Category: News

Authored by: Jovinson Kagirwa – Head of Litigation and Recovery, June 2022

An Arbitral award is defined as the decision of the arbitral tribunal on the substance of disputes, and it includes any interim or interlocutory decision. It is therefore clear that an interim decision of the Arbitral Tribunal such as Ruling on a point of preliminary Objection or Preliminary findings under Section 52(1) of the Arbitration Act [CAP 15 R:E 2020] (The Act) and Rule 44 of the Arbitration (Rules of Procedure) Regulation, 2021 G.N No. 146 of 2021 (The Rules) or on its findings of Substantive jurisdiction under Section 74(1) of the Act and Rule 37 (1) of the Rules fall within the meaning of the Arbitral Award under the Act. 

a.) Filing, Recognition and Registration of Award. 

The process of presenting an arbitral award at the court registry, the relevant file opened, and a number given to it, constitutes filing of the arbitral award. The process of filing is covered under Rule 49 of the Rules. The Rules provides that the award that has been signed by the Arbitrator(s) shall be transmitted and registered by the Arbitral Tribunal with the Court within 14 days from the date of signing. Reading Rule 49 of the Rules, the interpretation of filing of the award expounded by the Court of Appeal in Tanzania Cotton Marketing Board Vs Cogecot Cotton Company SA [1997J TLR 165 remain relevant within the meaning of the Act and the Rules. 

Recognition on the other hand, it is provided under Section 83(1) of the Act. Once the award is filed under Rule 49 of the Rules, the party intending to enforce an award to be recognized, and the Court having issued the Notice to show cause why the Award should not be registered and enforced, is required to make an Application in Writing to Court to enforce an Award. The Application must be made by way of Petition as provided under Rule 63(1) (a) of the Rules. The Petition must contain a brief statement in summary form divided into paragraphs, annexed with submission, minutes or proceedings and specify the persons affected by the Award.  

In case the Application will be granted by the Court, the Award will be recognized and enforceable. The Court may refuse to enforce an Award on number of reasons stated under Section 83 (2) (a), Section 83(3), 83(4) and 83(5) of the Act. 

Further, an Award may be enforced as the Judgment and Decree of the Court under the enforcement of the Award made under Section 73(1) of the Act. The Application under Section 73(10 of the Act seeks leave of the Court. The Application for leave under this section is required to be made by Petition. In case of the foreign Award, the Petitioner must satisfy the Court in his Petition all conditions stated under Rule 66(3) of the Rules. 

b.) Challenging an Award

In challenging the Award, the seat of Arbitration is the key factor to take into consideration in determining the mode and extent of challenging an Award and the Applicable laws. 

The Arbitration Act came into force on 18^th January 2021 with retrospective application under Section 91(4) of the Act to include all pending proceedings initiated under the repealed Act and pending in Court, that they shall be determined using in the light of the Act.

The Act provides the procedures under which an Award can be challenged. The mode of challenging an Award depends totally on nature of the Arbitration proceedings from which the Award was issued. 

A party intending to challenge the Award may then petition to the High Court (‘the Court’) by way of Petition as provided under Rule 66 of the Rules, to challenge an award on various grounds. The first available remedy is by challenging an award on substantive jurisdiction of the Tribunal, or proceedings of the Arbitration Tribunal (before the Tribunal has delivered its Final Award) or on the final award on the grounds of serious irregularities as stated under Section 75 of the Act. This position was confirmed by the High Court of Tanzania (Commercial Division) in Misc. Commercial Cause No. 7 of 2020 Voltalia Portugal S.A versus NextGen Solawazi Limited. In its Ruling the Court noted that “According to sections 69 (1) and 70 (1) of Act No.2/2020 an award can be challenged on substantive jurisdiction or on serious irregularities by making an application before the court”. It must be noted that the decision of the Court was made before the Arbitration Act was Revised. The former Section 69 is now Section 74 and the former Section 70 is now Section 75. 

c.) Challenge an Award on substantive jurisdiction. 

