Investments and Tax law In Kenya - #VasiliWebinars

with my colleague alice she'll introduce herself so we we do taxes we say we do everything and anything taxes uh so we are very keen to have this uh training today and discussion around taxation of investments in kenya what you can invest in and what the tax implications for that are thank you good afternoon everyone and thank you rose for the chance and all in attendance my name is alice nyakio shushu and i'm currently at cm advocates providing tax services that is tax advisory and tax compliant services we are very excited for this topic which affects each one of us given that at one point we find ourselves investing and trying to do much we can do with the money and try to get some more and it would be very unfortunate if your investment is turned down by taxes that's why we are here so that we guide you on the taxes that are applicable on the different investments we have in kenya or maybe even offshore particularly for today we are dealing with passive investments and that is what will shape our discussion in the next hour also welcome all um we can kick off and start um yes all right so we are as elisa said we're talking about succession of investments in kenya specifically um passive investments or um in other words anything that is not active trading or a business so that is what we limit ourselves to today so we will um start with okay our overview our agenda today will be looking at the overview of what we're going to do we're going to touch on a bit on real estate investments the stock market you need trust wealth management pension offshore investments and finally how to practically file your returns properly um please if you're lost i think rose has instructed on how to follow up and you have any questions i think we do need them at the end of the training um so i'd like to touch on um the tax regime in kenya uh kenyan income taxes which is basically whatever income you get and how you tax it from whatever source um is governed by a specific regime um so first of all any income that is derived in kenya accruing or derived in kenya in other words anything you're doing within the kenyan jurisdictional borders that is giving you an income is subject to income tax furthermore if you are a resident in kenya and you are employed anywhere in the world and nowadays you can be employed and you're working online and you employed anywhere in the world you your income or rather your salary is subject to income tax in canada okay so i think we're going to go straight into um the first um in the first investment income you can get and that is the real estate and alice is going to take us off on that uh when you talk about real estate you're talking about the business or the investment of maybe buying a property letting it appreciate and sending it off or maybe also the business where now you have a property is giving you an income in the form of rental income so for that we are checking on the taxes that are applicable in either of the two scenarios so for one we are starting with the business of holding a property or buying a property and waiting for it to appreciate and sell in such a case we have some duties some duties are applicable at the rate of four percent but the property is located in urban areas and at two percent are the properties located in rural areas so in practice you find that the buyer is responsible for the stamp duty so at the point of buying you on the buying side then at this point you have to consider the stamp duty implications which would be one of the costs that you're going to incur in order to acquire the property then uh for stamp duty in this case it's based on the value that is going to be ascertained or that is going to be paid to the property by the government value this is to prevent instances who are now people under quote the value of the property in order to end up with a lower value of stamp duty and in effect pay lesser taxes the other tax is capital gains tax which is currency as five percent and for capital gains tax which is commonly known as the cdt uh it's based on the total gain so it's a percentage of the total gain to get after holding a property and in this case it is the seller who is responsible the seller is responsible because they are the ones who in effect benefit with the gain of holding the property or of disposing the property so we'll still check on how to compute the capital gains tax uh briefly in the next few minutes so there's also a v80 that is the value-added tax it may be appreciable on sale of commercial property uh given on a case-by-case basis because it could be a one of sales but now in such a case it might not be applicable but now in the business of selling property and you often meet the vat thresholds then in such a case it is going to be applicable another thing to consider when you're purchasing property we find that there are some people who purchase properties through mortgage so in such cases they are charged mortgage interest so there is a tax benefit of acquiring a mortgage to purchase your own property that you live in so in such a case the road will allow you a deduction of 300 000 as interest per annum which is about 25 000 per month so in computing your personal income tax or in computing your employment income or any other thing you're going to be allowed a deduction of 300 000 per annum is the maximum cap if you own the property and it's the property that you're living in again capped to one property to ensure that it's not subject to abuse where people just acquire so many properties and now tend to overenjoy the benefit of the expense of others we move on to the competition of cdt as we have called it the capital gain start so this is just a dummy computation on how to give you a rough idea of how it goes so there is the consideration which is now what you get at the point of saving like the selling price so we've used that figure 1 million so what the law allows you to allow you to take a deduction of the cost that you had incurred at the point of purchasing or at the point of constructing that's the first cost that you can see there then it will also allow you a deduction of the fees and permissions that you have paid to professional service providers like the surveyors the lawyers the valuers and the agents we have a figure there it will also allow you the cost of transfer to take a deduction of the cost of transfer and also maybe other cost of advertising that you had in card in order to obtain a buyer so you'll take all the costs that you had incurred in this case we have about four hundred and ten thousand and adjust the cost and adjust now the selling price that you're going to receive there the total consideration that you're going to receive so if you look at the computation we have we're saying that you have an adjusted cost of about 590 which is now your gain in disposing that particular property and you'll do five percent of that so you end up with a figure you don't do cgt on the total consideration you do it on the gain that you get from disposing the property uh there are instances who are now the law provides for exemption from cgt where we are saying ideally this transaction should be subject to cdt except for these are the circumstances they are quite a number but we violated a few uh given that they are more common or they're likely to happen to any of the individuals one is the transformer private residence that is your home if you've been staying there for three years continuously prior to the transfer so had you bought a property in the year 2017 and you want to dispose it now and have still made again then you exempted from the cgt by virtue of this provision there is also another