Taxation of Companies in Zanzibar: Understanding Tax Through Business Performance

Zanzibar is not a branch office of a single national tax system. It is a jurisdiction with its own revenue authority, its own domestic tax laws and its own compliance calendar — sitting alongside, not underneath, the Union tax system that also reaches into Zanzibar.

A company incorporated and operating in Zanzibar deals with two separate tax administrations at the same time. Getting this distinction right matters more than memorising any individual rate, because it determines who you file with, which law applies, and which office you go to when something goes wrong.

As with any business, the clearest way to understand where each obligation arises is to follow the company's financial performance:

Revenue – Direct costs = Gross profit – Operating and employee costs – Finance costs = Profit before tax – Income tax = Profit after tax

At almost every stage of this statement, the reader should ask a second question alongside "what tax applies here?" — namely, "which authority administers it?"

1. TRA vs ZRA: Which Authority Administers Tax in Zanzibar?

Tanzania's constitutional structure divides taxation into Union matters and non-Union matters.

Union taxes apply uniformly across Mainland Tanzania and Zanzibar and are administered by the Tanzania Revenue Authority (TRA), including in Zanzibar. Corporate income tax, PAYE, withholding tax and the Skills and Development Levy (SDL) are all imposed under the Income Tax Act, 2004 (a Union statute) and collected by TRA — regardless of whether the company is registered in Dar es Salaam or Zanzibar Town.

Non-Union taxes are matters of domestic consumption and transactions, legislated separately by Zanzibar and administered by the Zanzibar Revenue Authority (ZRA) — established under the Zanzibar Revenue Authority Act, replacing the former Zanzibar Revenue Board (ZRB) that had operated since 1996. VAT, excise duty on locally produced goods, stamp duty and Zanzibar's tourism-sector levies fall here, under Zanzibar's own VAT Act and related statutes, at Zanzibar's own rates — which, as the next section shows, are not the same as the Mainland's.

The rule of thumb worth carrying through the rest of this guide:

If it is a tax on income, employment, or a withholding obligation tied to income — it is a Union matter, and TRA is the authority, even for a purely Zanzibar-based business. If it is a tax on a domestic transaction, a supply, a document, or a Zanzibar-specific activity such as tourism — it is a non-Union matter, and ZRA is the authority.

A company in Zanzibar therefore holds a TIN with TRA for income-tax-related obligations and separately registers with ZRA for VAT and other non-Union taxes — two registrations, two filing systems, two compliance calendars.

If you're setting up in Zanzibar for the first time, dual registration is the single most common source of early compliance gaps we see — a business registers with one authority and assumes it has covered the other. Glenrich can map exactly which TRA and ZRA registrations, filings and deadlines apply to your business before you incorporate.

2. What Is the VAT Rate in Zanzibar? Revenue and Sales Tax Explained

VAT (ZRA). Zanzibar's standard VAT rate is 15% — lower than the Mainland's 18% — except for banking, postal, telecommunication, insurance and digital services, which are taxed at 18%, matching the Mainland rate. VAT registration is compulsory once taxable turnover exceeds TZS 100 million in a 12-month period (half the Mainland's TZS 200 million threshold), so a smaller Zanzibar business can be pulled into VAT registration sooner than an equivalent Mainland one. Revenue and VAT collected are not the same thing: VAT charged to a customer is not company income, and the company's own position depends on registration status, the nature of the supply, and any exemption or zero-rating.

Withholding tax suffered (TRA). Where a customer is required to withhold tax, that obligation arises under the (Union) Income Tax Act regardless of the fact that both parties operate entirely within Zanzibar. Invoice value, cash received and taxable income can diverge exactly as on the Mainland, and amounts withheld may be creditable against the company's TRA-administered income-tax liability. For the full rate schedule and mechanics, see our Withholding Tax in Tanzania guide.

Sector-specific levies (ZRA). Given Zanzibar's tourism-heavy economy, hospitality businesses should expect additional non-Union charges layered on top of VAT, legislated and collected separately by ZRA.

