Tanzania, one of Africa's nations, has been making remarkable strides in economic growth and development. With its abundant natural resources and diverse industries, the country transitioned from a low-income status to a low-middle-income nation in 2020. Tanzania's Gross Domestic Product (GDP) reached an all-time high of $67.78 billion in 2021, and its economy continues to flourish with a projected GDP growth rate of 4.5-5.5% in 2022. The Tanzanian government, recognizing the potential for foreign investment, has established incentives, including protection against political risks and expropriation. This makes it an opportune time to establish your business in Tanzania. However, setting up a company in Tanzania comes with the prerequisite of establishing a payroll system in compliance with federal laws.
Global PEO companies like FaidiHR can play a pivotal role in facilitating the establishment of a payroll system in Tanzania. This guide will delve into the intricacies of payroll calculation, salary structures, and the step-by-step process for setting up a payroll in Tanzania with FaidiHR's assistance.
Understanding Payroll Calculation in Tanzania
Before onboarding employees in Tanzania, it's crucial to establish a robust payroll system. Payroll calculations are based on various factors, including employee data, working hours, minimum wages, additional benefits, and taxes. Key components and deductions to consider in payroll calculations in Tanzania include:
- Income Tax: Tanzania follows a progressive tax system where the tax rate increases with income levels. Tax rates range from 0% to 30%, with no taxes applied to employees earning less than TZS 270,000 per year. Non-residents are taxed only on income earned in Tanzania at a rate of 15%.
- Social Security Contributions: Employers are required to contribute to the National Social Security Fund (NSSF), with a contribution rate of 20% based on the employee's basic income. The employee and employer share this contribution, with various distribution options available.
- Workers' Compensation Fund: Employers, both in the private and public sectors, must contribute to the Workers' Compensation Fund. As of 2022, private sector employers contribute 0.6%, while public sector employers contribute 0.5% to the fund.
- Other Deductions: Additional deductions may include contributions to higher education student loan boards, pension schemes, and union dues, depending on company policies and employee status.
Key Elements of Salary Structure in Tanzania
Tanzania's payroll structure comprises various components, each playing a specific role in determining an employee's total compensation. Key elements of the salary structure in Tanzania include:
- Cost to Company (CTC): CTC encompasses all payroll-related items, including gross compensation, net salary, basic pay, allowances, and deductions. It represents the total value of an employee's compensation beyond just cash payments.
- Gross Salary: Gross salary is the total compensation before tax deductions and other deductions are applied.
- Net Salary: Net salary is the amount an employee takes home after all deductions have been applied, following company policies.
- Basic Salary: Basic salary typically accounts for 30-35% of gross salary and is determined based on an employee's status and industry standards.
- Allowances: Employees in Tanzania are entitled to various allowances, some of which may be taxable based on local tax rules. Allowances can include meal, housing, transport, and medical allowances.
- Bonuses: While not mandatory, employers may provide annual bonuses to employees based on their budget and company policy.
Setting Up Payroll in Tanzania: A Step-by-Step Process
Establishing a payroll system in Tanzania involves a structured approach to ensure compliance with local laws and regulations. Here are the key steps to set up payroll in Tanzania:
- Company Registration: Begin by registering your company with the Business Registrations and Licensing Agency (BRELA). Upon successful registration, you'll receive a company identification number and an incorporation certificate.
- Bank Account: Open a bank account in your company's name. This account will be used for salary payments and other financial transactions.
- Tax Registration: Register your company with the Tanzania Revenue Authority to obtain a Taxpayer Identification Number (TIN). Ensure compliance with all relevant tax regulations.
- Employee Registration: Register all employees in your payroll system, collecting necessary personal and tax-related information. This data will be used for government submissions and record-keeping.
- Gross and Net Salary Calculation: Calculate gross and net salaries for each employee, factoring in allowances, deductions, and taxes per company policy and local regulations.
- Payroll Structure: Establish a payroll structure for your company, determining pay frequencies and payment methods for different employee categories.
- Tax Payments: Ensure timely payment of payroll taxes, including income tax, social security contributions, and workers' compensation fund contributions. Submit payroll tax contributions and returns to the relevant tax office.
- Payroll Records: Maintain accurate payroll records, documenting all transactions and payments. Keep these records for a minimum of seven years to ensure compliance and provide proof of fair employee compensation.
Payroll Cycle in Tanzania
Tanzania does not impose strict restrictions on payroll cycles, allowing companies flexibility in determining payment frequencies. Employers can choose to pay employees on a daily, weekly, bi-weekly, or monthly basis, aligning with their internal policies. However, it's essential to adhere to designated payment dates as pre-established by the company. Retaining payroll records for at least seven years is a recommended practice for compliance and record-keeping purposes.
Expanding your business to Tanzania holds immense potential, but it requires careful attention to local tax legislation and labor laws. Setting up a robust payroll system compliant with Tanzanian regulations is a critical step in this journey. FaidiHR offers comprehensive payroll solutions in over 150 countries, simplifying the process of establishing payroll in Tanzania. With FaidiHR's expertise and one-click payroll system, you can ensure compliance, accuracy, and efficiency in compensating your workforce. Book a free demo here: https://faidihr.com/demo/requestdemo.