provision that provides for exemption where now you've sold land but doesn't exist the value of 3 million so in such a case you don't still suffer the cgt there is also the transfer of assets to immediate family members in such a case there is still no cdt implication and another instance would be transfer property of a deceased person or the estate of a deceased person by virtue of opposition of those so whatever happens around succession then the cgt is going to be exempted to facilitate now the transfer from one person who is not deceased to the personal representative or the other beneficiaries that is on the side of now purchasing a property holding it and sending it but now we have this other side where now you purchase a property you hold it and it's giving you income even as you hold it so that is now what we call the rental income uh remember the government has really been pushing for people to start paying rent or income those who are paying continue paying and be more confident so in effect they have made the regime to be more simple administratively and also easy to understand so we have what we call the residential rental income where now this is income on that is done from residential property so in such a case the government has provided for 10 percent credit on gross rates so what we mean is that you're not going to take deduction of any expense you are going to take the gross income that you've received from rent and do 10 percent and pay that to the revenue authority so they are the range for which now these are priced the lower bracket being 288 000 per month and the maximum range being 15 million per annum so for these type of tax our return is to be held monthly by the 20th day of the subsequent month so currently in the month of may so the return of may should be filed by 20th june and at the time of making the finding the return you're supposed to make payments to you by 20th june uh failure to which there are penalties there is five percent penalty for late payment of these tax and an interest that accrues that one percent from and outstanding uh there is also rents that you can receive from a commercial property this is property that's now the opposite of residential or now the main business is not residing there but now doing business in such a case now the rent or income tax should be determined by taking the income that's the expenses and our tax that at the 30 percent 30 band that is for companies and also not for the individuals you'll go all the way up to now 30 percent so the difference between these two is that for commercial property you do income less expenses you don't deal with the gross income you have to take a deduction of the expenses given that they could be quite a number so it would be very unfortunate a person is not allowed to take a deduction of the expenses there is also another tax on commercial rent or rent from commercial property well now we are saying that you need to subject the rent vat that if you have met the registration threshold of now 5 million per annum so in such a case if you've registered for bt and you're earning commercial rent then you're supposed to charge 16 percent v80 now pay the output what you call output vit to the kenya revenue authority this should be paid by 20th day of now the subsequent month we are still in the month of may so the return for may the vit return for may should be felt by 20th june and now the taxes should be paid still by 20th june so once you pay the v80 make sure that you remit that to the kenya revenue authority given that this vit should be charged by now the landlord or the owner of the property it would be important to comply given that if you don't comply then the kre might come for you now demanding what you should have charged to your tenants and now it defects reducing the total income that you received so comprehensive is of utmost importance i'll let joyce to continue with now investment in stock markets okay thank you alice we've looked at real estate um now if you look at other non-tangible assets um like if you invest in the stock market this could either be shares or even other marketable securities um the income you get usually from this is interest um so you you get either actually you get dividends or yes you actually do get dividends from that um but let's start with first of all buying and selling of shares so even as you invest in the stock market first thing you do is to buy in or you sell your shares um the tax that is really applicable is stamp duty and capital gains cgt so when you um buy or sell your shares stamped it will be applicable and usually as um previously seen stamp duty is paid by the buyer uh so if you have quoted securities or other shares listed in the narrow stock exchange those ones are exempt from stamp duty so you just um buy your shares and you don't pay stamp duty however for other shares or other any other security from any other company you have to pay one percent of the cost of those shares that's your stamp of duty similar for cgt or capital gains tax if it's a company listed on the nairobi stock exchange when you sell your shares um you're exempted from cgt however if it's any other shares for any other company the seller is obligated to limit five percent of the gain um to carry um again as we've just seen about um real estate cgt has a competition for the game so it's not just five percent on the total consideration or the price you have charged for your shares there is the formula we've seen of course for shares is slightly different from the expenses you would adjust um from real estate but it's the same concept you adjust all your expenses you um and card when you were listed by the charge maintaining the shares professional services and end up with the adjusted gain that you're going to charge five percent um also with the stock market even as you buy and sell in between i'm assuming as a shareholder you'll be earning dividends uh this is when you know a company at the end of the year once they look at what their profits are and their revenues they declare dividends and what it is that they are giving their shareholders so um for dividends um attract withholding tax um on the dividends you earn um so there are various rates um depending on the type of company you're in and the type of person you are so first of all for companies let me say companies listed in the stock exchange and you as an investor you hold more than 12.5 percent of the shares in that company um your dividends are exempted from withholding tax however as most of us um individuals who hold shares in um listed companies we own less than 12.5 percent of those companies therefore our the withholding tax um applicable on your dividends is five percent and then you have um companies that are not listed at all so dividends on that um would attract ten percent um for withholding tax uh this is again for resident uh if you're an unknown resident you're not you're not resident in kenya um fifteen percent um withholding tax is applicable on the dividends you are um something similar to the stock market but different um we can talk about unit trust so you need to trust um i'm sure in the first rows has taken you through um you know the benefits and what they are uh so but unit trust is almost similar um concept sort of to a company uh however once you earn the in the income you're earning from the unit trust is um interest uh so the interest you earn as an income is going to attract withholding tax um this is usually a flat rate of 15 percent uh and it is a responsibility of the unit trust to withhold and submit to krd so similar to dividends by the time you're receiving your money as an investor tax is already deducted um withholding