3. Zanzibar-to-Mainland Transactions: Does VAT Apply Twice?

Because VAT is a non-Union tax administered separately on each side of the Union, a supply between Zanzibar and Mainland Tanzania is not automatically "domestic" for VAT purposes the way it would be within a single VAT jurisdiction. TRA's own guidance confirms the mechanism this creates in practice: VAT paid under Zanzibar VAT law on goods transferred into Mainland Tanzania can be claimed as input tax credit on the Mainland side, provided the goods meet the requirements of the law — a genuine cross-jurisdiction credit, not a double charge, but one that depends on proper documentation to work.

Income tax, withholding tax and PAYE, by contrast, are Union matters — a payment moving between a Zanzibar company and a Mainland counterparty is assessed under one Income Tax Act, with TRA on both ends.

The practical consequence: treat Zanzibar–Mainland transactions with the documentation discipline of a genuine cross-border transaction for VAT purposes, while treating them as effectively domestic for income-tax purposes.

Groups that move goods, services or intercompany charges between Zanzibar and the Mainland without matching documentation are the ones most likely to lose a VAT credit they were legally entitled to. If your business operates on both sides of the Union, this is worth a transaction-flow review before it becomes a filing problem.

4. Withholding Tax and VAT on Business Costs in Zanzibar

Withholding tax (TRA). Before a Zanzibar company pays for services, rent or professional fees, it should ask who is being paid, for what, and whether withholding tax arises under the Income Tax Act — a TRA matter even for an entirely local transaction. Current Union rates include 10% on interest, 10% on rent, and service fees at 5% (resident) or 15% (non-resident) — see our Withholding Tax in Tanzania guide for the complete rate table.

VAT input recovery and stamp duty (ZRA). Input VAT on qualifying purchases is claimed under Zanzibar's own VAT system. Certain agreements executed in Zanzibar — leases, loan agreements, property transfers — may also attract stamp duty under Zanzibar law, administered by ZRA; property transfers specifically carry their own separate rules, covered in our guide to property taxes in Tanzania.

Excise duty (ZRA). Locally produced excisable goods in Zanzibar are subject to excise duty under Zanzibar's own regime, distinct from the Mainland excise system.

5. Paying a Foreign Supplier From Zanzibar: A Tax Checklist

Identify the payment → determine the recipient's residence → determine source under the Income Tax Act (TRA) → check withholding tax (TRA) → check any applicable tax treaty → check VAT/imported-service treatment under Zanzibar's VAT law (ZRA) → check transfer pricing where the supplier is a related party → confirm deductibility → retain documentation for both authorities.

ZRA has extended its VAT system to cover electronic and digital services supplied by non-resident providers into Zanzibar, so a Zanzibar company consuming foreign digital services should not assume this falls outside VAT simply because the supplier has no local presence.

6. PAYE, SDL and ZSSF: Payroll Taxes in Zanzibar Explained

PAYE (TRA). Calculated, deducted and remitted to TRA under the same Income Tax Act that applies on the Mainland, using the same rate bands.

Skills and Development Levy (TRA). SDL is imposed under Section 14 of the Vocational Education and Training Act, Cap. 82, and collected by TRA — but the rate itself is not uniform: 3.5% of gross monthly emoluments on the Mainland versus a figure commonly cited at 4% in Zanzibar. This is worth confirming against the current TRA schedule at the time of filing, since it is one of the few Union-administered obligations where the rate itself, not just the exemption list, differs by jurisdiction. Zanzibar's available SDL exemption grounds are also narrower than the Mainland's — an employer should check which specific exemptions apply rather than assuming the Mainland list carries across.

Zanzibar Social Security Fund (ZSSF). This is the clearest structural difference in payroll. A Mainland employer contributes to NSSF at 20% of gross salary (split between employer and employee, with the employer able to recover up to half from the employee). A Zanzibar employer instead contributes to ZSSF, established under the Zanzibar Social Security Fund Act No. 2 of 1998 (as amended), at 14% employer / 7% employee — 21% of gross monthly wage in total. This is a statutory social-security contribution rather than a tax, but it is a real payroll cost and should not be assumed to mirror NSSF.

Gross remuneration → PAYE (TRA) → other employee deductions → employer's SDL and ZSSF contributions → net salary → reporting split between TRA (income-tax-related) and Zanzibar's social-security administration.

