Introduction:
This guide provides basic overview of Corporation Tax. It explains the meaning of “Corporation Tax”, who is liable and what is to be done when you are subject to Corporation Tax requirements. It also explains common income tax terms such as “Self-Assessment”, “Year of Income” and “Taxable Profits”. The guide also outlines how Corporate tax is calculated, what are the applicable tax rates and when to pay.
What is a Corporation Tax
Corporation Tax is a tax charged on taxable income (Profits) of entities such as limited companies, institutions or organizations including clubs, societies, associations, co-operatives, charities and other unincorporated bodies.
Taxable incomes (profits) for charging Corporation Tax include:
Profits from business undertakings
Profits from conducting investments (except such dividends which are taxed differently as final taxes)
Tax paid out of turnover of companies with perpetual unrelieved losses for three consecutive years
Which Entities (Persons) are required to pay corporation tax.
a) Limited Companies
b) Trusts
c) Clubs
d) Non-Governmental Associations
e) Co-operative Societies
f) Charitable Organizations
g) Domestic Permanent Establishment (Branches of non-resident companies)
h) Political Parties
i) Government Agencies
j) A newly established entity dealing in manufacture of Pharmaceutical or leather products and having a performance agreement with Government of the united Republic of Tanzania shall be taxed at the rate of 20% for five consecutive years from the year of commencement of production.
Are Partnerships required to pay corporation tax?
Partnerships are not liable to pay corporation tax. However, the partners are charged income tax on the profits distributed from partnership basing on the agreed sharing ratio.
What is the year of income?
For income tax purposes year of income means a calendar year of twelve months period (meaning the period starting from 1st January to 31st December). However an entity may apply in writing to the Commissioner for approval to change the entity’s year of income from calendar year or twelve month period to another twelve month-period previously approved. Year of income is important for tax accounting purposes.
What is a tax return?
Tax return is a statement filled to TRA which declares the estimated income and tax payable or the final income and tax payable for each year of income.
Under the income tax law, a company is required to submit tax returns even if it has no taxable income.
Statement of estimated tax payable
Every registered company and individuals who are required to prepare the audited account shall file to TRA a statement which shows the estimated tax payable in each year of income.
Statement of estimate/revised estimate of tax payable by instalment made on behalf of an entity.
Statement of estimate/revised estimate of tax payable by instalment made by an individual
Due dates
The statement of estimated tax payable shall be submitted to TRA office either of the following dates depending on your accounting period:
i. On or before 31st March
ii. On or before 30th June
iii. On or before 30th September
iv. On or before 31st December
The payment of first instalment tax is due when the statements of estimated tax payable (provisional returns) are submitted, and then other instalments shall be paid on due dates above.
Late payment of tax: Shall be charged the interest at the statutory rate compounded monthly shall be payable to the Commissioner General
Final return of income
The final returns shall be submitted within six months from the end of the accounting period. The return must be prepared or certified by a Certified Public Accountant in Public Practice who is approved by the National Board of Accountants and Auditors (NBAA)
Due date for self assessment tax
The due date for the payment of tax as per return (Self assessed final tax) is the due date of submitting the return.
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