Tanzania VAT Compliance for Digital Services: Key Rules and Requirements

As the digital economy continues to expand, governments worldwide are implementing measures to ensure proper taxation of digital services. Tanzania, like numerous other nations, has made considerable strides in ensuring that revenue from online transactions is effectively taxed. This has involved revising its legal framework to incorporate digital transactions into the existing tax regime.

Effective 1st July 2022, the Tanzanian VAT rules mandated non-residents to register under the simplified registration framework if they provide electronic services to consumers in Tanzania.

Legal Framework

Tanzania’s VAT on digital services is governed by the Value-Added Tax Act, 2014, as amended by subsequent Finance Acts. The legislation empowers the Tanzania Revenue Authority (TRA) to collect VAT from non-resident suppliers of digital services.

Key provisions include:

• VAT applies at the standard rate of 18% on the supply of taxable digital services.

• The responsibility to remit VAT falls on non-resident suppliers who provide digital services to consumers in Tanzania.

• Amendments introduced mechanisms for simplified VAT registration for foreign digital service providers.

Under Tanzania's VAT framework, electronic services are considered taxable supplies subject to an 18% VAT rate. Providers of electronic services to Tanzanian resident users who are not VAT-registered are required to remit VAT directly to the Tanzania Revenue Authority (TRA). Where the customer is VAT-registered, the law mandates the application of the reverse charge mechanism. In this case, the customer must self-assess the VAT, charge it to the non-resident service provider, and remit the tax to the TRA.

Scope of VAT on Digital Services

Digital services subject to VAT in Tanzania include, but are not limited to:

• Streaming services (e.g., video and audio content).

• Online advertisements.

• Cloud computing and data storage services.

• Digital marketplaces facilitating e-commerce transactions.

• Software downloads, including mobile applications and updates.

• Remote maintenance of programs and equipment.

• Downloadable digital content. (e.g. images, text and information)

The recipient of the service shall be deemed to be in Tanzania if;

(a) the payment proxy including credit or debit card information and bank account details of the recipient of the electronic services is in Tanzania; or

(b) the resident proxy including the billing or home address or access proxy including internet address, mobile country code of the SIM card of the recipient in Tanzania.

Registration Requirements

Non-resident digital service suppliers are required to register for VAT with the TRA through a simplified online registration process. Key aspects include:

• Suppliers must register once they start earning revenue from Tanzanian customers since there is no VAT registration threshold.

• Simplified registration does not require a physical presence in Tanzania.

• Required documentation includes proof of incorporation and business activities related to digital services.

The TRA has established user-friendly online platform to facilitate compliance for non-resident suppliers.

Reporting Obligations

Registered digital service providers must comply with regular VAT reporting requirements, which typically include:

• Submission of monthly VAT returns detailing taxable transactions.

• Records of sales and VAT charged to Tanzanian customers.

• Supporting documentation to verify the authenticity of transactions, such as invoices.

Failure to file VAT returns or provide accurate information may result in penalties as stipulated in the VAT Act.

Payment Procedures

VAT payments must be remitted to the TRA in Tanzanian Shillings or its equivalent convertible currency at the Bank of Tanzania’s prevailing exchange rate on the date of payment. Taxpayers can use designated online payment systems to streamline the process. Payment and VAT return submission deadline is on the 20th day of the following month.

The TRA provides additional guidance and support for non-resident suppliers, including access to compliance resources and assistance in resolving payment-related challenges.

Conclusion

Tanzania’s VAT framework for digital services is a significant step toward capturing tax revenue from the growing digital economy, aligning the country’s tax system with the realities of the digital era. By understanding the legal framework, scope, registration, reporting, and payment requirements, digital service providers can ensure compliance. For businesses, adhering to VAT regulations is crucial to avoiding penalties and ensuring uninterrupted operations in Tanzania's market.

Sources: TRA Website , Regulations