On 24th June 2021, Zanzibar assented the Finance (Public Revenue Management) Act, 2021 which made amendments to several laws. One of particular importance is the Zanzibar Companies Act. This change affects local companies with a place of business in Zanzibar.
The Finance (Public Revenue Management) Act 2021 amends the Companies Act by introducing a new section 238 (3) which states that a company incorporated under the law applicable in Mainland Tanzania shall register a foreign subsidiary company under the law applicable in Zanzibar if it establishes a place of business in Zanzibar. This means that every local company which has a presence in Zanzibar as a branch is required to de-register as foreign branches and be re-registered as subsidiaries and obtain certificates of incorporation. This change does not affect companies incorporated in a country other than Tanzania.
Prior to the amendment, any company incorporated in mainland Tanzania, wishing to set up a place of business in Zanzibar could either:
- register itself as a branch of a foreign company, by obtaining a “Certificate of Compliance” from Zanzibar Business and Property Registration Agency (BPRA)_; or
- incorporate a subsidiary which could take the form of a limited liability company, by obtaining a “Certificate of Incorporation” from BPRA.
Following the amendments, the Zanzibar Ministry of Trade and Industrial Development issued a Public Notice dated 21 September 2021, which provided every company to comply within ninety (90) days from the date of issuance of the notice. Where a company fails to comply within the stipulated deadline, they shall be struck off the Register at the BPRA) and such companies shall not be permitted to conduct business in Zanzibar.
The timeline stipulated pose a number of issues particularly to the compliance on not only a legal perspective but also regulatory and tax. The BPRA may need to extend the timeline to facilitate the opportunity for every company to comply. Taking into consideration the current delays, it may be quite unrealistic to expect that all companies shall comply within that period especially where different sectoral approvals are needed.
What effect does this have on Tanzania Mainland Companies?
All mainland companies with a place of business in Zanzibar shall have to comply and obtain a certificate of Incorporation. Albeit that the procedure involved has not been outlined, we can reliably assume that the same process for incorporation under the Companies Act shall be followed.
In relation to licensing and regulatory approvals, they shall be required to comply with different sectoral requirements in union matters (i.e. Income Tax, Banking Telecommunications) and those under laws in Zanzibar. It is unclear on how this shall affect the companies’ current regulatory approvals i.e. whether new applications shall need to be made. However, it is expected that each newly registered company may need to make new applications for regulatory approvals. In order ensure a smooth transition, regulators need to clarify whether new applications need to be made.
Therefore, it is of paramount importance that every company should proceed with the re-registration with the BPRA at the earliest possible time to avoid delays if there is a massive backlog of applications and to ensure that registrations is completed before time runs out.