Doing Business in Kenya - RSM International

Where the Commissioner is of the opinion that the main purpose for which atransaction was effected was the avoidance or reduction of liability to tax, he maydirect that such adjustments as he considers appropriate be made to that transactionfor tax purposes to counteract the tax avoidance or reduction of liability to tax.Moreover, where the Commissioner is of the opinion that a company has notdistributed to its shareholders as dividends within a reasonable period (notexceeding 12 months from the end of the accounting period) that part of incomewhich could have been distributed without prejudice to the requirements of thecompany’s business, he may direct that such excess be treated for tax purposes, ona date 12 months after the end of the accounting period, as having been distributedas dividends to the shareholders.4.2.7 Tax ReturnsEach corporate entity (including an EPZ enterprise) is required to file a SelfAssessment Return (SAR). In addition, a company is required to file a CompensatingTax Return. Both the returns are combined in the SAR. A SAR is due for each entityholding a PIN irrespective of whether it is dormant or active.A SAR (together with the audited financial statements for active corporations) is duewithin 6 months after the end of the accounting period. For partnerships where theperiod-end is prescribed to be 31st December, the partnership return is due by 30thJune of the following year.The Compensating Tax Return summarises a company’s balance on the Dividend TaxAccount (DTA) as at the due date for filing the SAR. A DTA is a notional accountdebited with the tax portion of the dividends paid and income tax refunds received,and credited with the tax portion of dividends received, income tax paid andcompensating tax paid. Any credit balance is carried forward, while a debit balancerepresents compensating tax payable at the due date of the SAR. Compensating taxis a way of taxing dividends paid out of un-taxed profits (capital gains).4.2.8 Advance, Installment and Final Tax Payments andDeadlinesTax payments are made by the payment of:• Advance taxes and other taxes deducted at source e.g. withholding tax;• Installment taxes; and• Final tax (being the difference between the total tax liability for the year lessadvance and other taxes deducted at source and installment taxes paid).Installment taxes are payable by the 20th day of the respective month (or the lastworking day before the 20th where this falls on a Saturday, Sunday or a publicholiday) as follows:DOING BUSINESS IN KENYA31