Should You Formalise Your Business? The Pros, the Cons and the 4 Steps to Do It in Tanzania

🇹🇿 Soma kwa Kiswahili

In a country like Tanzania, a large share of everyday economic activity happens in the informal sector. There are two main reasons for this. First, many business owners simply don't know what steps to take to formalise what they do. Second, the authorities have not made a deliberate effort to go to people where they are and bring them into the formalisation process. If you have ever wondered whether to formalise your business, you are not alone.

The question many owners ask is this: will it pay me to formalise my business, or is it just another cost? This article gives you the facts so you can decide with your eyes open.

Where Do You Start to Formalise Your Business? 4 Basic Steps

Formalising your business starts with registering it with the Registrar of Companies and Business Names (BRELA). The next step is to get a Taxpayer Identification Number (TIN) from the Tanzania Revenue Authority (TRA), and then a business licence from the relevant authority, depending on what you do.

For most kinds of business, the licence comes from the district or municipal council and that is the end of it. A few types of business need an extra licence from the ministry responsible for that sector. Take a tour operator: as well as the council licence where your office is located, you also need a tourism business licence issued under the Ministry of Natural Resources and Tourism.

The Downside of Formalising: Costs You Can't Avoid

Let's be honest: formalising a business has a downside, and the biggest one is higher running costs. Once you formalise, you will usually face unavoidable costs such as rent, income tax, licence fees and other legal levies. If your business is not doing well and not earning enough, these costs can become a heavy burden.

The good news is that for a small business these costs are lower than many people think:

• Presumptive tax: from July 2026, an individual with turnover of up to TZS 200 million a year can pay presumptive tax instead of preparing audited accounts. Above TZS 11 million and up to TZS 200 million, the tax is 4% of turnover; businesses with smaller turnover pay a small fixed annual amount, or nothing at all.
• A 12-month break: the Finance Act 2026 introduced a 12-month income tax holiday for newly registered individual businesses, counted from the date you get your TIN. It is not automatic: you must apply to the TRA Commissioner General.
• VAT: VAT registration only becomes compulsory once turnover reaches TZS 200 million within 12 months. Most small businesses are not affected.

The Benefits of Formalising: Why the Costs Are Worth It

1. It creates the conditions for growth

The number one benefit is that formalising creates the conditions your business needs to grow. Growth needs discipline and skills. Owners of formal businesses are pushed to be disciplined, especially with money, and to build the know-how that keeps a business going. The sales records, receipts and accounts the formal system asks you to keep are exactly what tell you whether you are really making a profit.

2. It opens the door to extra capital

To grow at the pace you want, you will need extra capital sooner or later. That usually means a loan or money from investors. No bank and no serious investor will put money into a business that doesn't officially exist. FSDT research found that about 70% of informal businesses were completely excluded from financial services, compared with about 41% of formal ones.

3. It lets you bid for tenders and big contracts

Government, NGOs and large companies buy from suppliers who have a registration certificate, a TIN and a licence. Without these documents you can't even fill in a tender form, let alone win it.

4. It builds customer trust and protects your name

When customers see a licence on the wall, an electronic receipt and a registered business name, they trust you more. Registration also protects your business name so that nobody else can use it.

5. It lets your business expand

If you want your business to grow one day, open branches in other towns or sell across borders, you need to formalise it, no matter how small it is today.

Should I Formalise Now? 5 Questions to Ask Yourself

1. Do I want this business to grow beyond what it is today, or is it a short-term activity?
2. Will I need a bank loan, an investor or a partner in the next two years?
3. Do the customers I want (companies, institutions, government) need receipts and a TIN?
4. Can my current income carry a licence fee and a small presumptive tax?
5. Am I ready to record my sales and expenses every day?

If you answer "yes" to three or more, it is time to formalise. Start small: register a business name (simpler and cheaper than a company), open a business bank account, then apply for your TIN and licence. And if your business is new, don't forget to apply for the 12-month tax holiday.

Frequently Asked Questions

What does it mean to formalise a business?

It means registering your business with BRELA (as a business name or a company), getting a Taxpayer Identification Number (TIN) from TRA and a business licence from your council or the relevant authority, plus any sector licences your activity needs.

How much tax does a small business pay in Tanzania in 2026?

From July 2026, an individual with turnover of up to TZS 200 million a year can pay presumptive tax. Above TZS 11 million and up to TZS 200 million it is 4% of turnover; smaller turnovers pay a small fixed amount or nothing.

Can a new business get tax relief?

Yes. The Finance Act 2026 introduced a 12-month income tax holiday for newly registered individual businesses, counted from the date of TIN registration. You must apply for it to the TRA Commissioner General.

Should I start with a business name or a company?

For a small one-person business, a business name is simpler and cheaper. A limited company makes more sense when you have partners, want investors or need to protect your personal assets from business debts.

Final Word

Formalising a business has a cost, but staying informal costs more: the loans you never get, the tenders you can't bid for and the growth that never happens. If you dream of growing your business, formalising is not a question of "if" but of "when".

Need help registering your business? Wellbiz Solutions is ready to help. Call or WhatsApp: +255 754 281 131 / +255 655 281 131

Know someone running an informal business? Share this article with them.

Sources: Ministry of Industry and Trade and FSDT, MSME National Baseline Survey (2012), as summarised in FSDT, "Business Formalization in Tanzania"; RSM Tanzania and Clyde & Co, Finance Act 2026 highlights; TRA, VAT guidance; Tanzania National Business Portal (business.go.tz), business licence guide; The Citizen (December 2025) on the ILFS 2024. Adapted from an original Kiswahili article by Juma Killaghai.

🇹🇿 Soma kwa Kiswahili