Q&A – 7  November 2011

Management not listening to director

I have been appointed a director of a large bank in Tanzania. Immediately after the appointment I had to travel across the country for my personal work and also took the opportunity to visit all the branches in every single town that the bank is present in. Most of the managers listened to my instructions on ways of improving services except for one particular branch manager who continues to disobey what I told him. As a director in the board should he not be listening to my instructions? What should I do?
OP, Dar

Congratulations in being appointed to the board of this leading bank in the country. You seem to have come with new and renewed energy which is always good for the bank.

Unless you are the Managing Director (MD) of the bank and the managers’ report to you, as a director you cannot start directly instructing the managers. There is a distinction between your role as a director whereby your duties are mainly strategic and governance based, and the role of the management which does the execution. You must remember that a company’s day to day affairs are not run by the directors but the management led by the MD. Hence it is not entirely proper for you to directly address the managers of the bank.

This does not mean that you should not visit the branches. You can also engage and get relevant information from the managers but any instructions to any branch manager must be made through the MD, who in turn reports to the board where you sit.

Certain companies around the world have directors who are much more hands on and engaged in the day to day operations of the company. From your description, your role doesn’t seem to be such.

We hence specifically answer your questions and provide guidance as follows: firstly, this response should not demotivate you from doing the good job of visiting the branches. However you should send your report to the MD for execution and wait for the MD to report to the board. Secondly, by default, most managers would respond and listen to their directors unless the directors have recommended something absurd. If this manager has not paid attention to your request, you can channel the suggestion/complaint through the MD and ask for a response. Always get responses in writing so that this goes on record. And yes continue doing the good work.

Capital gains tax on share transfer

We are a locally registered company having three shareholders, two of whom are from the Middle East, and third is local. One of the two Middle East shareholders is a publicly listed company and was taken over by a company in the Far East and the shares were transferred accordingly. We contacted the Tanzania Revenue Authority for clarification on the transfer of shares and were told immediately that both capital gains tax and stamp duty applies. Whilst filling out the transfer forms, we realized that the shareholding of the local company in Tanzania has actually not changed. Two years have now passed and the TRA has sent us a capital gains tax bill of 10% of the purchase price of the shares and a demand to pay stamp duty. What should we do?
FD, Dar

TRA has on record the fact that you contacted them on the share transfer whereby you were advised to pay capital gains tax and you did not. However all that TRA says is not necessarily correct- TRA has the heavy responsibility of collecting taxes in Tanzania and sometimes when collection targets are not met, TRA’s advice to tax payers is more skewed to paying!

As you have spotted very correctly, the shareholding of the Tanzanian company has not changed. The shareholders remain the two Middle East based shareholders and the one Tanzanian. What has changed is the shareholding of one of the Middle East based shareholders, who is now owned by the company from the Far East. The share transfer has taken place between the Middle East based company and the company from the Far East, which now effectively owns the Middle East based company which in turn owns a portion of the locally registered company. Hence capital gains tax should not apply. These shares were those of a foreign company in the Middle East and they cannot attract capital gains tax in Tanzania- the Laws of the country in the Middle East would apply. TRA’s jurisdiction is limited to Tanzania not worldwide.

The same applies for stamp duty which is also not applicable for the same reasons above. We suggest you contact your tax consultant who can guide you on how to challenge the observations by TRA.

Non Tanzanian owning company in Tanzania

I have visited Tanzania and wish to invest here. Can a foreigner open a company here without a local shareholder? How long does the process of opening a company take and how do I know if a certain name is available or not? Can I reserve the name pending registration?
SY, Dar

The Companies Act in Tanzania does not restrict you, as a foreigner, from owning a company here. However the requirement is that any company must have a minimum of two shareholders, both of whom can be foreigners. You can hence proceed to register a company locally.

We must however point out that some of the industries have their own regulations and may have a minimum shareholding requirement for Tanzanians. That however does not bar you from registering a company and then, depending on the industry you want to invest in, from changing shareholding.

To know whether a name is available or not, you simply lodge a search at the Registrar of Companies offices in Dar. The Registrar may, on written application, reserve a name pending registration of a company. Any such reservation shall remain in force for a period of thirty days and during such period no other company shall be entitled to be registered with that name.

The registration process is very streamlined and straight forward- it normally should not taken you a maximum of 10 days to be fully incorporated.