In this legal update, we discuss key highlights of the Foreign Exchange (Bureau de Change) Regulations of 2023 (the 2023 Regulations), which came into force on 6 October 2023 and revokes the Foreign Exchange (Bureau de Change) Regulations of 2019 (the 2019 Regulations). All bureaux de change licensed by the Bank of Tanzania (BoT) to operate in Tanzania are required to comply with the 2023 Regulations.
Licence Requirements, Prohibitions and Eligibility
Engaging in a bureau de change business without a valid licence issued by the BoT remains prohibited, as stipulated in Regulation 3 of the 2023 Regulations. Violating this requirement constitutes a criminal offence which attracts a penalty of TZS 4 million (~USD 1,600), or imprisonment for a term of up to 14 years, or a combination of both.
Naming Requirements and Ownership and Name Changes
Eligibility for a bureau de change licence is extended to entities that meet specific criteria, including being a company limited by shares or a hotel incorporated under the laws of Tanzania Mainland or Zanzibar.
Licencees must include the terms "bureau de change," "forex bureau," or "foreign exchange bureau" in their business name. In the event of change of name, it should be registered with the Registrar of Companies and thereafter notified to the BoT within 14 days from the date of registration. Any change of ownership must be granted prior approval by the BoT and thereafter the licencee is required to notify the BoT within 7 days after such change is registered with the Registrar of Companies.
Classification of Bureau de Change Licences
The 2023 Regulations introduce 3 classes of bureau de change licences:
- Class A – this licence allows the licencee to deal in spot transactions, money transfer and other financial services related activities (such as agency banking and mobile money agency). It can be granted to either local or foreign owned entities. Minimum capital required is TZS 1 billion (~USD 400,000) for majority foreign owned entities and TZS 500 million (~USD 200,000) for majority local owned entities.
- Class B – this licence allows the licencee to deal with spot transactions only and requires 100% local shareholding. Minimum capital required is TZS 200 million (~USD 80,000).
- Class C – this licence can only be granted to hotels and allows the licencee to deal with spot transactions only with customers of the hotel.
The Regulations define “spot transaction” as a sale or purchase of foreign currency of which settlement is made within the same day using cash, bank, financial institution, mobile money operator or any other means approved by the BoT.
Further, a bureau de change is required to always maintain a working capital equivalent of no less than 70% of its owners’ equity.
Application Procedures
Application for a licence must be submitted in writing to the BoT accompanied by, among others, prescribed forms as set out in the 2023 Regulations, a certified copy of a board resolution authorising the application, and evidence from the Registrar of Companies of paid-up share capital.
Upon receiving a complete application for licence, the BoT has a one-month window to either grant provisional approval or reject the application. In the event of an application rejection, the BoT will promptly notify the applicant in writing, providing clear and comprehensive reasons for the decision. It is important to note that provisional approval does not grant the right to conduct bureau de change business.
Applicants for Class A and Class B bureau de change licences must fulfil specific requirements within six months of receiving provisional approval from the BoT. These requirements include the submission of:
- A bank statement confirming the allocated paid-up capital.
- A certified copy of the lease agreement or title deed for the business premises.
- Proof of payment for a non-refundable licence fee of TZS 1 million (~USD 400).
It's worth noting that the non-refundable licence fee has been reduced from the previous amount of TZS 2 million (~USD 800) as specified in the 2019 Regulations.
Applicants of Class A and Class B bureau de change licence must meet certain conditions within six months of obtaining provisional approval from BoT. These conditions include submission of a bank statement confirming the allocated paid-up capital, a certified copy of the lease agreement or title deed for the business premises and providing proof of payment for a non-refundable licence fee of TZS 1 million (~USD 400). It is important to highlight that the non-refundable licence fee has been reduced from the previous TZS 2 million (~USD 800), as stipulated in the 2019 Regulations.
Furthermore, Class A bureau de change applicants who plan to engage in money transfer business are required to submit, among other documents, evidence of a non-interest-bearing deposit of either USD 100,000 for entities with foreign majority shareholding, or USD 50,000 for entities with local majority shareholding.
Upon meeting all the stipulated requirements, the BoT will grant the respective licence, which will remain valid unless suspended or revoked.
Licence Fees
The Regulations require an annual licence fee of TZS 500,000 (~USD 200) for each operating Class A and Class B bureau de change. This represents a significant reduction from the previous fee of TZS 1 million (~USD 400) as outlined in the 2019 Regulations. As for Class C bureau de change, there is currently no clarity regarding licence fees.
Transformation to Class A Bureau de Change
Holders of Class B bureau de change licences may transition to a Class A bureau de change licence upon application to the BoT and meeting all necessary eligibility criteria to hold a Class A licence.
Class C Bureau de Change
The 2023 Regulations introduce licensing requirements for bureaux de change established within hotels in Tanzania. Hotels planning to engage in bureau de change activities must apply for a Class C licence with the BoT. The application must be submitted in writing to the BoT accompanied by, among others, prescribed forms as set out in the 2023 Regulations, certified copies of the business name registration or certificate of incorporation, a copy of a valid licence for conducting hotel business, and evidence of a rating as a three-star hotel or above, issued by the relevant authority.
Hotels operating Class C bureau de change must establish documented procedures for the detection and reporting of money laundering incidents in compliance with anti-money laundering and combatting financing of terrorism laws and regulations. Furthermore, foreign exchange transaction records must be maintained separately from other operations and must be submitted to the BoT.
Conclusion
In conclusion, the 2023 Regulations offer enhanced clarity regarding the distinct categorisation of bureau de change classes. The significant inclusion of hotels within the regulated bureau de change framework not only broadens opportunities for local and international stakeholders but also simplifies currency exchange for foreign tourists. Furthermore, the expansion of financial-related services within the scope of the Class A licence signifies a commitment to facilitating a more comprehensive financial sector.
--
Read the original publication at Clyde & Co.
