This article delves into the tax laws implications related to a change in ownership exceeding fifty percent of an entity’s with the primary focus on income tax. The focal point of discussion is the tax ramifications following a change in ownership exceeding fifty percent and its alignment with the recently enacted Finance Act of 2023.

The Finance Act of 2023 has instigated substantial changes by modifying the Income Tax Act, specifically its section 56. This amendment, introducing subsection 5, delineates circumstances where the preceding provisions of the same section would not be applicable, particularly when there is a change in underlying ownership as stipulated in subsection 1(a) of the section.

In essence, section 56 of the Act saw its first amendment through the Finance Act of 2012. The objective of this amendment was twofold: broadening the tax base by taxing gains arising from Tanzanian businesses and counteracting the practice of companies utilizing overseas holding structures. It’s noteworthy that legislators intended for the government to benefit when there was an offshore reorganization of the holding structure, thereby indirectly affecting local entities.

However, this move inadvertently deterred even onshore corporate restructurings taking place within Tanzania. To address this challenge, Tanzania chose to amend the section through the Finance Act of 2023. The amendment defines the prevailing circumstances under which an entity subjected to such changes will be exempted.

Among the prevailing circumstances, the key ones include:

  • Change of ownership resulting from the allotment of new membership interests of the entity.
  • Change of ownership resulting from the transfer of membership interests of a resident entity to another resident individual.

Previously, prior to the 2023 amendment, the section stipulated that if the underlying ownership of an entity changed by over 50% compared to the ownership of the preceding three years, the entity had to be treated as realizing any assets and liabilities owned by it immediately before the change.

Subsequent to the recent amendment, it’s essential to note that a change of ownership from one resident individual to another exceeding fifty percent within the previous three years, or a change resulting from the allotment of new membership interests of the entity, will allow the deduction of losses incurred by the entity before the change or the carrying back of losses incurred after the change to a year of income before the change.

The introduction of this amendment is geared towards expediting the direct transfer of shares and thereby promoting investment in Tanzania.Top of FormBottom of Form

For more details and legal advice for the changing ownership of an entity for more than fifty percent contact us through the address below:

Victory Attorneys & Consultants,
IT Plaza Building, 1st Floor,
Ohio Street/Garden Avenue
P.O. Box 72015, Dar es Salaam.
Mobile No: +255682197331