Employer of Record Services in Tanzania

Economic Situation in Tanzania

Tanzania is a country located in East Africa, with a population of over 58 million people. The country has a large and growing workforce, with over 40% of the population aged between 15 and 54 years. Tanzania has one of the fastest-growing economies in Africa, with an average GDP growth rate of 6-7% over the past decade. 

In recent years, the government has implemented several economic reforms aimed at promoting private sector growth, improving the business environment, and attracting foreign investment. 

Additionally, Tanzania is a member of the East African Community, which has created a regional market of over 180 million people, offering new opportunities for businesses looking to expand their operations.

Ease of Doing Business in Tanzania

Tanzania has made significant progress in improving its business environment, with the World Bank’s Doing Business 2022 report ranking the country at 141 out of 190 countries, up from 144 in the previous year. The report highlighted improvements in areas such as starting a business, registering property, and getting credit.

For businesses looking to expand to Tanzania, it is important to work with local partners and legal experts who understand the local market and can help navigate the regulatory landscape. Working with an Employer of Record (EOR) solution provider can also help businesses manage their workforce while remaining compliant with local labor laws and regulations.

The country has a tax system that is governed by the Tanzania Revenue Authority (TRA), which is responsible for collecting and administering taxes. Here is an overview of taxation in Tanzania:

Corporate Taxes in Tanzania 

Corporate Income Tax: Corporate income tax is levied on the profits of companies operating in Tanzania. The current rate is 30%, and it applies to both resident and non-resident companies.

Dividend Tax: Dividend tax is levied on dividends paid to shareholders. The current rate is 10%.

Withholding Tax: Withholding tax is a tax deducted at the source of income. It applies to payments made to non-residents, such as dividends, interest, royalties, and technical fees. The current rate varies between 5% and 15%, depending on the type of payment.

Value Added Tax (VAT): VAT is a tax on the value added at each stage of production or distribution. The current rate is 18%, and it applies to most goods and services sold in Tanzania.

Payroll Taxes: Employers are required to withhold and remit Pay As You Earn (PAYE) tax from employees’ salaries. The PAYE tax rate varies depending on the employee’s income, ranging from 0% to 30%

Employee Taxes in Tanzania 

Pay As You Earn (PAYE): PAYE is a tax deducted from an employee’s salary. The PAYE tax rate varies depending on the employee’s income, ranging from 0% to 30%.

Social Security Contributions: Employees must contribute 10% of their gross salary to the National Social Security Fund (NSSF). The NSSF also requires employers to contribute 10% of the employee’s gross salary.

Skills and Development Levy: Employers must contribute 5% of their payroll to the Skills and Development Levy (SDL), which funds training and skills development programs.

Health Insurance: Employees must contribute 6% of their gross salary to the National Health Insurance Fund (NHIF). The NHIF also requires employers to contribute 6% of the employee’s gross salary.

The employment act in Tanzania has laws that protect the rights of employees, including provisions for leave and benefits. Here is an overview of leave.

Normal/Annual Leave

Employees are entitled to six days of normal/annual leave in any week, and the leave allowance is calculated at the rate of one day’s basic wage for every 13 days the employee worked or was entitled to work.

Sick Leave

Employees have an entitlement of at least 126 days of sick leave in any leave cycle, and they must provide a medical certificate to qualify. Compensation during sick leave is calculated as follows: full wages are paid for the first 63 days, and half wages are paid for the subsequent 63 days.

Maternity Leave

Employees who give birth to a single child are entitled to 84 days of paid maternity leave, while those who give birth to more than one child are entitled to 100 days of paid maternity leave. If the child dies within a year of birth, the employee is entitled to an additional 84 days of paid maternity leave within the leave cycle.

Paternity Leave

Employees are entitled to three days of paternity leave in a leave cycle, which is thirty-six months. An employee can have up to four terms of paternity leave in the course of employment with the same employer. Paternity leave can be taken within seven days of the child’s birth.

Public Holidays

The Tanzania government entitles employees to paid Festival (public and religious) holidays. Additionally, the government usually announces festival holidays, and they typically number 17. If public holidays fall on Saturday or Sunday, they will be observed on those days, and employees who work on public holidays are entitled to double their basic wage for each hour worked.

The table below outlines the official public holidays in Tanzania:

Working Hours and Overtime

Employees in Tanzania are not allowed to work more than nine hours in any day, or 45 hours in any week. Overtime hours should not exceed 50 in any four-week cycle unless specified in an agreement. Employees who work overtime are entitled to compensation of not less than one and one-half times their basic wage.

Training and Skills Development

In Tanzania, employers must fund training and skills development for their employees. They calculate remuneration based on the employee’s daily rate, weekly rate, biweekly rate, or monthly rate, depending on the work schedule. Employers also have the obligation to pay the Skills and Development Levy (SDL), which they charge at a rate of 4.5% of the total emoluments paid to all employees during the month.

In Tanzania, termination and probation terms are governed by the Employment and Labour Relations Act, of 2004. 

Termination terms 

Notice Period: Both the employer and employee must give notice of their intention to terminate the employment contract. The notice period is determined by the length of service, as follows:

• Less than 6 months’ service: No notice is required.
• 6 months to 5 years of service: One month’s notice is required.
• More than 5 years’ service: Two months’ notice is required.

Termination without Notice: An employer may terminate an employee’s contract without notice in cases of gross misconduct, willful disobedience, or incapacity. The employee may also terminate the contract without notice in cases of serious and imminent danger.

Severance Pay: An employee who has been employed for at least 12 consecutive months is entitled to severance pay in case of termination due to redundancy. 

Probation Terms 

Duration: The probation period should not exceed six months.

Notice Period: Either party may terminate the contract during the probation period by giving notice. The notice period should not be less than seven days.