Answer ... Income that is accrued in or derived from Kenya by a non-resident person is subject to tax in Kenya through a withholding taxation system whereby the payer deducts tax from the income paid to the non-resident person and remits it to the Kenya Revenue Authority (KRA). Withholding tax is chargeable on income in the form of dividends, royalties, interest and management and professional fees payable to a person, both resident and non-resident.
Where a non-resident person creates a permanent establishment in Kenya, all income of that non-resident person attributable to the permanent establishment is taxable in Kenya at a non-resident rate of 37.5%.
The Commissioner of Domestic Taxes is empowered to adjust the profits accruing to a resident person from a course of business conducted with related non-resident persons to reflect such profit as would have accrued if the course of business had been conducted by independent persons dealing at arm’s length. In effect, the Commissioner can adjust prices in cross-border transactions involving related parties to reflect an arm’s-length price. The Transfer Pricing Rules are broadly modelled along the principles set out in the Organisation for Economic Co-operation and Development Transfer Pricing Guidelines for Multinational Enterprises.
Answer ... Dividends paid by a Kenyan company to its non-resident shareholders are subject to withholding tax in Kenya at a rate of 10%. Interest payments to a non-resident person are subject to withholding tax at a rate of 15% of the gross interest paid. Royalties, management and professional fees are chargeable to withholding tax at a rate of 20% when paid to a non-resident person. The payer (resident person) has the obligation of calculating, deducting and remitting the withholding tax to the KRA.
A lower rate may apply in respect of payment of dividends, royalties, interest and management and professional fees to a non-resident person where there is an effective double taxation agreement between Kenya and the jurisdiction in which the non-resident person is resident.
Excise duty in Kenya is managed and administered under the Excise Duty Act 2015. Excise duty is imposed on excisable goods manufactured in Kenya by a licensed manufacturer, excisable services supplied in Kenya by a licensed person and excisable goods imported into Kenya by a registered person. Excise duty therefore does not apply to non-residents from Kenyan resident companies.
Answer ... The provisions of double tax treaties in force in Kenya override the provisions of domestic law relating to tax matters.
However, with effect from 1 January 2015, it is a requirement under the Income Tax Act that for a foreign entity to be entitled to the benefits arising from a double tax treaty:
- at least 50% of its underlying ownership must be held by persons who are tax resident in the foreign contracting state; or
it must be listed on a stock exchange in the foreign state.
Answer ... Section 39(2) of the Income Tax Act provides for a set-off by way of credit for Kenyan citizens for any year of income on employment income that is accrued in or derived from another country, if they can prove to the satisfaction of the Commissioner that they have paid tax in such other country for such year of income. In addition, a deduction is allowed when computing adjusted profit in respect of foreign income tax or tax of a similar nature paid on income that is charged to tax outside Kenya. This deduction applies to the extent that the tax payable is in respect of income deemed to have accrued in or derived from Kenya.
Answer ... Yes. When a purchaser (whether individual or corporate) buys an asset, the purchase price will be the tax base for that asset on future sale. Capital gains tax (CGT) on the capital gains made from the future sale of that asset are calculated as the excess of the transfer value of the asset over its adjusted cost.
The adjusted cost of the property is the value of the consideration for the acquisition or construction of the property, including any amounts of expenditure wholly and exclusively incurred on the property at any time after its acquisition for the purpose of enhancing or preserving the value of the property. This also includes any expenditure incurred in establishing, preserving or defending the title to the property and any incidental costs incurred when buying the property.
Answer ... Any gain derived from the disposal of property in Kenya (including shares not listed on the Nairobi Securities Exchange) is subject to CGT at the rate of 5%. The gain is calculated as the difference between the transfer value and the adjusted cost relating to the property. As such, the sale of a Kenyan company’s shares will be subject to CGT at the rate of 5%. A sale of immovable property in Kenya (by a company or an individual) will similarly be subject to CGT.
Where the seller of shares in a Kenyan company is resident in a country that has concluded a double tax treaty with Kenya, an exclusion from CGT may be available at exit.
Kenyan law does not contemplate a change of tax residence by a company.