tax is already deducted on your interest if it was shares it's already deducted on your dividends so whatever you get usually as an individual is final tax um sometimes you have unit holders and then you need to trust who are exempt usually this is um in us very few circumstances it would be an individual and sometimes you find that you need holders are exempt entities or companies uh so if a unit holder or the investor is exempt then once of course you declare that and you provide the relevant documents to the unit trust then they would not withhold tax on yourselves um i know there have been questions around um if you trust and so who is exempt and who is not so for you as an investor on this side of the table um you most of the time once you're you're not you're not an exempt person so withholding tax is applicable at 15 percent however the unit trust itself um the unit trust itself is exempted from withholding tax on money it receives so a unit trust will have money which they will invest in and that return is what they will now um share with you as an inmate holder so for the unit trust itself its income is exempted from withholding tech um something else we can look at is um let me call them wealth management funds um you can have um such management funds and various financial institutions right now offer that something also similar to this concept is um fixed deposits again in a financial institution like a bank etc um income you're earning from this is called interest and because you've put your money there or you've deposited funds and the return is interest and this will attract 15 percent of withholding tax um similar to what you saw for unit trust again this is the responsibility of the financial institution to withhold and submit to carry so by the time yourself you're getting your money um it's most of the time as an individual it's final tax so you get your money and you enjoy it um another um [Music] let's say investment option is spectrum funds um i would hope majority of us have a pension fund that we regularly you know put money in um but i will let at least take us through um you know the tax implications of um the returns you're getting from your patreon site okay for pension funds uh most of the time people associate it with old age or trying to push on yourself in old days so you'll find that there is importance to start saving now or investing now in a pension fund that most of the time we would encourage you to let it to that the money stayed there until now your wage of determined or for quite some time so that's why we have different taxes uh for pension withdrawals from pension so what days their pension plans like nssf there also other registered pension funds and providence funds in kenya this can be done whether you're in employment so you have you yourself as the employee and emperor making contributions to that it can also be done on voluntary basis where now as a person you're there you're doing your businesses or you're still being employed you ought to register in a pension fund and be making your contributions there so the law provides for some tax-free amounts which now to some extent in some cases it's 60 000 per annum the first 60 000 per annum beyond which now there's a tax that applies so the tax bands are we have two tables there for one is the after expiry of 15 years that is now you're doing the withdrawal after expired your 15 years from when you join so if you look at that we will see the first 400 000 that is after the tax-free amount so if the tax-free amount in this case was 60 000 for one year so you get now you hit the first band where now you paid the sixty one thousand children so for now for the next four hundred thousand you're going to be taxed at ten percent the next four hundred thousand to be taxed at 15 you continue all the way up to now 1.6 billion in excess of the

tax-free amount you hit the 30 percent that is when you make the withdrawal after 15 years from joining the providence fund of the pension fund so the other cases where now maybe you change employer for some reason or the other you want to make your withdrawal before now the expiry of 15 years so in such a case the tax bands are a bit more to tell you like you look again whether you need your money now or not so the tax bonds are a bit higher so for the first uh 288 000 after the tax free amount so you have now that being taxed at 10 percent the next 100 000 being taxed at 25 and any now amount above 398 000 being taxed at 30 percent so you'll find when you're withdrawing before expanding your 15 years you hit the 30 percent ban way earlier than you would if you waited for the 15 years to expire so another benefit is now when you're making your contribution to the pension fund maybe you're making monthly contribution or whichever intervals that you're doing the law allows you a deduction of two hundred and forty thousand being the maximum deduction to any pro contributions that you make funds provident funds and any other determined schemes that are in kenya it is important to note for you to enjoy the 240 000 deduction as a person the scheme that you're working with needs to be registered in kenya and operational in kenya again we're encouraging people do the contributions here grow kenyan economy get now these benefits should you make now contribution to offshore pension funds then now you don't get the deduction of the up to 100 up to the 240 000 per annum uh another consideration now we have in this training which is of interest is the offshore investment uh that a person may have they are quite a number and i'll allow joyce to take us through that okay um because then some questions around um you know which other countries have better tax benefits than kenya we've heard of um tax haven um some of the most common ones are mauritius british virgin islands singapore cayman islands um sometimes depending on exactly what you're doing um you find even some specific areas like no delaware state in the u.s um you know tech companies like it because um it has better taxes for them so it's not really about um your need and what it is that you need and you're looking for and exactly what investment you're doing as you make your decision whether you want to set up or maybe have your head office operations um in a tax haven uh also to consider as you're choosing a you know other jurisdiction to investing is whether kenya has a double taxation treaty or a dta um with that country um kenya has several of them um with them with various countries uh some most of them are operational um maybe some are not um but as again as your truth and of course um at double transformative the whole point of it is to determine or regularize um how much taxes you're paying on the same income to avoid double taxation so for instance if you earn an income of 1 million um let's say in mauritius and they tax you there so when that money lands in a kenyan bank account um the whole point of a dta is to prevent you from being excessively taxed so for for care not to tax you um again away more than you would have been taxed because you would find instances if um income is coming from a country that doesn't have a dta with kenya let us kill that country um their tax rates are maximum of 20 percent so if it was 1 million you've already been taxed 20 percent in that country by the time your money is coming here um kenya will still tax you since there is no dta um and we're going to tax you at our current rate um so if the maximum for canada is 30 percent kerry will still tax you at 30 percent so eventually when you look at your own total tax um expense it's coming to 50 percent of that income you got so to avoid um such a scenario we have double taxation