Introduction
In the Finance Act (2016), the Kenya Government declared a Tax Amnesty for repatriation of assets and income owned by Kenya residents abroad.
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(Nairobi, Kenya. Photo by Waka)
The Tax Amnesty is available to both individuals including minors and corporate organizations who are Kenyan residents for taxation purposes.
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The application for amnesty is being made under the provisions of Section 37B of the Tax Procedures Act (2015).
What is a Tax Amnesty?
A Tax Amnesty is a program where a government offers its taxpayers opportunities to pay back unpaid taxes and in the case of Kenya to bring back assets and income without paying any tax. In cases where the Tax Amnesty is about paying back unpaid taxes, the taxes are paid with reduced fines, penalties and interests.
Alternatively, the fines, penalties and interests are waived. In the Kenyan case, the government has provided an opportunity to Kenyan taxpayers to bring back assets held and incomes earned or derived abroad. The taxpayers will not pay any taxes for any earnings before December 2016.
Benefits of Tax Amnesty
World over taxpayers have been known not to like paying tax. Therefore, every taxpayer who qualifies should take the opportunity provided by this Tax Amnesty. The Tax Amnesty will benefit the Kenyan taxpayers and the government. The following are some of the benefits for the Tax Amnesty:
- The taxpayer will not pay any principal tax, penalties and interest on the foreign assets or income for the period covered by the Tax Amnesty.
- Tax Procedures Act (2015) specifically prohibits KRA from asking any questions about the source of the income that may have been used to buy the assets in foreign countries or the source of the income banked abroad.
- Further, there is a promise that any information provided by the taxpayers will be confidential and will not be provided to any other government body including the anti-corruption agency.
- The taxpayer will henceforth pay less tax in total. The tax will only be paid in Kenya. In cases where the taxpayer will opt to continue holding asset and income abroad, they will pay tax in the sources country and in Kenya where they are tax residents. The persons can only pay less tax if the countries where the foreign assets and income are located have double taxation agreements with Kenya or if any tax payments in those countries can be utilized as tax credits in Kenya.
- With the implementation of the exchange of tax information across the world, there may not be many places to hide any undeclared wealth.
- The government will also benefit in that the money brought back will be invested in the country. It is hoped that the money will not be taken out again.
- Besides, it is expected that this money will generate income that will result in higher taxes for the government.
- Further, it is hoped that no more money will be taken out of the country to be invested there.
Therefore, Tax Amnesty is a win-win situation for the taxpayers and the government.
Which taxpayers qualify for Tax Amnesty?
The persons who qualify for the Tax Amnesty are Kenyan tax residents who had assets and income covered under the Tax Amnesty.
Who is a Kenyan Tax Residents?
The Income Tax Act Cap 470 defines qualifications for Kenyan tax residency. The residency rules apply to individuals who are deemed to be residents in Kenya. The individual residency qualifications according to the ACT are:
- A person has a permanent home in Kenya and was present in Kenya for any period in a particular year of income under consideration, or;
- A person was present in Kenya for:
- Aggregate period (s) of 183 days or more in a particular year.
- Average period(s) exceeding 122 days in a year of income, and in each of the two preceding years of income.
A Kenya tax resident is liable to tax on worldwide income while a Kenyan tax non-resident is taxable only on income which is accrued in or is derived from Kenya.
Taxes covered
The Kenyan Tax Amnesty applies to foreign assets and incomes. Hence, the tax that is covered under this amnesty is income tax. Kenyan tax residents are taxable on worldwide income. Tax Amnesty guidelines issued by KRA in March 2017 are specific on what should be repatriated back to Kenya: undeclared foreign assets and undeclared foreign incomes.
a) Foreign assets
The Tax Amnesty guidelines define foreign assets as “assets (including bank deposits, investment portfolios, insurance policies, shares and other properties) that are situated outside Kenya and are funded by income derived from or accruing from sources within Kenya or outside Kenya including those held under trust”.
From this definition, an asset qualifies under this amnesty because of the following:
- The assets were acquired and were outside Kenya.
