Treasury Sets Financial Derivatives Taxation Guidelines

 

By Kepha Muiruri

The National Treasury has issued draft guidelines on the taxation of financial derivatives ahead of the January 1 start of the income tax levy from trading in the financial contracts.

The guidelines follow the enactment of the 2022 Finance Act which imposed a withholding tax of 15 per cent on gains from financial derivatives accruing to non-residents apart from those traded at the Nairobi Securities Exchange (NSE).

The derivatives contracts covered in the expected taxation include futures, forward, and swap contracts and options.

Non-resident persons with a permanent establishment in Kenya shall however be exempt from taxation under the draft guidelines.

Persons involved in financial derivatives transactions will be required to keep records of all contracts and financial activities from such contracts.

Taxes accruing from gains in financial derivatives shall be due and payable by the 20th day of the month.

The taxation of gains from financial derivatives traded by non-residents is part of exchequer plans to expand the tax base even as it protects the nascent NSE derivatives market.

“The enacted provision will widen the tax base by bringing to tax gains accrued by non-resident persons from financial derivatives, while still maintaining the competitiveness of the financial derivatives traded on the NSE,” stated analysts at KPMG in an analysis of the 2022 Finance Act.