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|Tax Incentives Available to Investors|
|Tax Incentives Available to Investors|
The Government of Kenya provides a number of incentives to persons who choose to invest in Kenya. A significant proportion of these incentives benefit businesses conducted by resident/locally incorporated companies.Â
Corporation tax on the taxable income of a resident company is levied at 30% while that on non resident companies is levied at 37.5%.
A company that lists its shares at the Nairobi Stock Exchange will benefit from incentive tax rates as follows: -
a. Where a company has 20% of its issued shares listed corporation tax is levied at 27% for the first 3 years.
b. Where a company has 30% of its issued shares listed corporation tax is levied at 25% for the first 5 years.
c. Where a company has 40% of its issued shares listed corporation tax is levied at 20% for the first 5 years.
It is also worth noting that in Kenya there is no time limit on the carrying forward of tax losses against future profits from an identical source of income.Â
Additional tax incentives offered to resident companies take the form of capital allowances offered to those investing in capital projects.Â These are offered on a reducing balance basis and include.
a)Â Â Industrial Building Allowance (I.B.A)
IBA is granted on capital expenditure incurred on the construction of an industrial building.Â A rate of 2.5% per annum is applied to the qualifying cost of the construction of an industrial building and 4% per annum is applied on the qualifying cost of a hotel building. These rates may however be varied upon formal application to the Kenya Revenue Authority detailing the inadequacy of the rate provided.
b)Â Â Â Â Investment Deduction
This incentive is granted to encourage development in manufacturing industries. It is granted once at 100% in the first year of use, to any person who incurs capital expenditure on construction of a new building and installation therein of new or old manufacturing machinery. It is also offered for the construction of a hotel that is certified to be an industrial building.
Machinery that is ancillary to manufacture such as water pumps, electricity transformers, generators, machinery for disposal of effluent and enhancing cleanliness of the environment also qualify for investment deduction. Where the machinery is installed in an old building, only the machinery will qualify for the allowance and not the building.
c)Â Â Â Â Farm Works Deduction
This is granted at the rate of 33.33 % per annum for three years to the owner or tenant of any agricultural land who incurs capital expenditure on the construction of farm works. Farm works means labour quarters, farm house and any other immovable building necessary for the proper operation of the farm such as fences, dips, drains, dams, water and electrical supply works etcÂ
d)Â Â Â Â Shipping Investment Deduction
This is granted at the rate of 40% on capital expenditure and only one such deduction can be allowed in respect of the same ship. To qualify the purchase must be that of a new, unused power driven ship of more than 495 tonnes or on the purchase and subsequent refitting for the purpose of shipping business of a used power driven ship of more than 495 tonnes.
e)Â Â Â Mining Allowance
This is granted to a person who incurs capital expenditure on searching for, discovery, testing and winning access to minerals; expenses incurred in obtaining acquisition rights over deposits; expenses related to purchase of machinery and buildings together with the development, general administration and management prior to commencement of production. This is granted at the rate of 40% in the first year and 10% from the second to the seventh year.
Tax incentives are offered to investors that locate their operations in Export Processing Zones under the Export Processing Zones Act (Chapter 517, Laws of Kenya) and subsequent amendments thereto as follows: -
a. An initial 10-year corporate income tax holiday and a 25% corporation tax rate for a further 10 years thereafter (except for EPZ commercial enterprises)
b. 10-year withholding tax holiday on dividends and other remittances to non-resident parties (except for EPZ commercial licence enterprises)
c. Perpetual exemption from VAT and customs import duty on inputs â€“ raw materials, machinery, office equipment, certain petroleum fuel for boilers and generators, building materials, other supplies. VAT exemption also applies on local purchases of goods and services supplied by companies in the Kenyan customs territory or domestic market. Motor vehicles which do not remain within the zone are not eligible for tax exemption.
d. Perpetual exemption from payment of stamp duty on legal instruments.
e. 100% investment deduction on new investment in EPZ buildings and machinery, applicable over 20 years.
d. Exemption from any quotas or other restrictions or prohibitions on imports or exports with the exception of trade in firearms and military equipment.
In addition to tax incentives, procedural incentives are offered to persons investing within the EPZ area such as the offer of facilitation services by the EPZ Authority together with exemption from having to take out a number of licenses.
For investors operating outside an EPZ, the government provides incentives through the remission of taxes incurred in respect of exports of taxable Goods. This applies where a person incurs VAT on goods imported under bond for manufacture of exports.Â Such tax will be remitted upon such person applying for and obtaining a tax remission certificate.Â However, prior to such remission, a security bond must be executed in order to obtain the remission certificate. This bond is cancelled after the exporter satisfies the commissioner for VAT that the goods have been duly exported
The remission of VAT paid will also be allowed in respect of capital goods (excluding motor vehicles) imported or purchased for investment in industries such as oil exploration or prospecting for minerals.
Double Taxation Treaties
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