treaties whereby we regularize it and each depending on the country and each church is a bit different who is taxing what at what point is there any exam exemption and also a limit to the tax rates you find and the tax rates in the dta and um usually slightly lower than what we would normally have um in our normal uh taxes as per our laws however even something to consider as you think and opt to you know go to attack seven especially if you're not having your base of operations there um you know you could be uh you could be a you know kenyan you're a kenyan based person you just have a you know like a ghost office um in whatever country you you have chosen it's important to consider the administration costs um in that jurisdiction as and weigh them against the tax benefits um that you think you're going to earn because sometimes the um further regulations the administration costs can be quite high because some countries will tell you you must have a local or a resident director that means you have to find a resident person in that country and to act as director and of course that is the cost and of course there is trust issues you have this is more than just money now it's about management and trusting this person and the other thing we have to have a physical office so now you're paying rent and of course um a physical office has other expenses sometimes you have to have a bank account there um you know a number of minimum employees maybe some would say you have to have at least two employees um for this to work so if you consider all the things that you're supposed to do and our requirements to operate in that jurisdiction visually what the tax benefits you're getting um now you make your decision when you do have [Music] offshore investments um most of the time what you do get back um is interest and dividends income most of the time this is taxed at source so it starts that the country of source uh so if it was coming let me use mauritius as an example it might be taxing mauritius so whatever tax rates whichever country you have your money is coming from they use their own tax rates um and then you get your income after tax if you're sitting here in kenya the money will have to come back into kenya um so by the time it's landing into kenya and let's say in your kenyan bank if you're an individual usually that's final tax there's no tax due from in kenya or from kra because remember what you said initially when we started our kenya tax regime is um let me circle it source-based so it's income they're accruing or derived from kenya so or in kenya so if clearly your offshore investment income or your interest and dividends uh income didn't come from kenya there's no more tax on it however for companies it's um a bit more complicated uh because if you're a incorporated company in kenya and your money is coming in um you have to put that into your books made as income or revenue depending on um you know exactly what type of company you are in and now from there you have to do your accounting as well as after that your tax computation um to determine your taxes each day that detail without country you put that into consideration um for you to end up with your final taxes if at all sorry but someone was talking um so i think we've covered um most of the income that you would get um from investment uh and now in that final note even and finally what you have gotten how to treat it and how to file your return um that's what you're going to get into and um i think i can let alice take us from here uh thank you guys and so far so good so now we are the point of you've already earned your income and it's now at that time of the year to disclose the income or now to say this is what i did during that year this is what i earned these are the taxes that i should have paid these are the taxes that i paid and this is now my net position so on filing of taxing tax returns what you have on the presentation is what applies to individuals so for individuals the tax is january to december we work with january to december is the current year for individuals in kenya and for the year 2020 which is now the guarantee of returns that we are finding the tax return should be done by that june of the following year so what you're saying for the 2020 year of income the tax return should be filed by that in june now 2021 which is what most people are doing now or did in the past few days or i expected to do in the next few days it is important to find your return in time that is one and it is also important to fill the correct return with the kenya revenue authority the penalty for debt finding of the return is five percent of the tax due under that return or 2000 whichever is higher so we check on the higher of the two so if you're working with a new return then we'll charge you 2 000 penalty for debt finding if it's a return that had taxes payable then you'll do the five percent of the tax due and charge that as the penalty uh then there is the balance of tax that is if there is any tax payment payable under that return so it should have been paid by that year after you taxes should be paid by the fourth month after the end of the year which is now 30th april so in such a case the debt payment penalty for balance of tax is five percent of the tax due and interest accrues at one percent per month outstanding so again uh if we have companies get on their call and doing some investments for companies they are allowed to have different tax years so you'd have a company within the end of february ending in january or ending in february ending in january you have much ending in february such things so for a company it may have a different year end and now the tax return should be felt by the sixth month after the year end so should we be working now with uh let's say um a junior end then the design should be filled by december so the penalty for that finding of a company return is five percent of the tax due all twenty thousand again whichever is out there to if it's a new company return then the penalty will be 20 000 per return the penalty for late payment of balance of tax is still the same five percent of the tax due and interest accrues at the rate of one percent per month outstanding so you wouldn't want to have a very good year of income earning money then the money goes to penalties and interest then for returns what exactly should go to the return as an individual you only have one pin as a company you only have one pin so what that means is that you need to consolidate everything that you earn during the year so that you do a proper tax disclosure for the year so what we have is uh for one there are people who finally returned so that should happen in cases where now you've clearly earned nothing during the year or whatever you earned is not taxable in kenya remember what we had said that kenya taxes income accrued or direct from kenya so in other instances you would have now a person who has only employment income alone so in such a case if the employer has been finding proper returns proper pay as you and returns so all the data should be on my tax for the particular individual in this case the employee and they should be able to pick up that data from high tax system and not file their return if they are fighting employment income alone of interest now for today's training is how you felt now other income that you want during the year so what the what you are supposed to do in this case you only need to populate an excel what you call now the data pack depending on the current version that is provided by kre it is important to check on the version or else you just end up updating now worksheet and you can't upload it requiring you to use now the most current