INVESTMENT UPDATE: INVESTING IN THE TANZANIA ECONOMIC ZONES

• A gateway for international trade and industrial competitiveness
• The role of economic zone in investment tune-up
• Available incentives in the economic zones
• Difference between EPZA and TIC

1.0. Introduction:

Tanzania as a country with an abundance of natural resources and raw materials has a number of opportunities which remain untapped in many sectors thus offering a wide range of opportunities to potential investors. With the manufacturing sector being at its infancy stage, the government has taken advantage of its position as a resource base by developing a network of infrastructures to cater for infrastructural development as well as stimulate its industrial and economic development.

Tanzania is currently implementing the Economic Development Zones (EDZs) programs which encompass Export Processing Zones (EPZs) and Special Economic Zones (SEZs) to stimulate manufacturing of value added goods for regional markets and export to other countries. These Economic zones offer an abundance of opportunity for investors all over the world to come and invest in the zones while at the same time afforded attractive incentives to facilitate such investment and generation of profit as well.

Breakthrough Attorneys as a commercial law firm engaged in corporate restructuring, Private equity, regulatory and acquisitions as well as international trade; and engaged almost exclusively on intricate matters involving investment; is well-versed and equipped with skilled lawyers who are experts in the processes underlying the facilitation of investment in the Tanzanian Economic Zones.(Read more)
Our investment team is highly competent in making sure that the prospective investors are fully established in their business ventures in the zone.

2.0. What is an Export Processing Zone (EPZ)?

Is an area of land established or declared in the gazette by the Minister responsible for Industries as an Export Processing Zone, the area which may consist of a developed, partly developed or underdeveloped area or may comprise of a single factory unit or group of factory units. The main purpose for establishment of EPZs is to attract and promote export-led industrialization with a view of diversifying and facilitating Tanzania’s exports and promoting international competitiveness which in the process will create and expand foreign exchange earnings.(Read more)

Moreover, the EPZs are established for the purpose of creating and increasing employment, attracting and encouraging transfer of new and advanced technology as well as to promote processing of local raw materials for export.  All those areas in the United Republic of Tanzania which are not within the area declared to be an EPZ are called customs territory. It should be noted that, an area may not be within the area declared as EPZs but may be granted the status of an EPZ. This status is usually granted to an industrial estate and it is called single factory Unit.

3.0. What is a Special Economic Zone (SEZ)?

While the EPZ scheme specifically promotes investment in manufacturing sector to boost export an SEZ scheme on the other hand involves sectors such as; Trade, Tourism, Forestry, Trade, Mining, Agriculture and so on.

A Special Economic Zone includes both export markets and local markets. The SEZ program covers a wider range of permissible activities than the EPZ. Special economic zones include; Export Processing Zones, Free Ports, Free Trade Zones, Industrial Parks, Regional Headquarters, Science and Technology Parks, ICT Parks, Agricultural Free Zones, Tourism Development Zones and Business Incubation.

4.0. Who can invest in an Export Processing Zone?

Under the Export Processing Zone Act, No.11 of 2002 (EPZA), an investor in an EPZ should be a company which has been incorporated in the United Republic of Tanzania, licensed by The Export Processing Zone Authority to manufacture and export industrial products from the EPZ to foreign markets. The EPZ entity or investor may be 100% foreign owned, or 100% locally owned or partial foreign and partially locally owned. It is the condition precedent that the investor in the EPZ should export 80% of the products manufactured in the zone. That means that investors in the EPZ are only allowed to sell their products inside Tanzania of up to and not exceeding 20% of their products.

Moreover, the persons or companies who makes provisions of infrastructure necessary for the development of an area established or declared to be an EPZ are also deemed as investors in the EPZ.

It should be noted that, an investor in the EPZ may be in form of a company or a Joint Venture. The Joint venture may be incorporated as a company or unincorporated and may be between a foreign investor and a local investor or a domestic private investor and a local parastatal or co-operative organization or a foreign investor and another foreign investor.

5.0. What is an Export Processing Zone Authority (EPZA)?

The EPZA is an independent Government agency which operates under the Ministry of Industry and Trade. EPZA is responsible for steering and implementing government policy on promotion of Special Economic Zones (SEZs) in Tanzania together with other functions which include the development of EPZ/SEZ infrastructure, provision of business services to EPZ/SEZ investors and issuing of EPZ/SEZ licenses.

The Authority functions as a one stop service center for all prospective and existing investors. The Authority is complimentary to the Tanzania Investment Centre (TIC) which is a primary government agency dealing with investment in Tanzania. Moreover, the Authority works hand in hand with The National Development Corporation which is an agent of the Tanzanian government especially established and entrusted with the task of initiating, developing and managing the operations of the EPZs in Tanzania including acquisition of land and building for purposes of investment in respect to EPZ, make available the necessary infrastructure, water and electricity supply, sewerage system, emergency services like ambulance and fire brigade, security of the EPZ, maintenance of property in the EPZ and many other tasks for the upkeep of the EPZ.

