Unlocking Zanzibar’s Investment Potential: A Comprehensive Guide for Investors
Zanzibar is rapidly emerging as a competitive and attractive investment destination, bolstered by the progressive Zanzibar Investment Act, 2023. I am delighted to shed light on the robust framework designed to attract, protect, and facilitate both local and international investment.
A Commitment to Investor Protection
One of the cornerstone principles underpinning Zanzibar’s investment climate is the unwavering commitment to investor protection. Approved investments are safeguarded against arbitrary actions by the Government and will not be seized, except in cases of public interest, and only then with fair and timely compensation. Furthermore, the Government is legally bound not to take actions that negatively affect investors’ rights or operations without legitimate justification. Intellectual property associated with approved investments is also fully protected under Zanzibar’s relevant laws.
Facilitating Capital Mobility: Repatriation of Profits
Foreign investors benefit from a clear and secure mechanism for transferring funds out of Zanzibar in convertible foreign currency. This includes:
- Profits and dividends
- Principal and interest on foreign loans
- Proceeds from the sale or liquidation of an Approved Investment
- Salaries and related payments to expatriate employees
These transfers are permitted after fulfilling tax obligations and at the prevailing exchange rate, ensuring a predictable and transparent process for investors.
Attractive Incentives for Growth
To solidify its position as a premier investment hub, Zanzibar offers a wide array of incentives across various categories:
- Tax Exemptions: Investors can benefit from up to 100% exemption on import duties, VAT, and other taxes for construction materials, raw materials, and machinery. Corporate income tax holidays are available for up to 5 years, with potential extensions based on the project type and location.
- Ownership and Profit Repatriation: Zanzibar permits 100% foreign ownership of investments, coupled with the full repatriation of profits, dividends, and loan repayments in freely convertible currencies.
- Strategic Investment Benefits: Projects deemed “Strategic Investments” unlock enhanced incentives. These include grace periods of up to 5 years for land and marina leases, a 100% corporate tax exemption for the first 5 years, and a 50% exemption for the subsequent 10 years.
- Sector-Specific Incentives: Manufacturing, in particular, receives special attention, including full tax exemption on goods produced for export and exemptions on raw materials and packaging materials.
- Special Economic Zones (SEZ) and Export Processing Zones (EPZ): These zones offer compelling benefits such as tax holidays for up to 10 years, duty remission on imports, simplified customs procedures, and exemption from local government taxes.
Understanding Capital Thresholds and Strategic Investment Criteria
To qualify for a Certificate of Investment (CoI), specific minimum capital requirements are in place:
- Tanzanian Investors: Minimum capital of USD 100,000
- Diaspora Investors: Minimum capital of USD 200,000
- Foreign/Joint Venture in Hotels & Real Estate: Minimum USD 2.5 million
- Foreign/Joint Venture in Other Sectors: Minimum USD 500,000
Projects that significantly contribute to economic growth may qualify for Strategic Investment Status, unlocking enhanced incentives. The criteria are as follows:
- In Unguja: An investment of USD 50 million (with at least 30% equity), OR an investment of USD 10 million and the creation of 500+ direct jobs (excluding hotels).
- In Pemba: An investment of USD 5 million (with at least 30% equity), OR an investment of USD 2 million and the creation of 100+ direct jobs (excluding hotels). Strategic status is also considered for projects on small islands based on specific provisions of the Act.
Employment Obligations: Prioritizing Local Talent
While Zanzibar embraces foreign investment, there is a clear emphasis on local employment. Investors are required to prioritize the employment of Tanzanians, especially qualified Zanzibaris. Expatriates may constitute up to 10% of the workforce for a maximum of 8 years, with a possibility of extension. This policy ensures that foreign investment contributes directly to local skill development and job creation.
Navigating the Investment Process: Support Services by ZIPA
The Zanzibar Investment Promotion Authority (ZIPA) plays a pivotal role in facilitating the investment journey. ZIPA is committed to a transparent and investor-focused process, providing professional guidance and efficient facilitation from start to finish. Their support services include:
- Investor Facilitation: End-to-end assistance with registration, permits, licensing, and approvals.
- Aftercare Services: Continuous support to address operational challenges, expansion needs, and bottlenecks.
- Monitoring and Evaluation: Regular engagement to ensure compliance, timely project execution, and adherence to investment agreements.
- Legal Protection and Dispute Resolution: Guaranteed legal protection under Zanzibar law, with clear, transparent mechanisms for resolving disputes.
The process for applying for a Certificate of Investment with ZIPA is streamlined:
- Formal Application Submission: Submit a detailed application outlining your project scope, investment capital, and business objectives.
- Required Documentation: Include a comprehensive business plan or project proposal, company registration certificates, proof of investment capital, and relevant environmental and sectoral clearances.
- Assessment & Due Diligence: ZIPA thoroughly assesses your application to ensure it meets investment criteria and aligns with national development priorities.
- Certificate Issuance: Once approved, you will receive your Certificate of Investment, formally recognizing your project within Zanzibar’s legal investment framework.
- Validity, Renewal & Amendment: The certificate comes with specified terms of validity. Investors can apply for renewal or amendment if there are operational or structural changes.
Zanzibar offers a dynamic, investor-friendly environment, strengthened by comprehensive incentives and efficient facilitation services. The Zanzibar Investment Act, 2023, is a testament to the government’s commitment to building an economy of opportunity, innovation, and resilience.
It’s Time for Pemba. Zanzibar Is Open.
By Sunday Ndamugoba, Partner of RIVE & Co and Advocate of Zanzibar