate.

Staying Compliant After VAT Registration

Registering for VAT is only the first step — maintaining compliance is equally important. Once registered, every VAT-registered business in Tanzania must file VAT returns and pay VAT on time to avoid penalties and interest.

1.VAT Return Filing Deadline: All VAT-registered businesses must submit monthly VAT returns through the TRA Online System. Returns must be filed on or before the 20th day of the following month. Example: VAT for July must be filed by 20th August.

2.VAT Payment Deadline: The VAT due for the month must be paid by the same date the return is filed — on or before the 20th of the following month. Late payments attract interest and penalties.

3.Record-Keeping Requirements: VAT-registered businesses must maintain:

1. Proper accounting records
2. Tax invoices for all supplies
3. Proof of input VAT claims

Accurate financial statements

Records should be kept for at least five years for TRA audits and inspections.

4.Input VAT Credits: Businesses can claim input VAT on eligible purchases if supported by valid tax invoices from VAT-registered suppliers. Claims must be made within the prescribed timelines.

5.Non-Compliance Penalties: Failure to file returns or pay VAT on time can result in:

1. Automatic penalties per month
2. Interest on overdue VAT
3. Possible compulsory VAT registration if obligations are ignored

Final Note:

VAT compliance in Tanzania involves timely registration, accurate record-keeping, on-time filing, and prompt payments. Since TRA is increasing compliance monitoring, businesses must ensure they have proper accounting systems in place.

For companies that find VAT rules complex, working with a consultant is highly recommended. At Glenrich, we assist businesses with:

• VAT registration and renewals
• Monthly return preparation and filing
• Payment planning to manage cash flow
• Ensuring full regulatory compliance with TRA