Doing Business in Kenya - RSM International

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Where a business is carried on or exercised partly within and partly outside Kenyaby a resident person, the whole of the gains or profits from that business shall bedeemed to have accrued in or to have been derived from Kenya.Dividends received from sources outside Kenya are not chargeable to tax in Kenya.The tax rates differ between resident and non-resident companies as outlined in thetable below.% rateResident company 30%Unincorporated entity with a turnover of up to Shs 5 million - on gross receipts 3%Non-resident company operating as a branch under Certificate of Compliance 37.5%Export Processing Zone enterprises• First 10 years Nil• Next 10 years 25%Newly listed companies following year of listing• List at least 20% of its shares 27% for 3 yrs• List at least 30% of its shares 25% for 5 yrs• List at least 40% of its shares 20% for 5 yrsReal Estate Investment TrustsExemptBranches of non-resident companies are taxable on all their incomes derived fromor accrued in Kenya. In determining the profits of a permanent establishment inKenya, the gains or profits shall be ascertained without any deduction in respect ofinterest, royalties or management or professional fees paid or purported to be paidby the permanent establishment to the non-resident person, and by disregarding anyforeign exchange loss or gain with respect to the net assets or liabilities purportedlyestablished between the permanent establishment in Kenya and the foreign headoffice or other offices of a non-resident person.A permanent establishment is defined under the Income Tax Act as a fixed place ofbusiness in which that person carries on business and includes a building site and aconstruction/assembly project, which has existed for 6 months or more.Unless a specific approval is obtained from the Minister of Finance to carry forwardtax losses for a longer period, such losses can only be carried forward to a maximumof 4 succeeding years.24DOING BUSINESS IN KENYA
4.2.2 Specified Sources of IncomeThe Income Tax Act specifies six sources of income (“specified sources”). Gains orprofits derived from one of the six sources of income shall be computed separatelyfrom the gains or profits derived from any of the other specified sources. Moreover,any losses incurred in any specified source can only be offset against income fromthe same source in the 4 subsequent years, unless an extension application is madeand approved by the Minister.The sources are:• Rights granted to other persons for the use or occupation of immovableproperty (rent);• Employment and self-employment professional income;• Wife’s employment, self-employment and professional income;• Agricultural, pastoral, horticultural, forestry and similar activities;• Surplus funds from registered provident and pension schemes; and• Other sources of income chargeable to tax (including business, dividend andinterest income) and not specified above.4.2.3 Export Processing Zone EnterprisesAn Export Processing Zone (EPZ) enterprise is an enterprise which is operated in adesignated export processing zone defined under the Export Processing Zones Act,1990. Such enterprises are exempt from paying any corporation tax for a period of 10years from commencement of activities for which the enterprise has been licensed,and such activities shall not include any commercial activities. The corporation taxrate of 25% shall apply thereafter on expiry of the initial 10 year tax holiday period.“Commercial activities” include trading in, breaking bulk, grading, repacking, orrelabeling of goods and industrial raw materials.During the first 10 years where an EPZ enterprise is exempt from taxation:• It shall be deemed to be a non-resident, and subject to the non-resident rate ofwithholding tax on payments made to such an enterprise and, such paymentsshall be final tax.• Payments by it to any person other than a resident person shall be deemed tobe exempted from tax.Other benefits enjoyed by EPZ enterprises include:• Exemption from VAT and customs import duty on inputs - raw materials,machinery, office equipment, certain petroleum fuel for boilers and generators,building materials and other supplies. VAT exemption also applies on localpurchases of goods and services supplied by companies in the Kenyan customsDOING BUSINESS IN KENYA25
Page 7: 2.0 General2.1 IntroductionKenya li
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Page 26 and 27: territory or domestic market. Motor
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Page 58 and 59: granted or is partly granted, the b
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Page 62 and 63: Transit VisasThese are visas requir
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Page 70 and 71: 6.0 ACCOUNTING6.1 Statutory Framewo
Page 72 and 73: 7.0 INTELLECTUAL PROPERTYRIGHTSKeny
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Years 1 Shs 1,000Year 2 Shs 1,500Ye
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8.0 Listing Rules8.1 The Capital Ma
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• At the date of application, the
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8.3 Payable FeesCompanies pay an in
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9.0 Investing in Kenya9.1 General I
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9.3 Foreign Ownership of Shares and
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Contact Details - RSM AshvirRSM Ash
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Appendix of Acronyms used in the Bo
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Notes90DOING BUSINESS IN KENYA
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