The Petition to challenge the Arbitral Award on substantive Jurisdiction issues can be made either during the pendency of the Arbitration proceedings or after the Final Award is issued by the Arbitrator as provided under Section 74(1). The rational behind Section 74(1) is due to the reasons that the Arbitrator may at its discretion decide the and determine the question of jurisdiction either as preliminary question or may determine the issue on the award as to jurisdiction under Rule 28(4) and Rule 37 of the Rules.  

To exercise that right, the Petitioner will be required to file a Petition and serve notice to that effect to the other party and the Arbitral Tribunal.  In case the Petition is made during the pendency of the Arbitration proceedings, the Arbitral Tribunal may at its discretion proceed with determination of the Arbitration proceedings regardless of the pendency of the Application challenging the Arbitral proceedings (Section 74(2). 

The party against whom the Award is made may also challenge enforcement of the Award under Section 72(3) and Section 73 of the Act by showing the Court that the Arbitral tribunal had no substantive jurisdiction at the time of making an Award. 

The Court in determining the petition under Section 74(1) may confirm the award, vary the award or set aside the award in whole or in part per.  Section 74(3). 

d.) Challenge an Award for serious irregularities. 

A party to the proceedings may challenge the Arbitral Award on the grounds of serious irregularities under Section 75(1) of the Act. The procedure is quite similar with that covered above save that the grounds under which the Petition should be made differs. Section 75(2) of the Act defines the scope under which the Petition challenging an Arbitral Award under the serious irregularities.  

In determining whether or not a decision is an award for the purposes of invoking  section 75(1) of the Act (serious irregularity), the court is required to consider numbers of factors including the substance of the decision; the nature of the issues with which the decision emanated from, whether the decision is final in the sense that it disposes of the matters submitted to arbitration so as to render the tribunal functus officio, either entirely or in relation to that specific issue or claim; the tribunal’s description of the decision, which is relevant but not determinative, and how a ‘reasonable recipient’ would consider the objective attributes of the decision. 

Once the Court has satisfied itself that the decision is an award, the Court will entertain the Petition as presented by the Petitioner. The Court will have to satisfy itself if the Petition discloses any grounds stated under Section 75(2) of the Act which includes, failure of the Arbitral tribunal to comply with the principals of natural justice ( per Section 37) and to adopt procedures suitable to the circumstances of the particular case.

Where the Court is satisfied that there are serious irregularities, the Court may under Section 75(3) remit the Award back to the Arbitral Tribunal either in whole or in part for reconsideration and the Arbitral Tribunal shall be required to make a fresh award in respect of the matters remitted within three months from the date of the Order of the Court remitting an Award or such other period as the Court may direct (Section 78(3); the Court may also set aside the award in whole or in part or declare the award to be of no effect 

The Court may in exercise of its jurisdiction under Section 78 of the Act, order that any provision which an award is a condition precedent to the bringing of legal proceedings in respect of the matter to which the arbitration agreement applies, is of no legal effect or set it aside in whole or in part  as regards to the subject matter of the award or, as the case may be, the relevant part of the award. Section 78(4).  

The Court’s decision under Section 74(1) and 75(1) of the Act can only be challenged by appeal with the leave of the Court. The Application for leave to appeal must be filed within Fifteen days from the date of Order/ decision of the Court (Rule 65(1) of the Arbitration Rules. 

For foreign arbitral proceedings or award, the Act does not apply save for the Petition for stay of proceedings for reference to foreign Arbitral Tribunal under Section 15 and the Petition to challenge the enforcement of the award under Section 73 of the Act. Under Section 73 of the Act, the enforcement of the Award (both domestic and foreign) can be made by the party subject to the leave of the Court. The enforcement is not automatic even in the absence of the Petition to challenge the Award. See Voltalia Portugal S.A vs NextGen Solawazi.  The Court must be satisfied that the Arbitral Award sought  to be enforced aligns with Rule 66 of the Arbitration Rules; which provides that for a foreign award to be enforceable in Tanzania it must be made pursuant to the Agreement for Arbitration, made by the arbitral tribunal provided for in the Agreement, conformity with the laws governing Arbitration, is final in the country in which it was made, is made in respect of a matter which is arbitrable in Tanzania and does not contradict conditions for enforcement of Award.  These conditions under Rule 66 must be met cumulatively. 

