Introduction
On 12 February 2021, the Minister for Industry and Trade
extended the deadline for companies registered in Tanzania before 1
July 2020 to submit their beneficial ownership information from 31
December 2020 to 31 December 2021. 1 We highlight below salient features
of the beneficial ownership disclosure requirements and what this
means for companies registered in Tanzania given that the
regulations to operationalize the beneficial ownership disclosures
are yet to be enacted. In practice, the Business Registration and
Licensing Agency (BRELA) is not processing beneficial ownership
information pending the enactment of the requisite regulations and
this likely explains why the deadline for the submission of
information has beeextended.
Introduction of Beneficial Owner Disclosures in 2020
In July 2020, the Companies Act, 2002 was amended to require every company registered in Tanzania to disclose its beneficial owners with the Registrar of Companies. The Government subsequently released the draft Companies (Beneficial Ownership) Regulations, 2020 (the draft Regulations), which set out further details on the forms, particulars and processes relating to the disclosure requirement. The draft Regulations have not yet been enacted and this has occasioned administrative challenges in terms of BRELA's ability to operationalize the filing requirements.
Who is a beneficial owner?
A beneficial owner is defined under the Companies Act as a natural person (i) who directly or indirectly ultimately owns or exercises substantial control over an entity or an arrangement, or (ii) who has a substantial economic interest in or receives substantial economic benefit from an entity or an arrangement directly or indirectly whether acting alone or together with other persons, or (iii) on whose behalf an arrangement is conducted, or (iv) who exercises significant control or influence over a person or arrangement through a formal or informal agreement.
Notably, the Companies Act does not define what "substantial control" or "substantial economic interest in..." or "substantial economic benefit in..." a company means. In certain jurisdictions, there is a percentage reporting threshold for beneficial ownership. The definition of "beneficial ownership" introduced in the Companies Act closely follows the European position, however, in most European jurisdictions, the applicable threshold for reporting of beneficial owners is ownership or control of 25% of the capital or voting rights of the legal person. A threshold has not been prescribed in Tanzania and we hope that the Government will offer clarity on this issue in due course. We also note that the beneficial ownership rules apply to both private and public companies incorporated in Tanzania (unlike in other jurisdictions, there is no carve-out for listed companies).
What are the details to be disclosed and filing requirements?
Filing of the beneficial ownership details is to be made to the Registrar of Companies through the BRELA Online Registration System. Details of beneficial ownership to be filed with the Registrar of Companies include:
- 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;
- nature of the interest including the details of the legal, financial, security, debenture or informal arrangement giving rise to the beneficial ownership; and
- oath or affirmation as to whether the beneficial owner is a politically exposed person or not.
What are the proposed consequences of failing to make the requisite disclosures?
We note that if the aforementioned draft Regulations are enacted as they are currently drafted, then any person who fails to file beneficial ownership details with the Registrar of Companies commits an offence and is liable to a fine of not less than TZS 5 million (approx. USD 2,156) but not exceeding TZS 10 million (approx. USD 4,312).
Of greater relevance than the fine, however, is the proposal in the draft Regulations for the Registrar of Companies to have the power to "refuse to register any document of a company which is required to be registered under the [Companies] Act if the beneficial ownership information was not submitted or if he is not satisfied that the company has provided accurate and up to date information on the beneficial owners of the company as required by the Act and shall communicate his decision to the company accordingly." The effect of this provision, if enacted, is that it could prevent a company from taking certain essential corporate actions, for example registering share transfers, appointment/termination of directors, changes in share capital, etc. which may lead to significant operational challenges.
Recommendation
Pending an update from the Government on the draft Regulations, it is critical for companies registered in Tanzania to assess the impact of the beneficial owner disclosures on their shareholding structures and business operations, take appropriate steps to mitigate exposure and begin gathering the requisite information in anticipation of fulfilling the filing requirements in the near future.
In addition, there is a need for the companies to assess the tax implications of the disclosure requirements on their business. In particular, there are tax implications that may arise from the disclosure of relationships between various entities in Tanzania by virtue of a common ultimate beneficial owner. These implications would include transfer pricing and thin capitalisation issues, amongst others.
Footnote
1. The extension was published through the Companies (Extension of Period for Submission of Information of Beneficial Ownership) Notice, 2021 (Gazette Notice 189 of 2021).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
