Presentation Transcript

1. Business Training of KCIC ClientsTaxation in Kenya

   January 2014
2. Table of Content Page Overview Section Business Training of KCIC Clients

3. Introduction

   Business Training of KCIC Clients
4. Introductions……. Business Training of KCIC Clients

5. Your Expectations

   Lets hear them… Business Training of KCIC Clients

6. Business Registration

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7. Setting up in Kenya Under the Kenyan Companies Act, there are two relevant legal forms of registration: A branch of a foreign company; or A Limited Liability Company (a subsidiary). There are no statutory restrictions on operating either as branch or a subsidiary. A branch for tax purposes is a company incorporated outside Kenya and has been registered under the Kenyan Companies Act and received a Certificate of Compliance A subsidiary is a locally incorporated company registered under the Kenyan Companies Act and received a Certificate of Incorporation.
8. Illustrative incorporation process map
9. Differences between a subsidiary and a branch

10. Pay as You Earn

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11. Definition of terms “employer” includes any resident person responsible for the payment of, or on account of, emoluments to an employee. Resident individual- A person is resident in Kenya where: they have a permanent home in Kenya and are in Kenya even for a single day in the tax year (calendar year) they do not have a permanent home in Kenya but are in Kenya for: 183 days or more in aggregate during the current tax year an average of more than 122 days per year in the current tax year and the two preceding years Payroll Management-Include all taxable remuneration, including benefits and unaccounted for allowances and ensure that the correct tax treatment is applied . Business Training of KCIC Clients
12. PAYE - what is an emolument? Income Tax Act (Sec 5(2)) “gains or profits” include: wages, salary, leave pay, sick pay, payment in lieu of leave, fees, commission, bonus, gratuity, or subsistence, travelling, entertainment or other allowance received in respect of employment or services rendered. PAYE guide (2009) Wages, salary, leave pay, sick pay, payment in lieu of leave, directors’ fees and other fees, overtime, commission, bonus, gratuity or pension. Cash allowances The amount of any private expenditure of the employee paid by the employer otherwise than as a loan. Non-cash benefits where the aggregate value exceeds KES 3,000 pm Value of housing where provided by the employer.
13. Deadlines
14. Accounting for PAYE Case study. In the month of September 2013, Mary Natasha received income from his employer as detailed below: Basic salary- KES 120,000 House allowance- KES 30,000 Overtime- KES 5,000 Calculate his taxable income

15. Value Added Tax

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16. Rates of Tax Two rates for VAT: 0% for zero rated supplies - such as export of goods and service, supply of natural water excluding bottled water by any political division approved by cabinet secretary for water. 16% for any other supply. Exempt goods- medicaments, live animals, maize, fertilisers, unprocessed milk, plant and machinery of chapter 84 and 85, vegetables, aeroplanes. Plant and Machinery- such as boilers, turbines, Agricultural, horticultural or forestry machinery for soil preparation or cultivation; lawn or sports-ground rollers, milking machines, machinery for animal feeds, Electrical capacitors, fixed, variable or adjustable. Business Training of KCIC Clients
17. Accounting for VAT “input tax” means tax paid or payable on the supply to a registered person of any goods or services to be used by him for the purpose of his business (“VAT on purchases”) “output tax” means tax which is due on taxable supplies (“VAT on sales”) VAT registration A person is required to register for VAT if he supplies taxable goods (16% and 0% VAT) in excess of KES 5M per annum. Time to account for VAT: on which goods are delivered or services performed; a certificate is issued by an architect, surveyor, or consultant; on which the invoice is issued; or on which payment for is received, in whole or part. Business Training of KCIC Clients 66
18. Accounting for VAT VAT is payable to KRA by 20th day of the following month in which VAT was deducted. Refund of VAT where input tax exceeds output tax as a result of making zero-rated supplies. Case study. In the month of August 2013, James bought taxable goods (at 16%)worth KES 800,000. He sold all the goods in the same month at KES 1,000,000. Calculate the amount of VAT payable. In the month of September 2013, Alice bought taxable goods (at 16%)worth KES 800,000. She sold all the goods to Nigeria (export of goods)in the same month at KES 1,000,000. Calculate the amount of VAT payable/refundable.
19. Accounting for VATAccounting for Corporate Tax- companies

