Capital gains on share transfers

Publication | April 2013


There is no capital gains tax as such in Tanzania. Instead, gains realised on the disposal of an asset are taxable as income.

However, important changes to the capital gains regime under the Income Tax Act 2004 (the ICTA) were introduced by the Finance Act 2012 (the Finance Act) so that a gain made by a non-resident on the off-shore disposal of shares can now trigger a charge to income tax in the underlying on-shore company. The full practical implications of those changes are still being worked through by taxpayers and the Tanzania Revenue Authority.

The charge to tax

Ordinarily the seller of an asset will be liable to pay income tax on a gain realised by the sale of shares held in a Tanzanian company. The rate of tax varies according to whether the seller is an individual or a company, how the shares are held and whether the sellers are resident in Tanzania or overseas. If the seller is a non-resident and held the shares through an offshore holding company (i.e. an indirect holding), prior to these changes, any gain that was made on the sale of the offshore holding company was not taxed in Tanzania, even if part of the gain reflected any increase in value of the underlying Tanzanian assets.

Change in underlying ownership - deemed gain

Following the changes introduced by the Finance Act s.56 of ICTA a new charge to tax arises where the underlying ownership of an entity changes by more than 50 per cent (as compared with that ownership at any time during the previous three years) occurs. The change in ownership triggers a deemed disposal and reacquisition of assets owned and any liabilities owed by the entity immediately before the change in ownership. This measure was particularly targeted at the disposal of offshore holding companies, but it can apply equally to an ‘on-shore’ direct disposal. It is also a deemed disposal at the local level; the gain may not reflect the gain made at shareholder level.

Potential for double charge

The change bought about by s.56 ICTA means that a direct sale of shares may now attract two charges to tax on the same gain; the first charge is on the gain made by the actual seller of the asset (where the asset sold is a direct holding of shares in a Tanzanian company); and the second is on the deemed gain in the underlying company.

Payment of the tax

Tax is payable by the seller of the direct asset as a single instalment (under the amended section 90(1) of ICTA) at the rate of 20 per cent of the gain in the case of a non-resident and the rate of 10 per cent of the gain in the case of a resident. This payment is an instalment of the full tax charge of 30 per cent; however there is currently no mechanism for collection of the remaining 10 per cent from a non-resident entity.

Where the charge under s.56 ICTA is also triggered, the company in which the deemed gain arises is also required to pay tax at the rate of 30 per cent of the deemed gain.

Registration of new ownership

Under section 90 ICTA the “appropriate authorities” are expressly prohibited from registering any change to ownership until such time as the Commissioner of Income Tax has issued a certificate confirming that tax on any gain has been paid.

The impact of the change to section 90 is that the company secretary cannot now register a share transfer unless they receive:

  1. an executed and duly stamped instrument of share transfer; and
  2. a certificate from the Commissioner of Income tax certifying that the instalment tax has been paid.

Likewise, the Registrar of Companies will not register a transfer of the shares if evidence of payment of the tax is not produced.



Adam Lovett

Adam Lovett

Dar es Salaam
Angela Mndolwa

Angela Mndolwa

Dar es Salaam