Beneficial Ownership Rules In Tanzania

• Published date: 06 July 2021
• Subject Matter: Corporate/Commercial Law, Corporate and Company Law, Shareholders
• Law Firm: Shikana Law Group
• Author: Amne Suedi

Talk of the town in the business community has been the regulations on beneficial ownership in Tanzania¹ that operationalized the amendments of the Companies Act, through the Finance Act of 2020² which introduced beneficial ownership rules.

Undeniably, we live in a world where corruption and money laundering schemes go through financial institutions undetected. Part of the fight against this abuse, is the ability for authorities to identify and verify the identity of the beneficial owners who control companies and trusts. It is understandable that authorities' priority is to prevent the abuse of legal vehicles that rob countries of their dues and ultimately chip away at the trust in democracy and state institutions.

The rules in Tanzania apply to both private and public companies, with an exemption for companies incorporated outside of Tanzania and with a place of business in Tanzania, since such is not deemed to be incorporated in Tanzania³. Beneficial ownership is defined as a natural person who directly or indirectly owns or exercises substantial control over an entity or an arrangement; who has a substantial economic interest in or receives substantial economic benefit from an entity or arrangement; on whose behalf an arrangement is conducted or who exercises significant control or influence over a person or arrangement through a formal or information agreement.⁴

In the spirit of capturing everything under the sun, there are terms here that do not really make sense such as a person who "indirectly owns or exercises substantial control" and I expect that we will see some interesting case laws come up with regards to this time. Leaving that aside, the key terms to understand in this provision are "substantial control" and "substantial economic interest". In my opinion, the test for understanding "substantial control" lies in the definition of majority which means a person who influences decisions in the Company. Traditionally, majority would mean owning 50 percent of outstanding shares + 1 in the company with voting rights, however given that the term "substantial" is added, it is my opinion that the requirement for disclosure applies to a person that is having influence of decision with a Company beyond a 51% shareholding. We can imagine arrangements where a shareholder owns shares amounting to less than 51%, for example 49% but the board of directors is controlled by this shareholder in a substantial way therefore such a case would fall under the...