Regu-Lesson: Decoding Tanzania's Foreign Exchange Regulatory Framewok

Introduction and Regulatory Framework

In the intricate landscape of international finance and cross-border payments, clear definitions and regulations are the bedrock of seamless transactions. Tanzania's Foreign Exchange Regulations, G.N. No. 294 of 2022, introduce key definitions and provisions that underpin the dealings involving foreign currency, imports, exports and more. In this technical exposition, we delve into the intricacies of these definitions and transactions, shedding light on their significance for individuals and businesses.

Definitions and Key Concepts

The scope of the Regulations encompasses a wide array of aspects pertaining to foreign currency and gold transactions, current account activities, as well as capital and financial account operations.

Certain definitions laid out in the Regulations are of particular significance:

1. Capital account transaction: This is defined as a financial flow that leads to changes in assets or liabilities located outside the United Republic of Tanzania (the URT) for a URT resident or inside the URT for a non-resident.

2. Current account transaction: Encompassing payment for imports and exports, short-term credit as part of normal business, coupon and dividend receipts, remittances for various purposes such as living expenses, education, medical care, and more.

3. Resident: Referring to an individual who either resides in the URT for a continuous period or has their primary economic interests centered in the URT for a minimum of twelve months.

4. Prescribed territory: This is defined as a member country of either the East African Community (EAC) or the Southern African Development Community (SADC).

Foreign Currency Transactions and Trading

The Regulations stipulate that any individual, whether a resident or non-resident, can engage in holding, selling, or purchasing foreign currency within the URT through banks, financial institutions, or currency exchanges. However, a constraint is placed on trading foreign currency beyond the interbank foreign exchange market. While local banks have the authority to directly exchange foreign currencies or use electronic platforms, transactions with foreign banks require adherence to guidelines established by the Bank of Tanzania (BoT).

Account Maintenance and Travel Restrictions

It's noteworthy that the Regulations forbid residents from maintaining accounts outside the URT, except for specific instances such as securities settlement in prescribed territories or when authorized by the BoT Governor.

Regarding travel beyond the URT, the Regulations limit carrying an amount exceeding USD 10,000, and impose a declaratory requirement for individuals entering or leaving the URT with foreign currency surpassing this threshold.

Cross-Border Trade Facilitation

For facilitating cross-border trade, the Regulations allow for the receipt and expatriation of foreign currencies in the URT from neighboring countries, subject to BoT directives. Moreover, an account relationship between an exporter and a bank or financial institution is mandated for the sale of foreign currency from the exporter to the said institution. In the context of import payments, an importer must hold an account relationship with a bank or financial institution before making direct advance payments.

Export and Import Transactions

When it comes to export transactions, exporters are mandated to receive all proceeds from exports in an account held within a URT bank or financial institution and furnish the necessary exportation documents within seven days of completing customs export procedures. The Regulations also require exporters to ensure timely payment of proceeds within the agreed timeframe, usually not exceeding 90 days, unless reasons for payment delays are provided along with an expected payment schedule.

All forms of foreign currency export undertaken by banks or financial institutions necessitate the Governor's consent. This consent is also mandatory when any individual within the URT intends to engage in gold trading or export former legal tender notes or coins from the URT.

Regarding imports, the Regulations dictate that all payments for imports must be executed through banks or financial institutions, unless the value of an import consignment is below USD 10,000. In cases of direct payments, the bank or financial institution must obtain the necessary supporting documents from the importer. Should a bank or financial institution make direct advance payments for imports, the same account relationship requirement applies to importers, mirroring the conditions for exporters.

Outward Remittances and Regulations

The Regulations authorize outward remittances by any individual within the URT, provided such remittances are facilitated through a bank, financial institution, or a mobile money operator. Depending on the purpose of the remittance, specific supporting documents are required. For instance, in the case of expatriate remittances, banks and financial institutions must obtain relevant employment contracts and work permits from the applicant. However, mobile money operators can execute outward remittances within the prescribed territory without necessitating supporting documents, as long as reasons for the remittance are provided and the transaction amount does not surpass the daily limit set by relevant authorities.

Capital and Financial Account Transactions

Regarding capital and financial account transactions, residents are permitted to buy, sell, issue, or transfer financial securities, coupons, and participatory rights to residents of prescribed territories. As it stands, residents can remit funds for purchasing securities or participatory rights within a collective investment scheme, or for an issuer conducting a public offering in a prescribed territory. However, remittance for purchasing participatory rights within a collective investment scheme issued by an unauthorized entity in the prescribed territory is not permissible. Conversely, non-residents can remit funds for purchasing traded securities of a listed company or for an issuer undertaking a public offering.

Non-Resident Securities Transactions

In accordance with the Regulations, non-residents are not authorized to purchase, sell, or transfer government securities unless they are residents of prescribed territories or citizens of the URT residing abroad.

It's worth noting that non-residents are required to maintain a securities settlement account with a bank or financial institution, or appoint a URT-based custodian to facilitate payments and proceeds arising from securities transactions.

All securities transactions within Tanzania are executed through licensed dealing members of approved stock exchanges within the URT, and for government securities, through the BoT.

Additionally, the Regulations offer residents access to credit accommodation from non-residents through banks or financial institutions. If a Foreign Credit Accommodation (FCA) provided to a resident extends beyond 365 days, the underlying FCA agreement must be registered with the BoT within 14 days of its execution, and subsequently assigned a Debt Registration Number (DRN). The DRN serves as a reference for all disbursements, debt servicing, and other transactions associated with the FCA. Importantly, if proceeds from the FCA are directly paid by the lender to a supplier of machinery, equipment, or other goods and services without the involvement of a URT-registered bank or financial institution, and the FCA remains unregistered for over 14 days, a penalty of TZS one million will be imposed on the borrower for each day the FCA remains unregistered.

It's specified in the Regulations that the BoT will not register an FCA agreement if it includes:

• Interest rates and other charges that do not reflect the prevailing market conditions for the relevant borrowing currency,

• Conditions precedent that mandate the borrower to open a foreign currency account outside the URT.

In relation to outward direct investment and real estate acquisition, residents are permitted to remit funds for such purposes if the investment occurs within prescribed territories. Remittances must be routed through banks or financial institutions, and relevant supporting documents must be submitted for approval. In cases where residents wish to engage in outward direct investment or acquire real estate outside prescribed territories, prior approval from the BoT is mandatory.

Enforcement and Compliance Measures

The oversight and enforcement of the Regulations fall under the jurisdiction of the BoT, in collaboration with law enforcement agencies. These entities may periodically request essential documentation and information to verify compliance with the Regulations. Enforcement mechanisms include fines and penalties that are aligned with the stipulations of the Act.

Our Unique Position and Expertise

Our team’s comprehensive banking experience in assisting international clients and corporations with their international transactions uniquely positions us to address a diverse spectrum of needs, particularly in navigating the intricacies of the Tanzanian Shilling and its regulatory landscape. This specialized expertise coupled with our extensive range of products including facilitating exchange rate transactions in both directions, forward products, and non-deliverable forwards (NDFs), further distinguishes us as a trusted partner in assisting our clients with their specific requirements when dealing with the Tanzanian Shilling. We are committed to providing excellent service tailored solutions that align with our clients' objectives, ensuring seamless and compliant operations within the framework of the Foreign Exchange Regulations.