Kenya revises double taxation agreement to attract investors

President Uhuru Kenyatta with Indian Prime Minister Narendra Modi. FILE PHOTO | AFP 

By ALLAN OLINGO

In Summary

No EAC deal

• Six years ago, the EAC Heads of State Summit agreed to remove double taxation for investors whose companies operate in two or more member countries, but only Kenya and Rwanda ratified the agreement.
• A functioning DTA would see firms now paying corporate, personal and withholding taxes only once on any portion of their annual incomes derived from their operations across the region.

DTAs signed by Kenya that are awaiting ratification include one with Turkey signed last month, and another with Italy. The EAC has yet to ratify treaties with Burundi, Uganda and Tanzania.

“We need to sign more DTAs with other countries because it has been a major cost for firms having to pay tax in more than one jurisdiction. Within the region, we do not even have a single DTA with partner countries under EAC. This is costing us,” said Charles Kahuthu, the secretary of the East Africa Chamber of Commerce and Industry.

Esther Wahome, a tax manager with Deloitte East Africa, said the 2014 provision introduced in the Income Tax Act limits the benefits from the DTA.

The provision provides that the benefits under a DTA in respect to exemption from tax, exclusion of an item from tax or reduction of the tax rate, will only be available to a person in the other contracting state where 50 per cent or more of the underlying ownership (direct and indirect) of that company is held by an individual who is resident in that other state except companies listed on the stock exchange of that country.

“The provision negates the essence of such agreements because, in most cases, companies form subsidiaries in different countries with at least more than 50 per cent owned by the parent company. This means that such subsidiaries will not benefit from such DTA agreements,” Ms Wahome said.