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Results: 4 Answers
Corporate Tax
2.
Special regimes
2.1
What special regimes exist (eg, for fund entities, enterprise zones, free trade zones, investment in particular sectors such as oil and gas or other natural resources, shipping, insurance, securitisation, real estate or intellectual property)?
 
Kenya
As stated above, taxable income in Kenya generally comprises gross income less deductions provided for in the Income Tax Act. The Income Tax Act does not presently provide specific or detailed rules in relation to the shipping, insurance or securitisation sectors, and the standard corporate tax rates will therefore apply.

Oil and gas: The Ninth Schedule to the Income Tax Act provides detailed rules on the deductibility of expenses incurred in the exploration, development and production phases. Over the years, specific exemptions have also been granted in relation to this sector, including exemptions from withholding tax on interest payments for foreign sourced loans and from stamp duty on instruments in relation to loans from foreign sources for investment in the energy sector.

Rental income: As a separate source of income, rental income is taxed separately from business income. Further, residential rental income is taxed differently from commercial rental income, at a rate of 10% on the gross rental income, where the rental income earned is less than KES 10 million per year. Where a company has constructed at least 100 residential units annually, the applicable corporate tax rate is 15%, subject to approval by the cabinet secretary responsible for housing.

Export Processing Zone (EPZ): The EPZ Authority offers a range of attractive fiscal, physical and procedural incentives to ensure low-cost operations, fast set-up and smooth operations for export-oriented businesses. EPZ enterprises are subject to 0% corporate tax for the first 10 years, commencing from the first year of production, sales or receipts. For the next 10 years, the tax rate increases to 25%.

Special economic zones (SEZs): An SEZ is a designated geographical area where business-enabling policies are implemented and sector-appropriate on-site and off-site infrastructure and utilities are provided by the Kenyan government. SEZs are considered to be outside the customs territory of Kenya and therefore operate in a jurisdictional bubble that shields them from taxes and other regulatory bureaucracy.

SEZs may be designated as single sector or multi-sector, which may include free trade zones, industrial parks, free ports, information, communication and technology parks, science and technology parks, agricultural zones, tourist and recreational zones, business service parks, livestock zones and convention and conference facilities. For SEZ enterprises (whether they sell their products to markets within or outside Kenya), a tax rate of 10% applies for the first 10 years of operation and a rate of 15% for the next 10 years thereafter. A number of additional tax incentives also apply to SEZs, including attractive capital allowances and reduced rates of withholding tax on payments made by the SEZ.

Motor vehicle assembly: For a company engaged in local assembly of motor vehicles, a 15% corporate income tax rate will apply for the first five years of operation. This 15% rate can be extended for another five years if the company achieves a local content equivalent of 50% of the motor vehicles’ ex-factory value.

Special operating framework: Where a company is engaged in business under a special operating framework arrangement with the Kenyan government, the tax rate specified under such arrangement will apply to such a company.

Intellectual property: While there is no patent box regime in Kenya, there is an important provision in the Income Tax Act which allows for expenditure of a capital or revenue nature incurred in scientific research for business purposes to be fully deducted in a year of income.

For more information about this answer please contact: Daniel Ngumy from Anjarwalla & Khanna
2.2
Is relief available for corporate reorganisations or intra-group transfers of companies and other assets? Please include details of any participation regime.
 
Kenya
Certain exemptions from stamp duty are available in connection with business combinations under Sections 95 and 96 of the Stamp Duty Act. These relate to relief on duty otherwise chargeable in reconstructions, amalgamations and property transfers between associated companies. They are applicable where the effect of the transfer will be to convey or transfer a beneficial interest in property from one company to another, and either:

  • one of such companies (the transferor or the transferee) is the beneficial owner of not less than 90% of the issued share capital of the other company; or
  • not less than 90% of the issued share capital of each of the transferor and the transferee is in the beneficial ownership of a third company with limited liability.

For capital gains tax purposes, a transaction involving the incorporation, recapitalisation, acquisition, amalgamation, separation, dissolution or similar restructuring of corporate identity involving one or more companies can be exempted from CGT by the Cabinet Secretary for the National Treasury, at his discretion, as long as the transaction is in the public interest.

For more information about this answer please contact: Daniel Ngumy from Anjarwalla & Khanna
2.3
Can a taxpayer elect for alternative taxation regimes (eg, different ways to calculate the taxable base, such as revenue-based versus profits based or cash basis versus accounts basis)?
 
Kenya
Except for residential rental income of up to KES.10 million, which is taxed at the rate of 10% on the gross revenue, there is no provision for alternative taxation regimes.

For more information about this answer please contact: Daniel Ngumy from Anjarwalla & Khanna
2.4
What are the rules for taxing corporates with different functional or reporting currency from that of the jurisdiction in which they are resident?
 
Kenya
Kenyan taxes must be declared and paid in Kenyan shillings, although companies are at liberty to report in their financial statements or management accounts in foreign currency also.

For more information about this answer please contact: Daniel Ngumy from Anjarwalla & Khanna
2.5
How are intangibles taxed?
 
Kenya
For the creator of the intangible property (ie, the licence, trademark or copyright), there will be tax on gains or profits accruing from a right granted to use this property at individual income tax rates. If the owner is a resident corporate entity, this will be taxed at the corporate tax rate of 30%; for a non-resident person with a permanent establishment, this will be taxed at 37.5%.

The main form of extracting tax from intangibles is through royalties. Withholding tax is levied on payment of royalties at the rate of 5% for resident persons and 20% for non-resident persons.

Royalties are outlined as a specified source of income, meaning that taxes on them are computed separately from other income. In addition, double taxation agreements may provide for taxation of royalties in cross-border transactions at rates lower than the 20% non-resident withholding tax rate.

Arrangements between related parties involving intangibles are subject to close scrutiny by the Kenya Revenue Authority.

For more information about this answer please contact: Daniel Ngumy from Anjarwalla & Khanna
2.6
Are corporate-level deductions available for contributions to pensions?
 
Kenya
Contributions by an employer towards a pension, provident or individual retirement fund or scheme are tax deductible for the company only if the fund or scheme is registered with the Commissioner of Domestic Taxes.

Contributions by an employer to a pension, provident or individual retirement fund or scheme are generally not chargeable to tax for the employee. However, employees of organisations not chargeable to tax will be liable to tax on contributions made by the employer to an unregistered fund or on excess contributions made to a registered fund.

For more information about this answer please contact: Daniel Ngumy from Anjarwalla & Khanna
2.7
Are taxpayers from different sectors (eg, banking) subject to different or additional taxes or surtaxes?
 
Kenya
No. There is an excise duty of 20% of the excisable value on fees charged by banks, money transfer agencies and other financial service providers for money transfer services. In the telecommunications sector, telephone and internet data services are charged excise duty at a rate of 15% of their excisable value. Banks, insurers and microfinance institutions are also required to charge excise duty at 20% on fees to customers.

For more information about this answer please contact: Daniel Ngumy from Anjarwalla & Khanna
2.8
Are there other surtaxes (eg, solidarity surtax, education tax, corporate net wealth tax, remittance tax)?
 
Kenya
No.

For more information about this answer please contact: Daniel Ngumy from Anjarwalla & Khanna
2.9
Are there any deemed deductions against corporate tax for equity?
 
Kenya
No.

For more information about this answer please contact: Daniel Ngumy from Anjarwalla & Khanna