- The assets were bought with income that was derived or accrued from sources within Kenya. This means that the income that was originally used to purchases the assets was from Kenya. This income may have been income that was taxed in Kenya but the person decided to invest it out of the country or it was income that had not taxed in Kenya.
- The assets were funded by income that was derived or accrued from sources outside Kenya including those held under trust. This means that the assets were purchased by income that was derived from outside Kenya but whose origin may have been Kenya. For example, a Kenyan tax resident moved money from Kenya and bought a property in London. The cost of the property or best-estimated market value of the property is taxable in Kenya.
Alternatively, the income used to buy the assets was derived or accrued outside Kenya by Kenyan tax residents. However, such income was taxable then because of the world-wide taxation of income for Kenyan tax residents.
For example, a Kenyan taxpayer earned consultancy income that was not declared in Kenya but the income was invested outside Kenya. The cost or best estimate of the market value of the property should be repatriated back to Kenya since the investment is taxable in Kenya.
This is because of the taxation of worldwide income for Kenya tax residents.
The guidelines state clearly that the value of the assets as being the cost or best estimate of the market value according to the taxpayer.
b) Foreign income
The Tax Amnesty guidelines further define foreign income as “income earned outside Kenya which would have been taxable in Kenya under Kenyan tax laws if it had been accrued or derived in Kenya or deemed to have accrued in or derived in Kenya.” This definition means that it is only:
- The income must have been earned outside Kenya.
- Income should qualify as taxable income in Kenya as far as accruing, deriving and deeming is concerned.
For example, a Kenyan tax resident offered professional services in the UK and did not declare the income in Kenya but decided to save the income in a UK Bank.
Alternatively, a Kenyan tax resident bought a rental property in the UK and has been receiving rental income which is saved in the UK or any other bank outside the country.
The professional fees and the rental income are taxable in Kenya and should be repatriated. The income tax Act has more elaborate sources of taxable incomes in Kenya. Any income that does not fall under this definition does not fall under the guidelines.
How to seek for the Tax Amnesty
Taxpayers are expected to seek for Tax Amnesty before the last day of June 2018. The following is a few steps that the taxpayer can follow to make the process less painful:
- Determine whether any foreign assets and income held is subject to taxation in Kenya.
- Establish whether any foreign assets and income held is subject to the Tax Amnesty.
- Determine the value of the foreign assets and income subject to Tax Amnesty. The Tax Amnesty guidelines have given as a guide the value of the assets as being the cost or best estimate of the market value according to the taxpayer.
- Make the annual tax returns and declare the income.
- Prepare an account which is the statement of assets and liabilities being repatriated.
- The taxpayer will then apply for the Tax Amnesty through the i-Tax platform.
- The person should have remitted the assets and income back to Kenya.
- Once the application is approved, the tax exemption certificate will be issued and dispatched through i-Tax platform.
Deadline for remittance of funds to Kenya
Currently, all funds that are subject to the provisions of the Tax Amnesty and have been voluntarily declared should be remitted back to Kenya on maturity and before 30th June 2018. However, there is room for an extended deadline for five (5) years up to 30th June 2023. This will attract a penalty of 10 per cent on the remittances.
Exemptions from Tax Amnesty
There are exemptions to the Tax Amnesty. The following are some of the exemptions.
- Any income accrued or derived in the period covered by the Tax Amnesty.
- Any income that does not meet the definition of taxable income in Kenya.
- Any assets that do not meet the definition that is ascribed by the Tax Amnesty guidelines such as inherited ancestral property (farm, hut etc.) abroad that is not generating any income.
Way forward
Every taxpayer who qualifies should take this opportunity and apply for the Tax Amnesty. For any questions, get in touch with your tax consultants, accountants, auditors, tax lawyers of KRA.
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Disclaimer
This post is for general overview and guidance and does not in any way amount to professional advice. Hence, www.taxkenya.com, its owner or associates do not take any responsibility for results of any action taken on the basis of the information in this post or for any errors or omissions. Kenyan taxpayers must always rely on the most current information from KRA. Tax industry in Kenya is very dynamic.
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