The party against whom the enforcement is sought by may also challenge the enforcement of the foreign Award by satisfying the Court that the Arbitral Tribunal lacked substantive jurisdiction.  

Reading the wording of Section 7 of the Act, Section 73 is the only exception under the Act where the party can challenge the foreign award under the Act. 

e.) Challenging an Award by third party.

Section 79(1) of the Act gives power to the third party to the proceedings (a party who took no part in the proceedings but holding an interest in the subject of the Arbitration proceedings to make an Application to Court challenging the validity of the Agreement, jurisdiction of the Arbitral Tribunal and legality of the proceedings. The Application made under Section 79(1) entitle the Petitioner to enjoy all rights available to the aggrieved party in the Arbitration proceedings as provided under Section 79(2) to challenge, an Award on substantive jurisdiction and serious irregularities.

 

Authored by: Thecla Kannonyele (Advocate) – Head of Corporate and Commercial, June 2022

On 14 May 2021, the Minister of Industry and Trade through Government Notice No. 391 published the Companies Beneficial Ownership Regulations, 2021 (herein ‘the Regulations’) bringing into force Sections 115 and 149 of the Companies Act of 2002 as amended by the Finance Act No.4 of 2020 which introduced and defined a Beneficial Owner (herein ‘BO’) as a natural person who, directly or indirectly:

1. 1. 1. ultimately owns or exercises substantial control over an entity or an arrangement;
      2. who has a substantial economic interest in or receives substantial economic benefit from an entity or arrangement (whether alone or together with other persons);
      3. on whose behalf an arrangement is conducted; or
      4. who exercises significant control or influence over a person or arrangement through an agreement (formal or informal)

However, the recent amendments of the Anti-Money Laundering (Amendment) Act no. 2 of 2022 (Act no 2 of 2022) published and began operation on 8^th March 2022, has among other things introduced a wider meaning of the Beneficial Owner;

“Beneficial owner” means any natural person;

1. 1. who ultimately owns or controls the customer,
   2. on whose behalf a transaction or activity is being conducted,
   3. a person who exercises ultimate effective control over a legal person, legal arrangement, beneficiary of an insurance policy or other investment linked insurance policy and includes;

a.) in the case of a customer (who is defined as any natural person, legal person or legal arrangement that receives goods, products or services from a reporting person for exchange for money or any other consideration)being a legal person-

1. 1. 1. 1. the natural person who ultimately owns or controls the legal person through direct or indirect ownership of a majority shares or voting rights or ownership interest in that legal person and such ownership, ownership interest or control also includes possession of bearer shares, the ability to appoint or remove the majority of board members, the chief executive officer or senior management;
         2. a shareholding of five percent or more in the legal person or an ownership interest of five percent or more in the legal person held by a natural person shall be an indication of direct ownership or a sufficient percentage of the shares or voting rights or ownership interest in that legal person, or a shareholding of five percent or more or an ownership interest of five percent or more in the legal person held by a legal person, which is under the control of a natural person, or by multiple legal persons, which are under the control of the same natural person, shall be an indication of indirect ownership;
         3. if, after having exhausted all possible means and provided there are no grounds for suspicion of money laundering, terrorist financing and proliferation financing, no natural person under subparagraph (i) is identified, or if there is any doubt that the natural person identified is the beneficial owner, the natural person who holds the position of senior managing official;

b.) in the case of a customer being a trust-

1. 1. 1. 1. the settlor, trustee or the protector;
         2. the beneficiaries, or where the natural person benefiting from the trust has yet to be determined, the class of natural persons in whose main interest the trust is set up or operates; or
         3. any other natural person exercising ultimate control over the trust by means of direct or indirect ownership or by other means;

c.) in the case of a customer being any other legal arrangement, the natural person holding equivalent or similar positions to those referred to in subparagraph (b);

 

A BO is therefore a natural person who ultimately effectively owns or has a substantial controls over a legal entity. The Regulations provides for the requirement for disclosure by the BO for direct and indirect ownership, control and other rights and interests in a Tanzanian company.

