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