Export Processing Zones (EPZs) and Special Economic Zones (SEZs) provide investors in Tanzania with an enhanced regulatory and fiscal environment for export oriented activities in order to facilitate growth in the national economy.
This update will examine the features and requirements of the EPZ and SEZ frameworks, set out the differences and comparative advantages of each and look at where both frameworks are currently in existence.
The Export Processing Zones Act 2002 (as amended by the Export Processing Zones (Amendments) Act, 2006 and the Economic Zones Laws (Miscellaneous Amendments) Act, 2011) (the EPZ Act) introduced EPZs to Tanzania with the general aim of creating international competitiveness for export led economic growth. Investors wishing to establish or operate in an EPZ and thereby take advantage of the basket of incentives on offer must obtain one of the three categories of licence from the Export Processing Zones Authority (the EPZA), which is responsible for the governance of EPZs. The three categories of licence issued by the EPZA are the Developer’s Licence (for investment in infrastructure development including the construction of industrial buildings and warehouses the development of internal roads, landscaping and fencing and the provision of utilities), the Operator’s Licence (for investors who are undertaking manufacturing operations including manufacturing, processing breaking bulk, repackaging, re-labelling and trading) and the Service Provider’s Licence (for investors who are providing services and utilities to EPZ and SEZ investors within the zone, including banking, insurance and IT).
In order to qualify for an EPZ licence, the investment should amongst other things, be in a new business or activity which is not already established, with at least 80% of the goods produced or processed for export and annual export turnover of at least USD 500,000 for foreign investors (USD 100,000 for local investors). The process of obtaining a licence, including the establishment of a Tanzanian company through which the investment must be held officially takes three months although in practice this can be longer and the holder of such a licence must continue to comply with the terms of the licence in order to continue to enjoy the related benefits.
SEZs were established under the Special Economic Zones Act, 2006 (as amended by the Economic Zones Laws (Miscellaneous Amendments) Act, 2011) (the SEZ Act) and are similar to EPZs in that they provide a basket of incentives for investors who qualify as operating in a SEZ and that they are governed by the EPZA, however their scope is significantly wider than EPZs, in that they are intended to promote economic activities in order to accelerate domestic production, promote exports or generate employment, as well as attracting private investment in the form of foreign and domestic direct investment in the productive and service sectors. As with EPZs, investors are required to obtain a licence from the EPZA. The three categories of licence issued by the EPZA are Developer’s Licences (for the purposes of developing and leasing infrastructure and providing services to other investors in SEZs), Investor’s Licences (for the purposes of carrying on business within the SEZ) and Non-core Business Licences (for the purposes of providing services to investors in the SEZ, however these licence holders will not qualify for the fiscal incentives provided for in the SEZ Act).
In order to qualify for a SEZ licence, the investment should amongst other things, be in a new business or activity which is not already established, be in a newly incorporated company, constitute a minimum capital investment of USD 500,000 for foreign investors (USD 100,000 for local investors) and generate at least USD 5 million in annual export turnover for foreign investors (USD 1 million for local investors). In common with EPZs, the process of obtaining a licence, including the establishment of a Tanzanian company through which the investment must be held officially takes three months although in practice this can be much longer and the holder of such a licence must continue to comply with the terms of the licence in order to continue to enjoy the related benefits.
The EPZ Act and the SEZ Act provide a basket of specific incentives for investors operating within them which we set out and compare in the table below:
Click here to view image.
Click here to view image.
There is also scope within the EPZ Act for the EPZA to propose additional incentives for the investors in an EPZ for approval by the EPZ Board (made up mainly of senior members of the government), however the exact process by which any additional incentives could be granted is not clear. The EPZA also has the power to enter into a contractual agreement with investors in relation to the grant of investment incentives and the conduct of business within EPZs, provided that this does not contradict the provisions of the EPZ Act.
Existing EPZs and SEZs
The following EPZs and SEZs are currently in existence and are real-life examples of investors taking advantage of the basket of incentives afforded by the current legal framework:
Click here to view image.
The increasing prevalence of SEZs and, in particular, EPZs, is evidence that Tanzania is fast developing an export-orientated private sector economy. Although the scope of the SEZ regime is wider than that of EPZs with regard to the permitted purpose or results of an investment, it is likely that the majority of, particularly foreign, investors are likely to concentrate on exports from Tanzania and therefore qualify for both schemes. Although the fiscal and non fiscal incentives under bothframeworks are similar, the requiredturnover to qualify for a licence under the SEZ framework is ten times higher than that required under the EPZ framework, which is likely to act as a significant barrier to entry for many investors, which has led to the number of EPZs far exceeding SEZs. With Tanzania and the wider East African economy continuing tosustain strong economic growth and with the relatively stable conditions afforded to investors in comparison to other parts of Africa, the EPZ and SEZ frameworks are likely to become increasingly common as international investors attempt to diversify their operations to faster growing parts of the world’s economy whilst obtaining the best possible fiscal and non-fiscal framework in which to operate.