TANZANIA: KEY HIGHLIGHTS OF THE FOREIGN EXCHANGE REGULATIONS 2022
On 13 May 2022, the Bank of Tanzania (BoT) published the Foreign Exchange Regulations, 2022 (FX Regulations 2022) which replace the Foreign Exchange Regulations, 1998 (FX Regulations 1998) and the Foreign Exchange (Listed Securities) Regulations, 2003 (Listed Securities Regulations).
Prior to the coming into force of the FX Regulations 2022, foreign exchange matters were regulated under the Foreign Exchange Act, 1992 (FX Act) and the FX Regulations 1998. On 24 September 1998, the BoT issued the Foreign Exchange Circular No. 6000/DEMEX.REG/58 (FX Circular 1998) which provided further directives on the regulation of foreign exchange in Tanzania. The Listed Securities Regulations were issued in 2003 to introduce provisions on how foreign investors may invest in the Tanzanian stock market.
For the most part, the FX Regulations 2022 restate the provisions of the FX Regulations 1998, the Listed Securities Regulations and the FX Circular 1998 and incorporate some welcome improvements. Key highlights of the FX regulations 2022 are as follows.
The FX Regulations 2022 introduce new terms and expand the definitions of some existing terms, most noteworthy are:
- Direct Investment – the term has been expanded to mean an investment that is made by a non-resident to acquire a lasting interest by the creation or acquisition of assets in an enterprise operating in Tanzania or by a resident to acquire a lasting interest by the creation or acquisition of assets in an enterprise operating outside Tanzania, in which the investor has control or a significant degree of influence on the management of the said enterprise.
- Participatory rights – has been defined to mean any interest, share, or unit (whether the value of such interest, share or unit remains constant or varies from time to time) that may be acquired by an investor in a collective investment scheme.
- Prescribed territory – the definition is expanded and now covers member countries of the East African Community (EAC) and Southern Africa Development Community (SADC).
- Capital account transaction – has been defined to mean a capital or financial flow that alters the assets or liabilities (including contingent liabilities) outside Tanzania of a person who is resident, or assets or liabilities in Tanzania of a person who is resident outside Tanzania.
- Credit accommodation – has been defined to include loans, overdrafts and advances, leasing, acceptances, performance and bid bonds, letters of credit, guarantees, foreign exchange contracts or any other form of a direct or indirect financial obligation including interest due and unpaid to a bank or financial institution.
Restriction on maintaining foreign bank accounts
The FX Regulations 2022 continue to restrict residents from opening and maintaining foreign bank accounts without the approval of the Governor of the BoT. An exception is for accounts within prescribed territories for the purposes of settlement of securities held within EAC and SADC countries.
Nonetheless, the FX Regulations 2022 continue to permit Tanzanian residents to receive payments from non-residents through local banks or financial institutions.
Registration of foreign loans
Residents are allowed to obtain foreign loans provided that such transactions are carried out through a local bank or financial institution.
The FX Regulations 2022 continue to require the registration of foreign loans with a tenure exceeding 365 days. Such loans are required to be registered with the BoT and assigned a Debt Registration Number (DRN).
Restrictions on outward capital account transactions and outward direct investments
The Listed Securities Regulations restricted capital account transactions to only within the EAC and had a cap of 40%. The FX Regulations 2022 allow residents to purchase, transfer, issue or sell securities, coupons, or participatory rights in a collective investment scheme within the EAC and SADC.
Furthermore, the FX Regulations 2022 require residents who intend to issue securities in any of the EAC or SADC member countries to seek approval and to notify the BoT and the Capital Markets and Securities Authority within seven days after obtaining such approval.
Tanzanian residents remain restricted from issuing securities and participating in capital markets outside the prescribed territories. The FX Regulations 2020 continue to restrict engaging in outward portfolio investment, acquisition of real estate, outward direct investment to territories outside the EAC and SADC and lending to any non-residents.
Declaration of foreign currency when travelling with cash
The FX Regulations 2022 retain the requirement to declare cash amounts exceeding USD 10 000 (or its equivalent) for persons entering or leaving the country.
The FX Regulations 2022 retain similar provisions to the FX Circular 1998 regarding outward remittances made through local banks and financial institutions.
For example, in the case of dividends and profits to foreign shareholders, local banks and financial institutions are required to obtain supporting documents depending on the purpose for which such remittance is made. Such documents include audited financial statements, dividend payment notices indicating declared dividends or profit to be repatriated, and approval of the board of directors or shareholders for payment of the said dividends in addition to documents confirming payments of all relevant taxes in respect of such dividends or profit.
Mobile money operators can make outward remittances within EAC and SADC countries without supporting documents subject to the established limit per day as prescribed by the BoT.
Enforcement and penalties
The BoT is the primary authority for the monitoring and enforcement of the FX Regulations 2022. Where necessary the BoT may collaborate with other government authorities like the Tanzania Revenue Authority Customs Department, the Ministry of Home Affairs – Financial Intelligence Unit and the police force.
Penalties for non-compliance with the FX Regulations 2022 are as prescribed in the FX Act.
* This article was co-authored by Imani Mselle and Flora Mukasa