Counties have received a shot in the arm in their effort to
attract investment after the Treasury retained generous tax incentives
to firms setting up shop in the countryside.
From
January 1, 2018, firms investing in special economic zones (SEZs)
located outside Nairobi and Mombasa will enjoy a tax deduction of 150
per cent of the money invested in new buildings and machinery, states
the Finance Act 2017 published last week.
Under the old
Export Processing Zone Act, firms had to spend at least Sh200 million
outside Nairobi, Mombasa and Kisumu to qualify for the 150 per cent
deductions.
“Subject to this schedule, where capital
expenditure is incurred on the construction of a building or on the
purchase and installation of machinery by or for a special economic zone
enterprise located outside Nairobi and Mombasa counties, for use by the
enterprise in carrying out the business activities for which it was
licensed, the enterprise shall be entitled to an investment deduction
equal to 150 per cent of the capital expenditure against the gains or
profits of that enterprise in the year in which the building or
machinery is first used,” reads new amendments to the Second Schedule to
the Income Tax Act contained in the Finance Bill, 2017.
For
SEZ investors who choose Nairobi and Mombasa for their bases, the
incentive will remain a 100 per cent deduction on actual capital
investment.
The Treasury had earlier proposed amendment
to the Income Tax Act to allow 100 per cent deduction on investment put
in building and machinery irrespective of where they set up shop.
The
Bill, signed into law by President Uhuru Kenyatta on June 21, gives
special treatment to firms that choose locations outside Kenya’s two top
cities.
The firms must however recover their costs within the first year of investment, the new law states.
Other
incentives include exemption on VAT, reduced corporate tax rates for a
defined period, access to quality infrastructure and one-stop shops for
licenses
The Act exempts dividend payable to
non-residents by SEZ enterprises, developers and operators from
withholding tax while management fees, professional fees, training fees
and royalties payable to a non-resident person will be subjected to
withholding tax at the rate of five per cent, down from 20 per cent.
The
measures are meant to reduce the cost of doing business, inspire
foreign direct investment, position Kenya as a premier business hub and
increase employment opportunities, the Treasury secretary Henry Rotich
said in his budget speech.
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