A Mainland payroll template run unmodified in Zanzibar will misstate both SDL and social security contributions — the rates, not just the names, are different. If your payroll hasn't been reviewed against current Zanzibar rates, this is a fast check worth doing before your next pay run.

7. Capital Allowances and VAT on Business Assets in Zanzibar

Capital allowances on qualifying assets are determined under the (Union) Income Tax Act — a TRA matter, identical in framework to the Mainland. Accounting depreciation under IFRS is still not the same as the tax capital allowance on the same asset.

VAT on the acquisition or disposal of assets falls under Zanzibar's VAT law and ZRA where the transaction occurs in Zanzibar. Import of capital equipment additionally raises customs considerations — customs duty is a Union matter, but goods entering through Zanzibar's ports may also interact with Zanzibar-specific port charges, so the landed cost of an asset should be checked against both regimes.

8. Withholding Tax on Loans and Interest in Zanzibar

Whether funded by a Zanzibar or Mainland bank, or by a foreign shareholder, the income-tax consequences of financing — withholding tax on interest (10% under the Union schedule), deductibility, treaty relief, and transfer pricing on related-party loans — sit with TRA, exactly as for a Mainland company.

Where a loan agreement or security document is executed in Zanzibar, stamp duty under Zanzibar law may also apply to the instrument itself — a separate ZRA matter.

9. Corporate Tax Rate in Zanzibar: From Profit to Taxable Income

Accounting profit before tax

• non-deductible expenditure +/– other tax adjustments – allowable deductions – capital allowances – available tax losses, subject to the applicable rules = Taxable income

The standard corporate income-tax rate under the Income Tax Act is 30%, applying to Zanzibar companies on the same basis as Mainland companies. Specific reduced rates exist for particular categories of taxpayer — for example, 25% for companies newly listed on the Dar es Salaam Stock Exchange (for three years, where at least 25% of shares are publicly issued), 10% for new assemblers of vehicles, tractors or fishing boats (first five years), and 20% for new pharmaceutical or leather manufacturers with a government performance agreement (first five years). A 1% alternative minimum tax on turnover can also apply to companies with perpetual unrelieved tax losses over the current and preceding two years, subject to sector exemptions. For the full rate schedule, worked examples and the deemed-distribution rule on retained profit, see our Corporate Income Tax in Tanzania guide.

This is also where Zanzibar-specific investment incentives become relevant. The Zanzibar Investment Promotion Authority (ZIPA) administers investment and free-economic-zone incentives for qualifying investors, which can affect import duty treatment and, in some cases, the tax position of a qualifying enterprise. Incentive status changes the numbers that get applied — it does not change which authority administers the underlying tax, so ZIPA-linked terms should always be read together with, not instead of, the Income Tax Act and Zanzibar's VAT law.

10. How Corporate Tax Filing Works in Zanzibar: The TRA Process

Because corporate income tax is TRA-administered, a Zanzibar company follows the same cycle as a Mainland one: estimate taxable income, pay through the instalment system, monitor performance, revise the estimate where needed, close the financial year, prepare financial statements, complete any required audit, file the final return, and settle any balance or credit position. The return, the filing portal, and the responsible office are all TRA's — not ZRA's.

11. ZRA VAT Filing: A Separate Compliance Cycle From TRA

Running alongside the TRA cycle is an entirely separate one for VAT, stamp duty, excise and any sector levies, each with its own registration, filing frequency and deadlines under Zanzibar law. These two cycles do not automatically align — a company can be fully current with TRA and still be in default with ZRA, or vice versa. Compliance calendars for a Zanzibar business should track both authorities separately.

12. Why Your Records Must Reconcile With Both TRA and ZRA

Revenue in the financial statements should reconcile with ZRA's VAT declarations and, separately, with TRA's withholding-tax records on the same sales. Payroll costs should reconcile with TRA's PAYE and SDL records and, separately, with ZSSF contribution records. Purchases should reconcile with ZRA's VAT input records and stamp duty documentation and, separately, with TRA's withholding-tax records on the same payments.

Because the two authorities run independent systems, a discrepancy that would show up as one reconciling item on the Mainland can surface as two separate ones in Zanzibar — one on each side.