version that they have so once you get the correct version you'll find that the other there are quite a number of incomes that you can disclose that are specifically provided for one is business income that is the income that you want from doing your business whichever amount of business that you've done in kenya whichever line of business you've done so you need to disclose your business income there is farming income how much have you earned now from farming during the year there is rental income remember we said renter from rental income from commercial property you do now the income less expenses which is what we have here there is interest income maybe you've received interest during the year there is a column for that there is commission uh for those who do sales or just broken and they earn their commission so there is the column to promote to disclose that and there is also now any other income that you may have that doesn't afford in that category of either business farming rental interest or commission so once you have your income uh whatever you need to populate is whatever you received as gross income then you need to take a deduction of all the expenses that you incurred this is now the common income statement that we do all the profit and loss commodity commonly known as the profit and loss account you need to do the income then you raise all the expenses income would include the general business income or any other income that you've received during that year and take a deduction of the expenses so what you get from those two you get the pro what you call the profit before tax which is the general accounting profits and have that now in your return so you also do the balance sheets that is whatever your assets the liabilities and all the capital you have in the business uh supporting now whatever you've done in the income statement so once you have everything done then we'll need to check out all the expenses tax allowable if they are then the if they are tax allowable and all income is taxable then you get that the accounting profit will be the same as taxable profits but in some instances there are adjustments that we make let's say depreciation the precision will be an allowable accounting expense but now when you come for tower when you come to do the tax position or the tax reveal you find that the depreciation is not allowable so you need to add it back and in effect now match it with the capital allowances that you're supposed to get from those assets that used during the year to earn your income so once you get the proper tax position uh once you adjust now for the expenses that our tax allowable remember this you're doing on the data pack or the excel version you need to put the expenses that are tax allowable and now need to take deductions of income that is not taxable once you get that you get the tax of a profit for which the system now automatically computes for you the tax that is due so you get that from the system it's not a minor thing as much as you'd have and your excel comparative or what you had done before the system automatically completes for you the tax that is due based on the data that you have input in the excel so once you do once you get the tax payable from the system you are still allowed to all your supports to include the tax credits that you have during the year so the tax credits would include the psg one that was deducted by your employer other tax credits would be withholding tax remember you've talked about withholding tax on interest you'd have withholding tax or maybe dividends whichever withholding tax credits that you have you're supposed to again put them in the excel so that you upset them against the tax the ability that the system has completed for you you'd also have other instances where now you have paid in so many tax uh this we will talk about in the next few you'd also have an insurance where a person has paid advanced tax like you just looked at your accounts and you're like no i need to pay some money to pray so that they can offset that against any tax liabilities that i would have so once you get the tax position which is now what you call the if it's a tax refund then this one you need to make an application to carry for them to process which is actually a process as the one says it may take time for it to be verified and refunded to you either if it's taxed you know attacks liability this is what we said that you need to pay by 30th april and figure out how to pay that by 30 april then there are penalties and interest so that's why you find people with business income people companies or companies they most of the time they will have their returns done by 30th april in order to pay the balance of tax in time and also now fail the return in time you know maybe not have any tax liability to them they're only liability to decree we don't try to return by that of june so we now proceed to what are the tax rates in kenya for individuals we operate with what we call the graduated tax bonds where now if you're earning 24 000 a month that is business be it now employment income then the tax rate is ten percent so you find that ten percent of twenty four thousand is two thousand four hundred which is equal to the monthly the personal relief so in some checks that's why we save your name 24 000 and below then your money is tax-free so then you have the next 8 33 that is taxable at uh 25 then you have an income of 32 333 that goes to the 30 percent band so that is for individuals for companies now it's dependent on whether a company is resident in kenya evities then there is a 90 percent and if it is not resident in kenya these are the foreign companies the branches so the tax rate is that is 7.5 percent of now what you get is the taxable income we have installment access these are paid commonly by the companies so you find companies are supposed to manage their taxes during the year you don't rate up to the end of the year and discover that you should have paid more and more taxes during the year so companies are required to pay their balance or their installment tax in this case by 20th april depending on what i'm talking about at december end 20th april 20th june 20th september and 20th december so they are divided therefore therefore installments but now there are instances who are now as an individual an investor is a business person you're required to pay installment taxes so two main instances are where now you are an employee but you don't have a kenyan based employer so right now you have an offshore contract and your payment point or you paid from now the other side of the world is not in kenya so in such a case you're supposed to manage your taxes by paying the installment in taxes then the other individuals now with other sources of income remember it only pay pays you one that is employment income that has the monthly tax so if you're doing business uh if you're doing farming if you're doing if you have commercial rent or income then you're supposed to manage your taxes by paying installment taxes not wait until the end of the year and you're like by that yet april you have to pay a lot of taxes no you're supposed to spit it pay in installments so that you manage your balance of tax uh the installment tax to be paid by individuals and companies is based on one what we call the prior basis well now you check how much did i pay last year currently in the year 2021 so you'll be checking how much i paid in 2020 if i paid term tax then grow that by 10 percent so you'll do 110 of what you paid last year and divide it in the four quarters the there's what we call currency i remember that a lot has been changing last year was worse economically for some companies and for this