1. 1. Direct Ownership: – these are natural persons registered as shareholders with BRELA and receive the benefits of the entities directly. They are bound to file disclosure as they appear in the Company’s records as having direct ownership and control.
   2. Indirect Ownership: – there are two types of holders for the recognized indirect ownership that are needed to be reported, this could be; ownership through a person; where the name of the shareholder appearing in the Company registry is not the one who receives the benefits; ownership under entity; this is where the registered shareholders of the company appear to be other companies that are controlled by natural persons; ownership under trust where a financial arrangement between three parties that hold assets for a beneficiary are created.

 

The legal requirements, procedures and time limit of reporting

1.) Requirements:

BO reporting requires the following:

a.) Reporting details of a natural person who fits the definition provided for under the Anti-Money Laundering (Amendment) Act of 2022 including:

• • • • full name, including any former or other name;
      • date and place of birth;
      • telephone number;
      • nationality, national identity number, passport number, or other appropriate identification;
      • residential, postal and email address, if any;
      • place of work and position held

b.) When reporting must disclose whether the BO is a politically exposed person (PEP) a natural person within or outside the United Republic who is or has been entrusted with a prominent public function; or who is or has been entrusted with a prominent function in an international organisation including a member of senior management such as a member of the board of directors, the chief executive officer, director, head of department, their deputies and equivalent functions, and includes family members and close associates of such a natural person.

c.) Reporting is to be done by the officers of company; hence the consolidation forms are to be signed by either the director or the secretary and be sealed with the company seal.

2.) Procedure and time limits:

The registration is to be done on the online platform separate from the usual BRELA ORS platform for registration of companies, found on https://bo.brela.go.tz where the director or company secretary is to register using their email addresses. The reporting requirement covers three scenarios/events of reporting which are: the BO Registration for the existing companies and the ones registered after the introduction of the requirement within 30 days from the registration date; BO Cessation to be filled when a person ceases to be a BO within 30 days from the date of cessation; and any changes to a Company’s BO must be notified within 30 days from the date of the change.

The BO forms as provided in the Regulations in respect of the reporting, are automatically generated by the system and a final consolidation form is also generated by the online platform and shall be printed, signed, sealed and uploaded back to the system as an attachment.

Time Limit: Reporting of the Beneficial Owner was initially provided to be completed before 1^st January 2022. However, after consideration of the fact that the reporting system was not yet ready and ensuing confusion on the legal interpretation by most companies and the public in general, the timeline was extended by the Minister to 6 months from 1^st January 2022 vide Public Notice made on 4^th January 2022.

Therefore, Companies in Tanzania are now required to maintain a register for their beneficial owners and to notify the Registrar of Companies of any changes thereto, in the online platform for BO reporting (per Section 16 of the Finance Act of 2020). The BO register is confidential and public access to such information is limited unless stated otherwise.

3.) Offences and Penalties.

It is mandatory for persons seeking to register new companies in Tanzania to ensure that their respective beneficial owners (if any) are identified and their details and/or particulars are submitted to the Registrar at the time of incorporation. A person who fails to file beneficial ownership detail commits an offence and thus liable to a fine of not less than TZS 5 million but not exceeding TZS 10 million as provided for under regulation 10 of the Regulations.

The Registrar has the power to refuse to register any document of a company that is required to be registered under the Companies Act if he is not satisfied that the company has provided accurate and up to date information on the beneficial owners of the company, which, in turn, may prevent a company from taking certain essential corporate actions.

 

Conclusion

The reporting requirement although being only for natural persons does not exempt the companies that cannot locate/identify a BO as defined by the Regulations without a responsibility. The companies with shareholders who do not fit the legal descriptions provided and those whose shareholders are government institutions hence owned by governments per instructions from the Office of the Registrar of Companies, are required to write a letter in declaration of the same to the Registrar.

Moreover, the requirement to report BO is currently prescribed to mainland Tanzania only and that no corresponding legislation/requirement has been made for Zanzibar to date.