13. What Triggers a TRA or ZRA Tax Audit in Zanzibar?

A TRA review tests income tax, PAYE, SDL and withholding positions against the company's records. A ZRA review separately tests VAT, stamp duty and other non-Union declarations against the same underlying transactions. These are not the same audit conducted twice — they are two different authorities testing two different obligations against overlapping source documents. A business prepared only for a TRA-style review can be caught off guard by a ZRA examination of its VAT position, and the reverse is equally true.

If you've never reconciled your records against both TRA's and ZRA's requirements independently, the time to find that out is now, not when an audit notice arrives.

14. Zanzibar Tax Rates: TRA vs ZRA at a Glance

Frequently Asked Questions About Zanzibar Tax

Is Zanzibar's tax system the same as Mainland Tanzania's? Partly. Income tax, PAYE, withholding tax and SDL are Union taxes under the same Income Tax Act, administered by TRA in both places. VAT, stamp duty, excise duty and tourism levies are separate, Zanzibar-specific, non-Union taxes administered by ZRA, at Zanzibar's own rates.

Do I register with TRA or ZRA when I set up a company in Zanzibar? Both. TRA issues your TIN and handles income-tax-related registration; ZRA handles VAT and other non-Union tax registration separately.

What is the VAT rate in Zanzibar? 15% standard rate, rising to 18% for banking, postal, telecommunication, insurance and digital services — lower overall than the Mainland's 18% standard rate, but with a lower registration threshold (TZS 100 million vs TZS 200 million).

If my company only operates in Zanzibar, do I still deal with TRA? Yes. Corporate income tax, PAYE, withholding tax and SDL go to TRA regardless of where in Tanzania the company operates.

What is ZSSF and how does it compare to NSSF? The Zanzibar Social Security Fund is Zanzibar's mandatory social-security scheme, currently at 14% employer / 7% employee (21% total) of gross monthly wage — a different structure from NSSF's 20% total on the Mainland. It replaces, not supplements, NSSF for Zanzibar-based employment.

Does moving goods or services between Zanzibar and the Mainland trigger VAT twice? Not if handled correctly. VAT paid under Zanzibar's VAT law on goods moved to the Mainland can generally be claimed as input tax credit there, but this depends on documentation meeting the legal requirements — it is not automatic.

Do ZIPA incentives replace the need to deal with TRA or ZRA? No. ZIPA-administered incentives (import duty relief, free-economic-zone terms) adjust specific outcomes under the existing tax framework; they don't remove the underlying TRA or ZRA obligations or registrations.

Is Your Business Exposed? A Quick Self-Check

Answer yes or no:

Does your business transact regularly with a Mainland group entity or related party? Do you operate in tourism, hospitality or another sector carrying additional ZRA levies? Have you applied for, or are you holding, ZIPA incentive status? Have you crossed, or are you approaching, the TZS 100 million VAT registration threshold? Has your payroll been reviewed against Zanzibar's specific SDL and ZSSF rates, as opposed to Mainland defaults? Has anyone at your business had to reconcile the same transaction against two separate regulatory systems before?

If you answered yes to two or more of these, your compliance exposure is probably higher than your current process accounts for — and the cost of finding that out from us is lower than finding it out from an audit.

Get a Zanzibar Tax Position Review

Glenrich Consultants works with foreign investors and groups operating across both Mainland Tanzania and Zanzibar, structuring compliance around the dual TRA/ZRA system rather than treating it as an afterthought. A position review covers: which registrations you hold versus which you need, whether your payroll and VAT rates match your actual jurisdiction, and where cross-border transactions with a Mainland entity may be creating unclaimed credits or unflagged exposure.

[Book a review with our tax team →] (insert your preferred contact link, booking page, or email address here)

Tax in Zanzibar Is Two Systems, Not One

The single most useful thing a foreign investor can take from this guide is that "Zanzibar tax" is not a smaller or simplified version of "Tanzania tax." It is the same Union income-tax system that applies everywhere in the country, running in parallel with a genuinely separate, Zanzibar-specific system of domestic taxes and levies administered by ZRA.

A company should not treat tax as a single line item to be handled once a year. It should maintain records capable of satisfying both administrations, on their own separate terms. That discipline — not any individual rate — is what defines doing business in Zanzibar from a tax perspective.