for some companies for last year was bad for some companies and and now things have gotten better for such companies so if they were to go the prior basis then they would end up significantly underpaying taxes or there could be companies where last year was better than this year depending on how the market is going and the market trends and the business and the economy so depending on which is which provides the law of the two or depending on how you manage your taxes you go under prior yeah that is one ten percent of prior tax or you go currently now you say my tax from january to march is this so this is the tax i'm going to pay in april then you check april to april i made this my tax so that you pay by 20 june so as we had said for companies the same price for individuals the installment taxes are due by 20th april 20th june 20th september and 20th december these are priced for individuals because they have a standard calendar year that's january to december and any other company that has january to december uh should the company have a different year and then the installment tax uh remands are a bit different then we have the balance of tax that is due by that year of the subsequent year we also now have what we call the tax reliefs in kenya for individuals we've said that the system will compete for you the taxes and also now you're there to take the credits of the taxes that you've already paid but then but now again the same law provides for some beliefs just to push on you from now the economy and to give you it a bit more than you'd have been left with but they are not this reduced in place so we have one the passenger deep which is uh currently at twenty-eight thousand eight hundred annually that's two thousand four hundred for all individuals in kenya so you'll do your taxes then take a deduction of what's now recording the personal deliver there's also what you call the insurance we leave which is provided at 15 on the premiums that you've contributed cut to a maximum of 60 000 per annum that is for the following policies we have insurance education and health insurance policy remember that you can also maybe invest or cover yourself by taking a policy so once you take a right insurance policy then this is the benefit to consider the time of filing your returns or making payment of your taxes that you'll be saying look i have this policy that i'm contributing much premium so you do the 15 percent of the premiums check it again 60 000 per month and take that as a relief against now you taxes for the year uh with that i would say we have significantly covered what we had for the day except now should there be any question that we'll be very happy to address and assist as i mentioned we've been through with you during the training and now we are ready to address any questions that you have well thank you so much alice and joyce there are a lot of questions that have come in so we shall be handling them i think in truth um but we shall start with um what we had talked about earlier which is um on real estate there's a question that if if they learn if the tax is usually oh let me just read it as it is the sale of land is it per individual title dead or for the entire land if set to titles and the value um the value is at 3.2 million each piece going for 1.6 million and to

to add to the 3.2 just to clarify so i think that is on payment of cgt or stamp duty when it comes to land sale the other question was is also on cgt are you required to provide documents to support your adjusted cost if yes what happens when you cannot trace receipts for the expenses in card over the years cost of any renovations developments done um yeah you don't have receipts for that we can i think we can answer that for land fast okay um i can take that question for real instead um so if i understand that the view while the question is if you're selling land but in essence it's two different title leads um you know the value is coming to some certain amount um so first of all let's start with the legal process your sale agreement um let's say does your cell agreement incorporate both um both titles and the agreement or do you have a different cell agreement for each title did but so if they're in one um it's all basically the same uh because when you do take um you know your documents to um you know ministry of lands for valuation they're going to value per title uh because you know sometimes we find the titles are adjacent to each other the land parcels are next to each other um so that i would also mean probably the value is similar but sometimes you could have um in the same agreement one plot is in changala the other one is on thicker route um you might find the you know valuation of course the value is different so yet again um for land and stamp duty it's about the value that the government has placed on it based on similar properties and you know um whatever experience or whatever it is that they choose to use to value that land um and also depending on where it is so you can you know ask for any amount that you want but eventually some details about the value of the land that the government has recorded this [Music] okay sorry um then for cgt cgt or capital gains tax is again on the consideration you get um assuming that the person you're selling to in muslim senses is um a third party or it's it's not someone you related to per se so if you're a company that influenced the price that you're putting on the value of your land so even if the government values your land at a million but you choose to ask for half a million and you know you're free to to make any commercial decision you want you can ask for any price you want cgt you calculated on the actual amount of money you're getting paid for and yes you do need to have supporting documentation because um even currently as we speak there are quite a number of matters whereby kra he's asking for proof you have done this cgt calculation you have adjusted the cost so you have um you know like we had seen in our calculation earlier you have you know um let me say you have left cost for professional services let's say your lawyers do have an invoice for that you said you bought your land um five years ago this much do you have a sale agreement um to show you this is how much you paid and you said you used a broker or you had you know advertising costs do you have an invoice or a receipt for that so yes carrier is asking for supporting documentation and most of the time if you cannot provide it they will simply add it back to the consideration or whatever adjustments you have done and ask for further taxes at five percent also in addition to maintaining documents uh it's important to note that there are no provides that document should be maintained for five years or kra has a five year audit period that is open so they can go back five years and request for any documents other than even what you're talking about for the cdt should you be doing business then you need to be maintaining your records very well to prevent instances who are now you're being asked questions and you cannot be able to properly address them for lack of support again even on the finding of the returns it's important to include the expenses that you can properly support if you're questioned remember we said you're reporting the gross income then you invest in the expenses that you've been current it's important to have those invoices alongside as a support that these were trading cards during that particular year um in fact i list something um interesting um in the quite recently um released finance bill for 2021 and the government has increased um the period for keeping documents from five years to seven um same thing cadre can assess