Thirteen Common Mistakes to Avoid When Closing a Business in Tanzania

Closing a business in Tanzania requires more than stopping operations. Common mistakes include ignoring TRA tax filings, BRELA deregistration, employee dues under labour laws, and unresolved contingent liabilities. A clean exit demands early planning, compliance clearance, proper communication with regulators, and professional advice.

1. Waiting to hit rock bottom

• Many business owners in Tanzania wait until the business is completely distressed before making the decision to exit. At this stage, options such as selling, restructuring, or negotiating with creditors are often no longer available.
• Closing at rock bottom usually means assets have lost value and liabilities have grown. This makes the exit more expensive, stressful, and legally complicated.
• An earlier, planned exit allows better control of costs, compliance, and outcomes. Timing the decision well is often the difference between a clean exit and a chaotic one.

2. Leaving unattended compliance matters

• Some business owners in Tanzania stop focusing on compliance once they decide to exit. This includes ignoring filings, renewals, and statutory communications.
• Unattended compliance issues (TRA, BRELA, etc) continue to accumulate penalties and may block formal deregistration. Authorities do not assume a business has closed just because operations stopped.
• Addressing compliance matters early makes the exit process faster and cheaper. It also protects directors and shareholders from future enforcement actions.

3. Accumulating tax arrears & penalties

• Many assume that if a business is not operating, there is nothing to file. This assumption leads to missed returns and automatic penalties.
• Tax obligations to the Tanzania Revenue Authority (TRA) often continue until the business is formally deregistered. Nil returns are still required even when there is no income or activity.
• Filing nil returns to TRA and and annual returns to BRELA on time prevents unnecessary penalties and enforcement actions. It keeps the tax position clean and simplifies the final exit process.

4. Ignoring employee obligations

• Some exits fail because employee matters are treated as an afterthought (e.g. failure to submit social secrity contributions to the National Social Security Funds (NSSF)). Final salaries, accrued leave, notice pay, gratuity, and statutory contributions are often left unsettled.
• In Tanzania, employment obligations do not disappear when a business stops operating. Improper termination exposes the business and directors to labour disputes and regulatory sanctions.
• Clearing employee dues and following lawful termination procedures protects against claims and delays. It also allows smoother clearance with labour authorities during exit.

5. Selling or transferring assets without valuation and tax planning

• In some cases, assets are sold quickly to raise cash without proper valuation or tax consideration. Consequently, this often results in undervaluation, disputes, or unexpected tax liabilities.
• In practice, asset disposals may trigger capital gains tax, VAT, or withholding tax depending on the nature of the asset and the transaction. As a result, poor planning can create new liabilities even after exit.
• Proper valuation and tax planning preserve value and avoid post-exit surprises. It also supports defensible records in case of future audits.

6. Assuming informal closure is sufficient

• Although stopping operations, vacating offices, or shutting down bank accounts may seem sufficient, these actions do not amount to legal closure in Tanzania, just as in any other country. As a result, many owners mistakenly believe the business is “closed” at that point.
• Legally, the entity continues to exist until it is formally dissolved or deregistered. Compliance, tax, and reporting obligations continue to accrue.
• Therefore, formal dissolution is essential to end a company’s legal existence and obligations. Without it, the business remains exposed to long-term risks and liabilities.

7. Not communicating early with statutory authorities

• Avoiding regulators during exit often worsens the situation. Silence is usually interpreted as non-compliance rather than closure.
• Early engagement with tax, corporate, and sector regulators helps clarify requirements and timelines. It may also allow negotiated settlements or waivers where applicable.
• Transparent communication reduces enforcement risk and speeds up the exit process.

8. Mixing personal and business finances during wind-down

• As cash tightens, some owners start paying personal expenses from business accounts or vice versa. This blurs accountability during exit.
• Such mixing complicates audits, raises red flags with authorities, and may expose directors to personal liability. It also weakens the credibility of financial records.
• Keeping strict separation ensures clarity and protects individuals from unnecessary legal exposure.

9. Losing or destroying statutory records

• During exit, records are sometimes neglected, lost, or intentionally destroyed to “clear space.” This is a costly mistake.
• Importantly, statutory records may be required by the TRA and other regulatory authorities years after exit for audits, disputes, or investigations. Consequently, failure to produce them can result in penalties or adverse assumptions.
• Proper archiving of records is a legal safeguard, not an administrative burden.

10. Overlooking contingent liabilities

• Some liabilities are not obvious at the time of exit. Pending audits, tax assessments, disputes, guarantees, and warranties can surface later.
• Ignoring these risks gives a false sense of closure. They can reopen matters long after the business has exited.
• By identifying and addressing contingent liabilities early, business owners can make informed decisions and ensure proper risk management.

11. Transferring shares or ownership without approvals

• Share transfers are sometimes used as an “easy exit” without observing regulatory or contractual requirements.
• Share transfers require registration and approval by BRELA, notifications to TRA as well as tax clearances. Ignoring these steps may render the transfer invalid or expose parties to penalties.
• Properly structured transfers ensure the exit is legally effective and defensible.

12. Underestimating time and cost

• Many owners expect exits to be quick and cheap. In reality, in Tanzania, deregistration, tax clearance, and compliance resolution take time and money.
• Underestimation leads to rushed decisions and incomplete processes. This often results in higher costs later.
• Realistic planning prevents frustration and incomplete exits.

13. Failing to seek professional advice early

• Some seek professional help only when problems escalate. At that stage, options are limited and costs are higher.
• Legal, tax, and insolvency advice early in the process helps map viable exit routes and avoid mistakes.
• Early guidance often saves more money and stress than it costs.

Frequently Asked Questions (FAQ)