Kenyan Fiscal Guide, Trade and bilateral agreements
Income tax is charged on all the income of resident and non-resident companies, which has accrued in, deemed to be or is derived from Kenya. An entity will be regarded as resident if it is incorporated under Kenyan laws, effectively managed and controlled or declared to be resident in Kenya by the Cabinet Secretary by way of notice in the Kenya Gazette. The Finance Act 2014 has expanded the definition of a permanent establishment and has aligned it to the definition as per the OECD Model Tax Convention. A permanent establishment now refers to “a fixed place of business which includes a place of management, a branch, an office, a factory, a workshop, and a mine, an oil or gas well, a quarry or any other place of extraction of natural resources, a building site, or a construction or installation project which has existed for six months or more where that person wholly or partly carries on business.” In addition, a non-resident’s dependent agent’s permanent establishment shall now be construed as the permanent establishment of the non-resident person especially where the agent exercises authority to conclude contracts on behalf of the non-resident person.
Tax losses are an allowable deduction from taxable income for the current and the next four succeeding years of income with effect from 1 January 2010. A person may apply to the commissioner for an extension of time where he can demonstrate that he is not able to extinguish his tax losses within five years.
Capital Gains Tax
The Finance Act of 2014 re-introduced Capital Gains Tax which had been suspended since 13 June 1985. It amended the Eighth Schedule of the Income Tax Act providing for tax on gains accruing to a company or an individual on the transfer of property situated in Kenya. The amendment also introduces the taxation of gains in the extractive industry. For example, a firm acquiring more than a 50% stake in a “mineral block” will pay the capital gains tax on the net gain of the transaction after deducting certain attendant costs while one having lesser stake shall use a specified formula to calculate the taxable amount. The Capital Gains Tax rate of the tax shall be 5% which is a final tax and the levying of this tax is expected to begin on January 1, 2015.
Turnover tax was introduced with effect from the 1 January 2007 in respect of businesses with a turnover of more than KES 500 000 and less than KES5 million per annum. It is applicable at a rate of 3% on gross sales. Turnover tax is, however, not applicable to incorporated companies or on professional, management and training fees or rental income. The turnover tax is payable by the twentieth day of the following month of every quarter.
Monthly pension payments to senior citizens (65 years or older) are exempt from tax, effective 15 June 2007. Lump sum withdrawals from registered schemes are also tax exempt up to a maximum of KES600 000.
Download the Kenyan Fiscal Guide 2014/2014 edition here