The government has repealed the Foreign Exchange Regulations, 1998. Consequently, the Foreign Exchange Circular, 1998 has also been repealed as it was made under the Foreign Exchange Regulations, 1998. Note that Foreign Exchange Regulations, 1998 and the Foreign Exchange Circular, 1998 were the instruments to control the inflow and outflow of foreign currency in Tanzania. The new regulations have been made and are cited as Foreign Exchange Regulations, 2022.
The Regulations do not indicate commencement date. However, the Interpretation of Laws Act, Cap 1 section 37(1b) provides that a subsidiary legislation shall come into operation on the date of its publication in a government gazette. Foreign Exchange Regulations, 2022 were gazetted on 13 May 2022. This is to say the Regulations are operational effective 13 May 2022.
The Regulations have significantly reproduced the provisions of the repealed Foreign Exchange Regulations, 1998 and its circular. Restrictions and controls on capital inflow and outflow remains the same. However, significant changes are as follows:
Penalty for failure to register a foreign loan on time
The new Regulations require a foreign loan to be registered within 14 days from date of receipt. Under the repealed Regulations, there has never been any penalty in case of delays in registering a loan with BOT. It was a practice that a borrower was allowed (through application and approval) to request the BOT to allow registration of a loan out of time. The new regulations now introduce a penalty of TZS 1 million for each day of delay. The penalty is quite significant hence the need to ensure foreign loans are registered on time. The requirement to register foreign loans extend to capture loan amounts disbursed directly through suppliers (not necessary through the borrower’s account). Please note that, loans eligible for registration are those whose term is 365 days or more.
Prohibition of conversion of equity to debt
Funds which came into Tanzania as equity shall at no point in time be converted into loan. We read the Regulations to understand that this restriction does not cover conversion or ordinary shares to preference shares.
New hopes for online (out of bank) foreign currency trading
The Regulations provide that a person shall trade foreign currency outside the interbank foreign exchange market as per the prescription from the BOT. This provides hopes for the regularization of the ongoing online forex trading. It is good to see the Government is responding to the prevailing changes in technology and ways of doing business. It will be interesting to see the prescribed modality for out of bank forex trading.
Restriction on offsetting of financial claims
It is expressly prohibited for affiliate companies to net-off financial obligations. This is likely to impact multinational companies with subsidiaries in Tanzania. This can also considerably impact cashflow for some of the companies.
Duty to report non-receipts of imports
A consignee of goods is required to notify its bank on non-receipt of the goods on the lapse of 90 days. This applies to goods which were paid for from Tanzania. An importer may be barred from accessing foreign currency incase of failure to report non receipt of goods. We anticipate that bankers are likely to be given the duty to monitor this aspect.
Authorization to trade in securities, coupons etc., in the prescribed territory
Residents and non residents are now allowed to involve in trading of securities and coupons in a prescribed territory. Noteworthy the word prescribed territory has now been defined to include SADC countries. This is a great move to promote regional integration activities.
The Regulations further provides specific requirements for both residents and non-residents. One of the requirements applicable to non-residents is a mandatory condition to open and maintain a Securities Settlement Account with a bank or financial institution or appoint a custodian in the United Republic.
Requirement for all payments to go through banks
It is now a requirement that all payments from non-residents to residents to be affected through banks or financial institutions. This means that cash payments (even from foreigners who are in Tanzania) are not allowed.
Authorization for residents to purchase real estate
Residents are allowed to make capital outward transactions for purchase of real estate or investments provided there are supporting documentations and the said purchase is made in a prescribed territory. Investments and real estate outside the prescribed territory maybe approved by the BOT upon application.
Restriction to open and/or maintain a bank account outside Tanzania
Apart from resident banks or financial institutions, all residents in Tanzania are not allowed to open and or operate a bank account outside Tanzania unless approved by the Governor of the BOT. Subject to proper documentation, non-resident employees with work/residence permits in Tanzania can be allowed to transfer funds to their bank accounts maintained in their home countries.
We trust that you will find this summary helpful. Please note that this publication is for general compliance information purposes and does not constitute our professional advice. Please contact us in case of further questions or legal opinion on this matter.
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