20. Corporate Tax

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21. Definition of terms “Income tax” shall be charged for each year of income upon all the income of a person, whether resident or non-resident, which accrued in or was derived from Kenya. “Income chargeable to tax” includes gains and profits from business and right granted to another person for use or occupation of property among others. Resident to a body of persons, means: That the body is a company incorporated under a law of Kenya; or That the management and control of the affairs of the body was exercised in Kenya in a particular year of income under consideration; or That the body has been declared by the Minister by notice in the Gazette, to be resident in Kenya for any year of income. Business Training of KCIC Clients
22. Definition of terms A branch is taxed at 37.5% on its adjusted net profit (Gross revenue less expenses incurred wholly and exclusively in production of income) A subsidiary is taxed at 30% on its adjusted net profit (Gross revenue less expenses incurred wholly and exclusively in production of income) Expenses must be “incurred wholly and exclusively in generating income” Incurred - income at a cost or borne by the business. Expenses incurred by another party for the benefit of the business will not qualify. Wholly and exclusively - have a direct link to activities leading to earning the specific taxable income Disallowance of costs not related to business e.g. certain donations, personal expenditure, fines and penalties. Allowable expenses include-Training costs, employees costs, prevention of soil erosion, capital expenditure for clearing and planting certain crops Revenue- Allowable Expenses = Adjusted taxable profit which is taxed at 30%.
23. Capital allowances
24. Deadlines, penalties & interest
25. Accounting for Corporate Tax- companies Case study: The following is the composition of profit and loss account for Mango Company Ltd for the year of income 2012. Sales- KES 2,000,000 Purchases- KES 1,000,000 Administrative expenses- KES 400,000 Administrative expenses consisted of donation-KES 50,000 Depreciation-KES 30,000 Wear and tear allowance amounted to KES 20,000. Calculate the amount of Corporate tax payable.
26. Accounting for Corporate Tax- companies
27. Accounting for Corporate Tax- agricultural companies Case study: The following is the composition of profit and loss account for SKL Company Ltd for the year of income 2012. Sales- KES 2,000,000 Purchases- KES 1,000,000 Administrative expenses- KES 400,000 Fair value gain of biological assets ( trees)- KES 100,000 Administrative expenses consisted of donation-KES 50,000 Depreciation- KES 30,000 Construction of labour quarters amounted to KES 30,000. Calculate the amount of Corporate tax payable.
28. Accounting for Corporate Tax- agricultural companies

29. Withholding Tax

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30. What is Withholding tax? WHT is a portion of payment withheld by the party making payment to another (payee) and paid to the Tax Authority. The objective of the WHT system is that tax is withheld (retained) by the payer and given directly to the Tax Authority, at the time the payer makes payment to the payee. The tax collected under this system belongs to the payee with respect to payments, while the payer is only an agent for the Tax Authority. WHT is payable to KRA by 20th of the month following the month in which WHT was deducted. The person who deducts WHT (Payer) furnishes the Payee with the WHT certificate showing the amount of WHT deducted.
31. Payments subject to WHT Section 35 of the ITA sets out the payments that are subject to withholding tax Payments to Residents: Management or professional fees (if more than 24k a month) – technical, management, contractual, training. Dividend Interest Pension in excess of tax exempt amounts Royalty-Right to use Commission/fee for provision of insurance cover Winnings - betting & gaming Payments to Non-residents: Management/professional fees Royalty Rent for use or occupation of property Dividend Interestand deemed interest Pension or retirement annuity Payment to sportsmen or artists Winnings - betting & gaming
32. WHT rates
33. Accounting for WHT Case study: ABC Limited received accounting services from XYZ limited. The invoice amount was KES 100,000 as indicated in the table below. Calculate the withholding tax.

34. Excise Duty

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35. What is Excise Duty? An excise or excise tax (sometimes called a duty of excise or a special tax) is a tax on consumption levied on goods produced within a country. It is generally an indirect tax i.e. the consumer bears the burden of tax as opposed to the producer/ manufacturer of the good(s). Excise duties are distinguished generally from other indirect taxes in the following ways: Excise duties typically target a narrow range of products. Excise duties are very ‘heavy’, accounting for higher fractions of the retail price of products. Excise duties are mostly specific though in some cases a hybrid of specific and ad-valorem rates may be used.
36. Legislation Governed under Cap. 472, Customs and Excise Act The Fifth Schedule of the Act provides a listing of all excisable goods and the rates of duty Section 90: Provides that all manufacturers of excisable goods must seek a license before commencement of such manufacture. It makes it an offence to manufacture excisable goods without a license Section 91: Provides that: A separate application shall be required in respect of each factory in which excisable goods are to be manufactured each class of excisable goods to be manufactured. A license shall be issued to a particular a person and shall be in respect of the factory and class of excisable goods specified in the license;
37. Rates of Excise Duty