Authored by: Elia Mgoya (Advocate) – Resident Associate– Hallmark Attorneys, Zanzibar, June 2022

Amendments to the Companies Act of Zanzibar, in 2021, brought about key changes to mainland Tanzania companies with registered branch offices in Zanzibar. The law provides a requirement for all companies incorporated in mainland Tanzania which were issued with the Certificate of Compliance in Zanzibar to re-register their companies and obtain a certificate of incorporation from the BPRA.

The said changes arose due to the Amendment of the Finance Act that was published by the Government of Zanzibar through the Ministry by providing a 90 days for companies incorporated in Tanzania Mainland having its business place in Zanzibar to re-register as a Foreign Subsidiary Company in Zanzibar to meet the economy of Zanzibar and the such Notice referred to the Finance Act amended the Companies Act of Zanzibar by adding subsection (3) via section 29 as it appears below;

“Section 238 of the principal act is amended by adding a new subsection (3) immediately after subsection (2) as follows;

(3) Notwithstanding the provisions of subsections (1) and (2) of this section, 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.”

All companies incorporated in Tanzania mainland and registered in Zanzibar with Certificate of Compliance, are required to make a fresh registration for the purpose of being issued a Certificate of Incorporation following the same procedures as a new entrant in Zanzibar. Through these changes and amendment, the legal effect was the abolition of all Zanzibar registered branches of companies incorporated in mainland Tanzania while not affecting registered branches of other foreign companies (outside Tanzania).

 

Registration Procedures:

For the registration to be conducted, the said companies have to adhere the requirements which are; the name of approval, having the physical, postal, email address, mobile numbers of the shareholders or directors and company secretary, National or Zanzibar identification card for locals and passport for foreigners, applicants to provide their physical, postal and email address and mobile numbers, certified copy of memorandum and articles of associations, previous certificate of incorporation, consolidated form and form No. 2.

And thus company registration is done online through the BPRA website (www.bpra.go.tz) as follows:

1. 1. 1. Create an account by using the National/Zanzibar identification card/passport by filling in the requirements therein.
      2. Filling the company details including shareholders or directors and company secretary including their capital structure.
      3. Upload documents (certified copy of memorandum and articles of association, certificate of incorporation, consolidated form and form no.2)
      4. Download payment order and make payments as directed
      5. Receipt of confirmation email from the BPRA confirming the Company’s registration together with a new certificate of incorporation.

In addition, when the company has re-registered and has been incorporated in Zanzibar, shall comply to general filings such as annual return, audited accounts, e. t. c. separately from their holding company. These companies retain the same Taxpayer Identification Number (TIN) and business licenses, as previously acquired by the branch. However, the companies are required to update their information with the relevant authorities such as tax authority, business licensing authority and etc.

 

Challenges:

The Tanzanian companies with foreign branch offices in Zanzibar face various post-incorporation challenges. These include;

i. Maintenance or control of employees:

Branch companies will or have to incur difficulties and costs in respect of redundancy and terminations or rehiring of the employees for severance to meet the needs of the employees and the new entity that will be registered. Thus leading the branch company to enter into a tripartite novation agreements to obtain consent from employees that may result to the employees’ rights and benefits transferred to the subsidiary or to terminate and rehire.

ii. Issue of transfer of properties:

In this aspect, branch companies have to face challenges in terms of costs, wastage of time and difficulties in applying for re-registration of such properties (movable and immovable). The said challenges are mostly incurred by those companies having immovable properties that will be forced to transfer and or terminate the Right of Occupancy and applying for new application for the same and to be approved by ZIPA to meet the business of the new entity that will registered.

iii. Regulatory approval or notification:

The process of conversion of business operations from the branch to the subsidiary company will necessitate the approval from the regulatory authorities for the company to operate in Zanzibar, particularly for the sectors falling in the category of union matters such as the banking, telecommunications and insurance sectors. Where an existing license has been issued to the company incorporated in mainland Tanzania, the process to obtain the same for the subsidiary company shall be adhered to since it shall establish a separate legal personality from that of the holding company.

