COLLECTIVE INVESTMENT SCHEMES: GENERAL ANALYSIS AND LEGAL OPERATIONS
The Capital Markets and Securities Authority (CMSA) is the authority with the mandate of dealing with issues of Collective Investment Schemes (CIS) in Tanzania. The Authority was established in 1995 by the Capital Markets and Securities Act. The Act is supplemented with regulations governing various aspects and one of them is the Collective Investment Schemes. CMSA is an autonomous body that is established by following comprehensive financial sector reforms that occurred in 1990. These reforms aimed at developing capital markets in Tanzania. The capital markets are important because they provide appropriate mechanisms for mobilizing long term savings and ensuring efficient allocation of resources to productive sectors and in that way stimulate economic growth.
Collective Investment Scheme means “any arrangement with respect to property of any description including money, the purpose or effect of which is to enable the person taking part in the arrangements (whether by becoming owners of the property or any part of it) to participate in receiving profits arising from the acquisition.”
Most of the definitions of CIS fall on the common angle of it being an arrangement with respect of a property that will involve those taking part in it to receive profits arising from the acquisition and arrangement.
ELEMENTS IN A COLLECTIVE INVESTMENT SCHEME
Every structure or vehicle has an identity, those of a CIS are; The scheme should include an arrangement in terms of property; Participants do not have day to day control over management of the property even if they have the right to be consulted or to give directions about the management of the property; The property is managed as a whole or on behalf of the person operating the arrangement: the contributions of the participants and the profits or income from which payments are made to them are pooled and The purpose of the arrangement is for participants to participate in or receive profits, income or other returns form the acquisition or management of the property.
COLLECTIVE INVESTMENT SCHEMES IN TANZANIA
This authority oversees the operations of stakeholders involved in capital markets and securities while protecting investors’ interests and integrity of the securities market against any abuses (S.10(1). The authority also has the mandate of promoting and facilitating the development of an orderly, fair and efficient capital markets and securities in Tanzania. It also has a mandate over stock exchanges, stock brokers and other persons dealing with securities and for connected purpose.
Section 2 of the Act defines collective investment schemes to be “arrangements being arrangements with respect to property of any description, including money, the purpose or effect of which is to enable persons taking part in the arrangements (whether by becoming owners of the property or any part of it or otherwise) to participate in or receive profits or income arising from the acquisition, holding, management or disposal of the property or sums paid out of such profits or income.”
This law also provides that any other scheme or arrangement that will be deemed by CMSA to be a collective investment scheme then it shall be one.
Any company that wants to set up or operate a collective investment scheme in Tanzania is required by the law to make an application to the capital markets and securities authorities (S.118(1). The law of capital markets securities requires the scheme to have a trustee/custodian and a manager. This application shall be made by the manager, trustee or custodian of the proposed scheme (S.118(2).
The law prohibits setting up a collective investment scheme that has not been approved by the authority (S.117(a). The custodian/trustee and manager that makes the application for a collective investment scheme has to be approved by the capital markets securities authority as well.
The law provides for who is qualified to be a custodian or trustee of a scheme (S. 119). Example: a custodian/ trustee has to be a statutory body or a company incorporated in Tanzania, a custodian should have and maintain at all times an issued and paid-up capital of the prescribed amount and a custodian/ trustee should be able to satisfy the authority upon request and from time to time that it has the assets which are sufficient to meet its expenses and liabilities, including the liabilities in respect of the payment of the capital. In practice an example of a trustee/custodian is a bank.
The law has gone further into establishing the Collective Investment Schemes Regulations. These regulations provide for the process and procedure of application for approval of the scheme, functions of the custodians, trustees and managers of the schemes. The regulations also give directives on the requirements for the application for the approval of the authority.
INVESTMENT PLANS OF A COLLECTIVE INVESTMENT SCHEME
A public limited company registered company registered in Tanzania is eligible to deal with investment is eligible to make an application for approval of its collective investment schemes. The memorandum and articles of association of the said company should entail on the activities of the company that allow such operations. A public limited company registered to provide asset management and investor services is an ideal example of an eligible company.
A company will then present its application of its CIS to the capital markets securities authority. The Capital Markets Securities Act & The Capital Markets Securities (Collective Investment Schemes) Regulations provide the procedures of how to do it. Regulation 20 of the said regulations has provided for the conditions for investment plans. Regulation 20(d) specifies that “an investment plan leaflet distributed in Tanzania shall not solicit investment collective schemes which have not been authorized by the authority”
INVITING THE PUBLIC TO INVEST IN A CIS
After a collective investment scheme has been approved by the authority then it will be able to invite the public to invest in its scheme through its offer document. Prior to advertising and inviting the public to invest into a scheme, the company shall have to submit to the authority the advertisement and other invitations for its approval (Reg. 47(1)
TAXATION OF DIVIDENDS
Dividends are paid to the shareholders of a collective investment scheme. In line with section 54(1) (a) of the Income Tax Act [ CAP. 332 R.E 2019] the law provides that, Dividends distributed to the shareholder shall be taxed in the hands of the corporation’s shareholder in the form of withholding tax at a rate of 10%.
In this transaction the company distributing the dividends is the Withholding Agent and the investor receiving the dividend is the Withholdee.
When a company distributing dividends is listed in the Dar es Salaam Stock Exchange (DSE) then the rate of the withholding tax will be at 5%.
A RELEVANT EXAMPLE OF CIS IN TANZANIA
The UTT Asset Management and Investment Services PLC (UTT AMIS) is a relevant example of a public limited company that menages collective investment schemes.
UTT AMIS manages 5 different funds that are open to investors to buy unit trusts from. The unit trust is a form of collective investment that allow investors with similar investment objectives to pool their funds to be invested in a portfolio of securities or other assets. When UTT launched its collective investment schemes, over 90,000 investors were attracted.
The terms of investment of UTT AMIS indicate that an investor may invest for as long or as briefly as they like. There is no fixed investment period. This means investing without formally committing to a contractual period. This means as an investor you can decide on the day to sell.
In Tanzania’s investment market, collective investment schemes have been well utilized by investment companies such as UTT AMIS but there is still room for competitors and enough population of investors. The capital markets securities authority has been empowered by the law and regulations on how the collective investment schemes are to operate under their watch. This means that the investors rights are being protected. This article is not only informative of what collective investment schemes are, but also the opportunities that are open for investment and asset management companies in Tanzania as well.
ARTICLE PREPARED BY
Ken Edwin Heriel
kenedwin9@gmail.com
