A transaction negotiated and completed outside Tanzania may still be subject to Tanzanian merger-control laws if it results in a change of control over a business operating in Tanzania.
For foreign investors, private-equity funds and multinational companies, understanding this principle is essential before completing an acquisition.
The Legal Position
Under Tanzania’s Fair Competition Act, Cap. 285 R.E. 2023, a merger may arise from the acquisition of shares, businesses or assets, whether the acquisition takes place within or outside Tanzania, where the transaction results in a change of control over a business or business asset in Tanzania.
This means that acquiring shares in a foreign holding company may trigger Tanzanian regulatory obligations even where no shares in the Tanzanian subsidiary are directly transferred.
The critical consideration is not merely where the transaction takes place, but whether it changes control over a Tanzanian business.
When Is Notification Required?
Under section 11 of the Fair Competition Act and the Fair Competition (Threshold for Notification of a Merger) (Amendment) Order, 2017, the prescribed notification threshold is TZS 3.5 billion, assessed by reference to the combined turnover or market value of assets of the merging firms under the applicable calculation rules.
Where the relevant requirements are satisfied, the transaction must be notified to the Fair Competition Commission (FCC).
Investors should not assume that notification can simply be completed after the acquisition. The law establishes pre-implementation notification requirements and restrictions on completing transactions subject to regulatory examination.
Failure to comply may expose the parties to regulatory consequences and disrupt an otherwise commercially attractive acquisition.
A Practical Example
Consider a European investment fund acquiring 100% of a holding company registered in the Netherlands. The Dutch company owns a manufacturing business operating in Tanzania.
Although the share purchase agreement is signed abroad and the shares being transferred belong to a foreign company, the acquisition gives the investor indirect control over the Tanzanian business. The transaction may therefore fall within Tanzania’s merger-control framework.
The parties should assess their notification obligations before completing the acquisition, rather than treating Tanzanian compliance as a post-completion administrative exercise.
Competition Assessment: An Important Legal Development
The Fair Competition (Amendment) Act, 2024 introduced an important change to Tanzania’s merger-control framework. The substantive assessment now focuses on whether a merger substantially lessens competition, replacing the previous dominance-based formulation.
The amended framework also recognises the potential relevance of substantial public benefits in assessing mergers.
Consequently, investors should consider not only whether notification is required, but also whether the proposed acquisition raises substantive competition concerns.
Our Advice to Investors
Before entering into a cross-border acquisition involving a Tanzanian business, investors should undertake appropriate regulatory due diligence addressing:
- Change of control: Whether the proposed acquisition results in direct or indirect control over a Tanzanian business.
- Notification thresholds: Whether the transaction meets the applicable statutory financial criteria.
- Competition implications: Whether the acquisition may substantially lessen competition.
- Regulatory approvals: Whether FCC notification or other sector-specific approvals are required.
- Transaction protection: Whether the acquisition agreement adequately addresses regulatory conditions, completion restrictions, approval timelines and potential remedies.
Where merger-control requirements apply, the transaction documents should appropriately address the regulatory process before implementation. Transactions involving businesses in Zanzibar may also require separate consideration under the applicable Zanzibar legal framework.
Conclusion
An offshore transaction does not necessarily mean an offshore regulatory obligation. Foreign investors acquiring businesses with operations or assets in Tanzania must consider the potential application of Tanzanian merger-control laws, even where the transaction is structured through foreign holding companies.
At Aura Attorneys at Law, we believe that effective investment protection begins with identifying legal and regulatory risks before contractual commitments are implemented.
Due diligence identifies the risk. Structuring manages the risk. Proper drafting protects the investment.
Legal References
- Fair Competition Act, Cap. 285 R.E. 2023, particularly section 11.
- Fair Competition (Threshold for Notification of a Merger) (Amendment) Order, 2017, GN No. 222.
- Fair Competition (Amendment) Act, 2024, particularly the amendments to section 11 and introduction of section 11A.
Disclaimer: This article provides general legal information and does not constitute legal advice. Regulatory requirements should be assessed against the facts of each transaction and the law applicable at the time of implementation.