Kenya 717 ey.com/globaltaxguides ey.com/taxguidesapp Nairobi GMT +3 EY +254 (20) 271-5300 Mail address: Fax: +254 (20) 271-6271 P.O. Box 44286 00100 Email: info@ey.co.ke Nairobi GPO Kenya Street address: Kenya Re Towers Off Ragati Road, Upperhill Nairobi Kenya Principal Tax Contacts Geoffrey G. Karuu +254 (20) 271-5300 Mobile: +254 722-806-437 Email: geoffrey.g.karuu@ke.ey.com Catherine Mbogo, +254 (20) 271-5300 Head of Tax for East Mobile: +254 722-421-078 Africa Region Email: catherine.mbogo@ke.ey.com Business Tax Services Geoffrey G. Karuu +254 (20) 271-5300 Mobile: +254 722-806-437 Email: geoffrey.g.karuu@ke.ey.com Catherine Mbogo, +254 (20) 271-5300 Head of Tax for East Mobile: +254 722-421-078 Africa Region Email: catherine.mbogo@ke.ey.com Transaction Tax Reece Jenkins +27 (11) 502-0540 (resident in Johannesburg) Mobile: +27 (11) 83-611-3989 Email: reece.jenkins@za.ey.com Currently, capital gains tax does not apply in Kenya following its suspension in 1985. In the budget speech in June 2013, the Cabinet Secretary in charge of the National Treasury indicated that formalities on the taxation of capital gains may be announced. No dates were provided on when this is likely to happen. Because of this possible announcement, readers should obtain updated information before engaging in transactions. A. At a glance Corporate Income Tax Rate (%) 30 Turnover Tax Rate (%) 3 (a) Capital Gains Tax Rate (%) 0 Branch Tax Rate (%) 37.5 Withholding Tax (%) Dividends 10 (b) Interest 15 (c) Royalties 20 (d) Commissions 20 (e)
718 K ENYA Management, Professional and Training Fees Sports and Entertainment Fees Telecommunication Service Fees Rent Real Estate (Immovable Property) Equipment Winnings from Betting and Gaming Sales of Property or Shares of Stock by Companies in the Oil and Mining Sector Branch Remittance Tax 0 Net Operating Losses (Years) 20 (f) 20 (g) 5 (g) 30 (g) 15 (h) 20 (i) 20 (j) Carryback 0 Carryforward 4 (k) (a) This tax applies to taxpayers with annual gross turnover not exceeding KES5 million. (b) This rate applies to dividends paid to nonresidents. A 5% rate applies to dividends paid to residents and citizens of other states in the East African Community. (c) This rate applies to payments to residents and nonresidents. However, a 25% withholding tax rate applies to interest arising from bearer instruments. (d) This rate applies to payments to nonresidents. A 5% withholding tax is im - posed on royalties paid to residents. (e) This rate applies to payments to nonresidents. For insurance commissions paid to residents, a 5% withholding tax rate applies to payments to brokers and a 10% rate applies to payments to others. The following commissions are exempt from withholding tax: Commissions paid to nonresident agents with respect to flower, fruit or vegetable auctions Commissions paid by resident air transport operators to nonresident agents to secure tickets for international travel (f) This rate applies to management, professional and training fees paid to nonresidents. However, for consultancy fees, payments to citizens of other East African Community countries are subject to a reduced withholding tax rate of 15%. For residents, management, professional and training fees are subject to a withholding tax rate of 5%. The resident withholding tax rate for contractual fee payments is 3%. (g) This withholding tax applies only to payments to nonresidents. (h) This rate applies to rent paid to nonresidents under leases of machinery and equipment. Rent paid to residents under leases of machinery and equipment is exempt from withholding tax. (i) This rate applies to payments to residents and nonresidents. (j) This rate applies to payments to nonresidents. A withholding tax rate of 10% applies to residents. The withholding tax is imposed the gross sales value. (k) See Section C. B. Taxes on corporate income and gains Corporate income tax. Kenya income tax is payable by companies and by unincorporated organizations and associations (excluding partnerships). Taxable trading income consists of income arising or deemed to arise in Kenya. Rates of corporate tax. The corporate tax rate is 30% for resident companies and 37.5% for nonresident companies. The corporate tax rate for companies newly listed on a securities exchange approved under the Capital Markets Act is reduced to 20% for a five-year period beginning with the tax year following the year of the listing if the company s listed capital is at least 40% of its paid-up share capital. Turnover tax. Turnover tax is imposed on taxpayers with annual gross turnover not exceeding KES5 million. The tax rate is 3% of
KENYA 719 annual gross turnover. The tax is a final tax. Turnover tax does not apply to rental income, management or professional or training fees, income of incorporated companies or income that is subject to a final withholding tax. Administration. A company s year of assessment (tax year) coincides with its financial accounting year. A change in a financial accounting year must be approved by the Commissioner of Income Tax. A company must make payments, each equal to 25% of its estimated tax for the year, by the 20th day of the 4th, 6th, 9th and 12th months of its financial accounting year. The estimated tax must equal either 110% of the previous year s tax or 100% of the tax estimated to be due for the current year. A company must file a self-assessment return within six months after the end of its financial year. It must also file financial state-ments within six months after the end of its financial year. Late filing of a return is subject to a penalty of 5% of the tax balance. The minimum penalty is KES10,000. The tax on the self-assessment, reduced by installment tax paid, is due within four months after a company s financial year-end. Late payments are subject to a penalty of 20% plus 2% per month (or part of a month) of the tax balance. Dividends. Dividends paid by Kenya companies to resident companies are exempt if the recipient controls at least 12.5% of the distributing company s voting power. Taxable dividend income is subject to a final withholding tax of 10% for nonresidents and 5% for residents. Compensating tax at the regular corporate rate is levied on dividends paid out of untaxed profits. Foreign tax relief. Relief for foreign taxes paid is granted in accordance with tax treaties with other countries. Foreign tax paid to a country that does not have a tax treaty with Kenya does not qualify as a tax-deductible expense in Kenya. C. Determination of trading income General. Taxable income is accounting income adjusted for nontaxable income, such as dividends and capital gains, and for nonde ductible expenses such as depreciation. Expenses are deduc tible if incurred wholly and exclusively in the production of income. To encourage industrial growth and attract foreign investment, certain special deductions are allowed. Inventories. The normal accounting basis of the lower of cost or net realizable value is generally accepted for tax purposes. In certain circumstances, obsolescence provisions may be challenged. Provisions. Provisions included in computing financial accounting income are generally not deductible for tax purposes. Tax depreciation. Depreciation charged in the financial statements is not deductible for tax purposes. It is replaced by the following tax depreciation allowances.
