KENYA Law and Practice Contributed by: Ombo Malumbe, Jack Ong’anya and Faith Ngarama O’Bang Law (Ong’anya Ombo Advocates LLP)
Sole Proprietor/LP/LLP An individual-owned business’s or pass-through entity’s tax rates are applied on an individual level rather than as a “trading as” or pass-through entity. The rates are applied in bands or scales ranging from 10% to a maximum of 35%, as follows (the figures refer to yearly income computation):
Qualifying Intellectual Property There is a clearer approach on how to qualify intellec - tual property (IP) income that is subject to determin - ing preferential tax rates. The IP income subject to tax benefits is determined through the division of the taxpayer’s research and development (R&D) costs by the taxpayer’s R&D costs plus acquisition costs and related-party sourcing costs, and the outcome is mul - tiplied by IP income (including royalties, capital gains, any income from the sale of IP assets, and embedded IP income per transfer pricing principles). 2.3 Special Incentives Carbon Market Exchange or Emission Trading System An entity certified by the Nairobi International Finan - cial Centre Authority (NIFCA) to operate a carbon market exchange or emission trading system will be taxed at the rate of 15% for the first ten years from commencement of its operation. For capital/invest - ment allowance on petroleum or gas storage facilities, the same is taxed at the rate of 50% in year one and 25% annually thereafter for machinery, farm works, ships, aircraft, and hospital equipment. It is important to note that this is a general investment deduction, not a renewable energy-specific allowance. Moreover, income earned from the eligible green sectors and projects listed in the Kenya Green Bond Guidelines by the Nairobi Securities Exchange (NSE) are exempt from tax. Economic and Processing Zones There are various corporate tax benefits for entities that embrace the use of the EPZ or SEZ. The former is more focused on export from Kenya while the latter provides room to transact with the local market and export while still benefiting from tax incentives. Manufacture of Human Vaccines An entity engaged in the manufacture of human vac - cines is subjected to a preferential corporate tax charged at 10% on its income, rather than a total exemption. Nonetheless, if such entities enjoy spe - cific exemptions such as dividends paid to non-resi - dent persons, while payments made to non-resident services providers (without a PE in Kenya) are also exempt from tax, provided that these payments are for
• first KES288,000 – 10%; • next KES100,000 – 25%; • next KES5.612 million – 30%; • next KES3.6 million – 32.5%; and • all above KES9.6 million – 35%. 2. Corporate Tax Regime 2.1 Taxable Profits
Taxable profits are calculated based on account - ing profits, but with certain adjustments in terms of deductions and exemptions that a person may apply to their gross profit for the purpose of establishing their net profit. The Kenya Revenue Authority (KRA) is implementing measures to bring taxpayers into the system and there is a requirement that for allowable deductions to be accepted, all tax receipts must be generated from KRA’s electronic tax invoice manage - ment systems (eTIMs), save where there are exemp - tions. Allowable deductions include business-related expenditure, bad debts, expenditure on scientific research, certain expenditures arising prior to com - mencement of the business, certain investment costs, certain costs under extractive industries, and a person may consider income that is exempt from tax when determining taxable profits. Taxable profits are gener - ally calculated on an accrual basis as income is rec - ognised when earned as opposed to when received. A business that has expenses of a capital nature or not of a capital nature concerning scientific research will have the right to deduct the expense as an allow - able deduction, and this equally applies to funds paid to a scientific research association that has been approved by the Commissioner. 2.2 Technology Investments Scientific Research Incentive
251 CHAMBERS.COM
Powered by FlippingBook