you for seven years so actually the burden um is actually increased right now for for us as a business person or as an investor you really have to keep your records for a long time yes interesting um very interesting i think we're learning a lot today things that i also didn't know so i will ask the next set of questions um who is responsible for paying withholding tax on dividends from a private company the company or the shareholder investor then the other question is are there tax uh regulations around crypto assets i think that is crypto in yeah crypto investment cryptocurrency i mean um still on withholding tax um i think caroline you have been answered when filing the returns at the end of the year and you had withholding tax how do you account for it um now i think that's on the template that we usually use i i think you have been answered but maybe alice can touch it touch through it for a period um then the other question that had been answered that also touches on withholding tax um is if you have invested probably in a unit trust or yeah the collective investments and you've invested as a group um how do you file your taxes as a now for individuals so i've invested probably as if if the group can be it's either registered or not registered so how do you find your taxes individually yes i think we can handle back fast all right um maybe i can touch the one on dividends so the person responsible for withholding tax in any situation is um always the person making the payment so even if it's a private company and they're paying you dividends it is up to the company to withhold money so whenever it is that they're giving you they're giving you one million and that one million is um tax-free or data its final tax they have already withheld um withholding tax and they're supposed to submit to kra so it is the responsibility of the company now of course um in this sense if you look behind the company that would be the responsibilities of the directors or the company secretary or even or even yourself as a shareholder you know you have organized yourselves to determine who is dealing with your accounts and such matters um but if you're splitting between shareholder as an investor and the company as a legal person which is the company responsible for withholding taxes and yeah if you look at unit trusts or collective investments as a group for tax we look at the legal person that is earning this income so when you say as a group would really have to ask you further questions what are you as a group i could you either an individual um in general either an individual person you're either an incorporated entity so you're either a subsidiary company or you're a branch or you're a partnership or you're a trust um you have to be a specific legal person so when you say you're a group or you're a charmer if it is not registered as or incorporated as any of these other things then it's your responsibility as an individual to file your own taxes based on i'm assuming the split you get so if as a group you got a million and everyone is your tent everyone is getting a hundred thousand then um if you go to a hundred thousand then you account for your hundred thousand unless as a group you are a legal person in one form or another with the responsibility of accounting for taxes as that legal person then and that um let me call it recall or the legal vehicle of that group will account for taxes depending on how it is set up yeah okay okay um maybe you can pick up now on the return okay then there is there was a question on finding whether it is withholding tax credits or certificates i remember withholding tax you get it after you've done some work and at the point of making payment to you they'll be told or you and interest then at the point of getting the payment for the interest there's a withholding tax uh that has been remitted that has been deducted and then returned to kra so what in essence means is that uh where there is a withholding tax certificate there is definitely an income whichever income now it is is what you need to disclose uh take a deduction of expenses if there is and now get the tax completed by the system so for example you'd have a withholding tax let's say you have a a business or commission that you banned there was withholding tax certificate of 10 yet the taxpayer board is about 45 so the system will take the 45 that was the tax assessed based on the data that you put in the system then deduct the credit uh the withholding tax should be on the system it should be a credit that has already been picked up by the system so you'll get the 45 then take a deduction of the 10 and now make payment of the remaining amount of 35 uh like let's say 35 bob so you need to disclose the income that said to the withholding tax certificate and then i'll take a deduction of the withholding tax credit that matches with the certificate remember you can't claim more credits than there is in the system so you can say that they should have withheld more no it is actually what the day before this is what is in the system take a credit of that against the taxes that are assessed and that's why you find cases where people think that they didn't earn any income during the year so they feel they should fail meal but now the point of reading the system is like look you already have a withholding tax a certificate so tell us what it relates to so that we assess the tax and you can take credit of now the withholding tax certificate interesting i think carol you have been answered um the other question is um what are the stock saving under kenyan roads where one adapts a trust arrangement for wealth management um with that i would like to add another question um joyce and alice uh on tax avoidance and tax tax avoidance and tax evasion yes uh then um yeah the other question will be also i think i think for for alice hi i'm a student and i can i currently file mail returns and i plan on buying shares if say dividends taxes will be taken before i receive my interest so can i still file mail returns i think that goes for joyce sorry yes okay um let's talk about trust um i like this um i like to talk about trust uh because it's currently something that is um let me say a hot topic um right now in the market because i think um private trusts are a very good way of wealth management um and maybe maybe something you talk to your clients about but when you let's say you're uh let me let me use the wide family trust if you're in your family or as an individual um you feel you have this wealth that you want to properly manage um in terms of even after you even after your own lifespan uh because there's so many things if you look at um kenyan history and you look at you know several um let's say wealthy famous kenyans we can point out families that have had scandals about their money actually after their you know um you know the main um let me say patriarch has passed away you kind of see the benefit of having um a family trust so a family trust you can either have incorporated or not incorporated but if let's say you incorporate it um it becomes a legal vehicle that has its own trustee and that depending on the terms you have put in there it will determine um let's say if it's yourself you the one for me the first letter you'd be the trustee or you'd be there you know the satellite the person who is um you know putting the property whatever type of property all the things we've talked about today can form part of the trust property and you determine what is put in um how it's removed how it is used at what point um that is used or not um further speaking determine who is a beneficiary who is going to benefit at what point do they benefit um so that this cannot be sold