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Kenya’s Corporate Tax Reforms: Understanding the 2023 Amendments and Their Impact

The Finance Act of 2023 has brought significant changes to Kenya’s corporate tax structure, impacting businesses across various sectors. These amendments include modifications to the taxation of repatriated income for non-residents, adjustments to turnover tax, and other significant changes that reshape how businesses will handle their fiscal responsibilities. In this blog, we’ll dive into these changes and discuss their implications for businesses operating in Kenya.

Taxation of Repatriated Income for Non-residents:

A significant alteration introduced by the Finance Act of 2023 pertains to the taxation of repatriated income for non-residents. Effective January 1, 2024, the Act imposes a 15% tax on income repatriated from branches or permanent establishments in Kenya. This results in a reduction of the Corporate Income Tax (CIT) rate for these entities to 30%, down from the previous rate of 37.5%. The objective of this change is to streamline the tax system for foreign companies operating in Kenya, promoting a more equitable taxation process. By implementing this adjustment, the government aims to create a business-friendly environment for non-resident entities, fostering international economic activities while ensuring that the tax system remains transparent and fair. This modification aligns with global trends in taxation and reflects Kenya’s commitment to creating a competitive and attractive destination for foreign businesses.

Adjustments to Turnover Tax:

Another significant amendment in tax policy is witnessed through the adjustment to the Turnover Tax outlined in the Finance Act of 2023. The upper threshold for turnover tax has been halved from KES 50 million to KES 25 million, accompanied by a noteworthy increase in the tax rate from 1% to 3%. This alteration, becoming effective from July 1, 2023, is anticipated to have a twofold impact. Firstly, it is expected to broaden the tax base by encompassing more medium-sized enterprises within the turnover tax regime. Secondly, larger enterprises, surpassing the reduced threshold, are now subjected to a 30% income tax on their taxable income, marking a shift in their tax obligations. This adjustment reflects a strategic move by the government to redistribute tax burdens and ensure that larger enterprises contribute proportionally through income tax, while simultaneously encouraging the growth and compliance of medium-sized enterprises in the turnover tax regime.

Other Key Tax Changes:

The Act introduces a 3% tax on income derived from the transfer or exchange of digital assets, including cryptocurrencies, effective from September 1, 2023.
Non-deductibility of expenses for transactions not compliant with the electronic tax invoicing management system (e-TIMS) is another critical change aimed at improving tax compliance.
The definition of immovable property for tax purposes has been broadened, and certain exemptions have been introduced, such as on royalties and interest paid to non-residents​​​.

Implications for Businesses:

These amendments have far-reaching implications for businesses operating in Kenya. Companies must adapt to the new tax regime, particularly regarding the taxation of digital assets and compliance with e-TIMS. The changes in turnover tax will affect medium-sized enterprises, while the taxation of repatriated income will impact multinational corporations.

Businesses must be proactive in understanding these changes and align their financial and tax planning strategies accordingly to remain compliant and optimize their tax liabilities.

Partner with CR Advocates LLP for Tailored Tax Solutions:

Navigating the complexities of the new corporate tax amendments requires expert guidance and strategic planning. Partner with CR Advocates LLP, a leading law firm in Kenya, for tailored tax solutions that align with these changes. Our team of experts is equipped to provide comprehensive advice and support, ensuring your business stays ahead in this new tax landscape. Embrace the future with confidence with CR Advocates LLP as your trusted tax advisory partner.

To contact CR Advocates LLP, send us an email at info@cradvocatesllp.com or call +254 100979081 or Book a strategy call HERE or direct message us HERE on WhatsApp at your convenience. Our legal team will be happy to help you.