720 K ENYA Method Declining- Straight- Asset class balance (%) line (%) Heavy machinery such as tractors and combines 37.5 Other vehicles such as automobiles, trucks and airplanes 25 All other machinery including ships 12.5 Specified office equipment such as computers 30 Other office equipment 12.5 Telecommunication equipment Computer software Irrevocable right to use fiber optic cable 5 Industrial buildings 10* Hotel buildings 10* Hostel, educational and training buildings 50* Commercial and rental residential buildings 25* Farming operations 100 * The rate for the buildings is applied to the capital cost, which is generally the lower of the construction cost or the purchase price, unless purchased from the business entity that constructed the building. To qualify for the above deduction, commercial and rental residential buildings must be provided with roads, power, water sewers and other social infrastructure. In addition, rental residential buildings must be constructed in a planned developed area approved by the Minister responsible for matters relating to housing. Deduction on capital expenditure incurred under concessionaire arrangements is claimed in equal proportions over the period of the concession. A 100% investment allowance is granted for capital expenditure on industrial buildings and hotels and on machinery installed on such structures. Licensed local film producers also qualify for a 100% investment allowance with respect to the purchase of film equipment. An investment deduction may be claimed at a rate of 150% if an investment for manufacturing purposes is made outside the city of Nairobi and the municipalities of Mombasa or Kisumu and if the investment value is KES200 million or more. Capital allowances are subject to recapture on the sale of an asset to the extent the sales proceeds exceed the tax value after depreciation. Amounts recaptured are treated as ordinary income and subject to tax at the regular corporate income tax rate. Relief for losses. Tax deficits (losses) are allowable deductions in the year in which they arise and in the following four years of income. Profits and losses arising from specified sources (rental income, income from agriculture and similar activities, and other profits from business) are computed separately. If a company has a loss in a year from one of the specified sources, the loss may be offset only against subsequent profits derived from the same specified source.
KENYA 721 Groups of companies. The income tax law does not permit consolidated returns combining the profits and losses of affiliated companies or the transfer of losses from loss companies to profita ble members of the same group of companies. D. Other significant taxes The following table summarizes other significant taxes. Nature of tax Rate (%) Value-added tax, on the supply of goods and services in Kenya and on imported goods and services 0/16 Railway Development Levy; imposed on the import value of all imported goods; import value is the Cost, Insurance and Freight value 1.5 Contributions to the National Social Security Fund (NSSF); expatriates who are members of social security schemes in their home countries and those expected to be in Kenya for not more than three years are exempt; contributions are payable monthly by Employer (maximum contribution of KES200) 5 Employee (maximum contribution of KES200) 5 E. Miscellaneous matters Foreign-exchange controls. The Central Bank of Kenya imposes certain foreign-exchange regulations. Transfer pricing. The transfer-pricing rules include measures regarding the following matters: Entities and transactions to which the rules apply Methods that may be used to determine arm s-length prices Records regarding transactions that must be maintained The methods for determining arm s-length prices are consistent with those approved by the Organisation for Economic Co-operation and Development. Debt-to-equity rules. The deductibility of interest on loans and foreign-exchange losses is restricted for a foreign-controlled company with a debt-to-equity ratio exceeding 3:1. For purposes of the ratio, debt includes any form of indebtedness for which the company is incurring interest, a financial charge, a discount or a premium. Interest-free loans provided or secured by nonresidents are deemed to accrue interest at a rate equal to the average 91-day Treasury Bill rate. F. Treaty withholding tax rates Royalties/ management and professional Payee Dividends Interest fees resident in % % % Canada 15 15 15 Denmark 20 20 (a) 20 France 10 12 0 (f) Germany 15 15 (a) 15
722 K ENYA Royalties/ management and professional Payee Dividends Interest fees resident in % % % India 15 15 20 (d) Norway 15 20 (a) 20 Sweden 15 15 20 United Kingdom 15 15 (a) 15 (b) Zambia 0 (c) 15 20 Non-treaty countries 10 15 20 (e) (a) Interest paid by the government and the Central Bank of Kenya is tax-exempt. (b) The rate is 12.5% for management and professional fees. (c) No Kenya tax is due if the dividend is subject to tax in Zambia. (d) The rate is 17.5% for management and professional fees. (e) The withholding tax rate is 15% for consultancy fees paid to residents of other East African Community countries. (f) The rate is 10% for royalties.