this can be sold this has to go to this particular child or grandchild um this can only be used for this purpose uh so you are you know almost sure that uh let me call them you the you know your beneficiaries or your children and you know other generations future generations are going to use your wealth um properly they're not going to mismanage it so that even your grandchildren can find the money you left them with uh or you left your children with um if you look at it also the main benefit of having a trust because um person asking about for wealth management is it to really avoid a lot of time let me say time wastage and legal process of you know arcadian legal process of passing property um after a deceased person um you know has passed because right now we have succession law succession law or succession the process of succession in kenya is quite tedious it can take years it can be contested yes you can have a will and um i would say first have a will is a very good thing to have you please you'd rather have a will that i'm not having at all i think the next best step is to have a trust so even your will can be con tested um even by your beneficiaries for your own children but you know by the spouse you have left by your brothers and sisters and anyone else who feels they have a right to your property they can contest your will so that can be frustrated it can take years and years and years um for it to go through the legal process in the court system um so having a trust protects any property in this trust um from any such things and because legally speaking whatever is in the trust is outside the estate of let's say the deceased person so it doesn't go through the legal succession procedure you just simply follow the provisions of the trustee and how they say they're going to relocation their property and how it's going to be dealt with um now let's talk about what the question was which is on the tax benefits um so currently first of all depending on the legal process you choose to use [Music] on forming your trust and managing your trust um most of the time putting your property into the trust for example if i choose to form a trust right now the property would be in my name but if i incorporate a trust it's most like a company so the title deeds um and their names and whoever owning this property has to move from personally myself to the name of this trust so that process of moving um usually it's exempted from quite a lot of taxes such as um cgt it's exempt um most of the time stand which is also exempt already minimal etc so um along their tax um unfortunately for such trust um you have to talk about um the tax implications on a case-by-case basis so generally there are um exemptions available about the specifics would have to look at the specific property and how it is being held um and what you'd like to do with it and how you're passing it on um but yes it is a legal an available legal option and there are tax benefits to that and i literally would like to mention not only trusts okay yes that was well covered uh other question was on dividends you're a student you are receiving dividends um it's already been taxed withholding taxes withheld um so question is whether you still continue to find your new retirement i would say yes and no uh yes mostly because you have that taxes final tax there's no more tax implication on it uh and there's no tax implications on it so most of the time even for um most people whenever you receive the dividends income it doesn't end up showing um you don't report that income again on your tax return but unless can mention further yes that is true you it will depend with how this reflects as long as there is a withholding tax certificate on your system then you can never have a new return to automatically pick and detect when they return so if there is a with holy tax certificate in the system you need to disclose that and uh check on now the taxes was it properly withheld and if it was properly withheld then there is no further tax on that uh the other thing there was something on tax avoidance tax evasion and i would also now want to add tax planning in the mix so what there is in kenya there is what we've seen and the taxes that i'll do and the proper tax rate so it is an offense to try and evade tax like do your business in a way that you're clearly not interested in paying taxes or you're clearly doing everything to make sure that you don't pay taxes so that that is a punishable offense and would also lead to maybe instances where now companies are chased to the point of almost closing down the directors are imprisoned there's so much cons very unfavorable consequences if you try and evade taxes in kenya but now there is the positive side of now tax planning which is one i would say we look at your affairs or you look at your affairs and see how best can i structure what i'm doing to make maximum income maximum benefit and pay the right share of taxes won't call it the minimum share of taxes by the rightful share of taxes so you'll find that there's a way you can structure a transaction and you end up paying lower taxes bigger d than if you have done the same transaction in a different manner or running a different vehicle maybe a case why should you do a joint company a joint venture should you do a uh a company where now you're the only shareholder of this no joint venture agreement or should you operators are so appropriate should it be a partnership those are the questions to ask depending on what exactly do you want to do what will give you the maximum tax benefits now that's the tax plan in beat which is done by on a case-by-case basis you can provide uh like an explanation of what exactly would you call as a tax planning for any transaction you need to be on a case by case basis we debut the circumstances and see this is how best you can structure this transaction pay like these taxes that are big applicable and still end up in good books with now the revenue authority but should you try and i have a taxes then your three id on like parallel parts with the revenue authority in the government and you know in fact nowadays um such a big deal because even other legislations outside um tax um are very keen on um limited tax division and it is economic and economic crime factor that's very keen on it it has you know severe provisions on if you're caught um you know evading taxes um but even if you have let me now bring us back to let me call it repentance um right now in our kenyan tax system if you feel that you know maybe there is taxes i should have paid um and i didn't properly account for it and you know carry kerry has about seven years right now if you follow the finance bill um to assess you and come for you and carey comes for you and you may be happy for three years but one day you get an email or a phone call um you know querying you know a certain transaction you did right now there's a provisional voluntary tax disclosure program you whereby you analyze and you can tell carrie this happened um this taxi did not pay um and this is the tax i have um in fact i'm asking for a payment plan they can even give you for up to a year um you know to stretch out and installments the taxes you can pay and you can get a waiver um a waiver on penalties and interest that carrier would have you know levied on your lack of compliance so if you do it in 2021 you get a 100 weaver if you wait for next year you get 50 if you wait for the next year that's 2023 um you will only get 25 um and after that it's gone so right now there is quite um a good incentive um to get your affairs in order and you need to be compliant with the

2021-05-22 20:07

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