Zanzibar VAT Compliance for Digital Services

In August 2024, Zanzibar implemented a 15% Value Added Tax (VAT) on digital services provided by non-resident suppliers to consumers, as outlined in the Zanzibar Finance Act 2024.

Scope of Taxable Digital Services

The VAT applies to various digital services delivered electronically, including:

• Software

• Website hosting

• E-learning platforms without human intervention

This measure aligns Zanzibar with over 120 countries that have introduced VAT on digital services.

Marketplace Facilitators

In cases where resident marketplaces facilitate sales for non-resident providers of digital services, the VAT obligations fall onto the resident marketplaces.

Determining Taxable Transactions

To ascertain whether a transaction is subject to Zanzibar VAT, providers can rely on:

• Payment details, such as bank or credit card information

• IP address

• Other similar information indicating presence in Zanzibar

These indicators help determine the place of supply in line with the destination principle.

Invoicing and Documentation

There is no mandatory requirement for non-resident digital service providers to issue invoices for transactions subject to Zanzibar VAT.

Registration and Compliance Requirements

Non-resident providers offering digital services to consumers in Zanzibar are required to register for VAT. Notably, there is no VAT registration threshold for electronic services, meaning all providers, regardless of revenue, must comply.

The Regulations, amongst other things, provide the procedures for simplified registration applicable to non-resident suppliers of electronic services. However, we understand that the simplified registration system is yet to be put in place.

Application for registration is to be made online using a prescribed form following which a Tax Registration Number (TRN) will be issued to enable the filing of returns and payment of tax.

The non-resident electronic services supplier is required to file a return of VAT, which together with the related tax payment, are due on or before the seventh day of the month following the month to which the return relates. Payment is to be made in United States Dollar (USD) to a designated bank account established by the Commissioner.

Distinction from Mainland Tanzania's VAT Regime

It's important to note that Zanzibar's VAT regime operates separately from Mainland Tanzania's VAT system. Therefore, non-resident digital service providers may need to undertake separate VAT registrations and compliance processes for each jurisdiction.

Non-residents supplying electronic services and registered for VAT in Mainland Tanzania must also comply with the Regulations applicable to Tanzania Zanzibar. If services are provided in Tanzania Zanzibar, sales must be declared separately for that region.

Conclusion

Non-resident digital service providers targeting consumers in Zanzibar must adhere to the 15% VAT requirements established in August 2024. This includes understanding the scope of taxable services, fulfilling registration obligations, and ensuring compliance with the specific regulations of Zanzibar's VAT system.

We foresee potential difficulties for non-resident digital service providers when registering for VAT in Zanzibar. These challenges stem from the lack of a streamlined registration system, which contrasts with the simplified e-filing process already in place in Mainland Tanzania. Based on our analysis, it appears that affected non-resident entities will need to engage directly with the Zanzibar Revenue Authority (ZRA) to clarify the steps involved in completing the registration process for now.

Sources; PWC Tanzania , Zanzibar Revenue Authority (ZRA)