iv. Transfer of business:-

The process of transferring business is quite costly and time consuming, that is to say, there are several procedures or steps to be observed such as applications for business license as provided by the procedures in Zanzibar Business License Regulations, 2017 and that of Zanzibar Local Government Authority Act, 2014, making due diligence on the tax clearances, rents, and all other matters that will be needed to confirm the transfer.

v. Transfer of other Assets and liabilities:-

Despite the transfer being the result of operation of law, it’s essential that it’s done correctly so it is advisable to seek professional advice and consult with accountants and business lawyers before undertaking the same, resulting to incurring costs.

vi. Practical challenges:-

In the practical aspect, this is peculiar due to the fact that the said changes or amendment brings about hard time to the development of the company. In this instance, the said companies faces challenges in the sense that have re-plan their strategies to consider the environment, structure, and other procedures that are required by the Laws of Zanzibar in operating the said company.

Conclusion:

The consequences for not registering a foreign subsidiary company will lead to the branches being struck off and hence illegality in operating in Zanzibar under the present company structure in case of non-compliance by a Tanzanian branch. The Branch will not be able to file any official documents, make any official changes and not to mention accumulation of possible penalties that will be charged at default.

 

Footnotes:

¹ Company Act No. 15 of 2013 of Zanzibar

² Zanzibar Business and Property Registration Agency

³ Finance (Public Revenue Management) Act No. 3 of 2021

⁴ Noticed on 16^th June 2021

⁵ The Ministry of Trade and Industries Development in Zanzibar

⁶ Finance (Public Revenue Management) Act No. 3 of 2021

⁷ Zanzibar Investment Promotion Authority

⁸ As per Regulations 32, 87, 31 of the Zanzibar Business License Regulations, 2017 and Section 23 of the Zanzibar Local Government Authority Act, 2014

⁹ The Company Act No. 15 of 2013 and its Companies Regulations, 2017, Zanzibar Business and Property Registration Agency Act No. 13 of 2012, the Zanzibar Industrial Property Act No. 4 of 2008, the Society Act No. 6 of 1995, the Business Names Registration Decree Cap 168, the Zanzibar Business License Regulations, 2017, the Zanzibar Local Government Authority Act, 2014, the Transfer of Properties Decree Cap 150, the Registration of Documents Decree Cap 99 of 1919, Business Entities Registration Act No. 12 of 2012, The Secured Transaction on Movable Properties Act No. 4 of 2011

INDIVIDUAL TAXATION

Nonresidents are taxed only on income derived from Tanzania. Married couples are taxed separately.

INCOME TAX

Nonresidents are taxed on their Tanzanian-sourced income. The applicable tax rates depend on the source or nature of income.

RENTAL INCOME  
Net rental income earned by nonresidents is taxed at a flat rate of 20%. Taxable income is computed by deducting costs incurred from the gross rental income.

Rental income from leasing land and buildings earned by nonresidents is subject to 15% withholding tax, which can be credited against the taxpayer’s income tax liability.

Stamp Duty on Lease of Property

Lease agreements are liable to stamp duty, which is levied at 1% of the gross rent.

CAPITAL GAINS TAX

Capital gains realized from the disposal of Tanzanian assets by nonresidents are taxed at a flat rate of 20%. To calculate the taxable capital gains, acquisition costs are deducted from the gross selling price.

However, if the property was used as the individual’s private residence for three years prior to the sale, capital gains up to TZS15 million (US$7,092) may be exempt from taxation.

Stamp Duty on Sale of Property

Conveyance of real properties is liable to stamp duty, which is levied at 1% of the gross selling price.

PROPERTY TAXATION

Property Tax

Property tax is levied at flat rates on the property value by the municipal or city councils. Applicable rates vary depending on the size, use and location of the property.

For Dar es Salaam region, property tax is levied at 0.15% on residential properties and 0.20% on commercial properties.

CORPORATE TAXATION

INCOME TAX

Income and capital gains earned by companies are generally taxed at a flat rate of 30%. Income-generating expenses are deductible when calculating for taxable income.