6.0. How can a prospective investor in the Export Processing Zone invest?

A company or a joint venture prospecting to invest in the EPZ should make an application for a license to do so. It is trite law that no business activity should be conducted in an EPZ without a license authorizing to do such activity. The Authority responsible for receiving such applications and issuance of such licenses is Export Processing Zone Authority (EPZA).  EPZA is mandated by law to issue such licenses. These licenses are synonymous with the business licenses issued by Local Government Authorities and other Regulatory Authorities. Once an investor obtains the licenses he or she does not require any other license except for highly regulated industries like foods and drugs.

7.0. How does one obtain a license to become an Export Processing Investor?

To obtain an EPZ license, the interested investor is required to submit an application with the EPZA. The Application should be accompanied by the following documents:

1. A copy of memorandum and articles of association or a copy of certificate of incorporation,
2. an Export business plan indicating type of goods to be produced or processed, production volume, volume of exports, type of raw materials to be used, production process intended to be used, export plan etc.
3. EPZ area where the business is intended to be carried on, a lease agreement or title deed for privately owned stand-alone infrastructure and,
4. An Environmental Impact Assessment (EIA) report.

8.0. What Investment activities in the EPZ are eligible for EPZ Incentives?

Not all activities in the EPZ are eligible for incentives and licensing. Activities eligible for licensing are those of: Zone Developer (the party that builds a zone, provides premises for investors to occupy and manages those premises), Zone Operator (the party that undertakes the export-oriented investment activities) Zone Service Provider (the party that provides required services in the EPZ zones for daily running like power supply, water supply, meal providers, transport service and other variety of services in the EPZ zones).

9.0. What exemptions are EPZ companies allowed as incentives?

Exemptions allowed to EPZ companies as incentives include the following:

1. Exemption from corporate tax for ten (10) years
2. Exemption from payment of custom duty, VAT and other taxes on raw materials and goods of capital nature related to production in EPZs
3. Exemption from all taxes and levies imposed by Local Government Authorities on products produced in EPZs
4. Exemption from withholding tax on rent, dividends and interests for 10 years
5. Exemption from payment of customs duty and VAT, and any other tax payable in respect of firefighting equipment.
6. Exemption from pre-shipment or destination inspection requirements
7. Exemption from any conditional transferability of profits, dividends and royalties.
8. Exemption from out-site customs inspection outside the Export Processing Zones
9. Entitlement to an initial automatic immigrant quota of up to five persons during the startup period.

Other investment incentives for EPZs include procedural and zone infrastructure incentives such as;

1. Operations are done under one license issued by EPZA
2. One-stop service center by EPZA for set-up, facilitation and aftercare (work permits, labour relations and customs)
3. On-site custom documentation and inspection

The Differences between EPZA and TIC:

The Export Processing Zone Authority and the Tanzania Investment Center are both government agencies whose main activities are to facilitate investment in Tanzania, but there are some different mechanisms involved in the investment process as hereunder provided;

• The EPZA only deals with new investments. This means that an investor cannot convert an existing manufacturing company. EPZA only encourages new investments in manufacturing of industrial products for export or investment in development of infrastructure and services in the EPZ. TIC does not have that restriction since investment is encouraged in both new businesses, and expansion of existing enterprises and also equity investment.
• The EPZA only deals with investment on manufacturing industries for production of products strictly for export with a condition that only 20% of such products manufactured from the EPZ zones can be sold in Tanzania (custom territory). TIC shoulders investment in all kind of business ventures, both manufacturing businesses, service-oriented businesses and so on. Moreover, there is no restriction on exportation of such products. Investors registered with TIC have a discretion to only sell their products in Tanzania’s market or export them to foreign markets or both.
• The TIC does not deal with enterprises that are prospecting to venture in mining and petroleum. Mining and petroleum enterprises are regulated by The Energy and Water Utilities Regulatory Authority (EWURA), Petroleum Upstream Regulatory Authority (PURA), Tanzania Petroleum Development Corporation (TPDC), and the Minerals Commission. The same are supposed to follow approval processes contained in their respective laws i. e The Mining Laws. EPZA can shoulder investors prospecting to venture in mining and petroleum. For example, the EPZA has set aside hectares of lands for inclusion in the EPZA territory in Mtwara, the lands which can be allocated to the prospective investors in Mtwara’s gas resources.
• Investors in the EPZ operate under a license (Developer license Operator license, or service provider’s license) issued by the EPZA while investors registered with TIC operate under the Certificate of Incentives.
• Investors under EPZA should only invest in the ear-marked areas specified or included in the EPZ territory whose investment may be in improvement or facilitation of high-standard social services and infrastructures on the one hand and industrial activities on the other hand.

Disclaimer:

This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, Breakthrough Attorneys, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.