Banking, Finance and Exchange Control Kenya has one of the most sophisticated financial and capital markets in the East African region. The Central Bank of Kenya ( CBK ) is responsible for the management of Kenya’s financial and banking systemwith the Treasury. Bank supervision is of a high standard. Parliament passed the Banking (Amendment) Act in 2016 capping interest rates to no more than 4% above the rate published by the CBK (currently 10%) which has created a tougher operating environment for banks. A host of foreign banks have however expressed interest in setting up in Kenya despite the interest rate capping laws. The Capital Markets Authority is responsible for the regulation and supervision of the capital markets, including the Nairobi Securities Exchange. Since the repeal of the Exchange Control Act, Kenya Shillings are freely convertible and there is no legal restrictions that would inhibit foreign investors from repatriating either redemption proceeds, dividends, distributions, license fees, royalties or other revenue gained from trading and investing in debt and equity in Kenya into foreign currency offshore. Payments made between residents and non-residents must however be effected through an authorised bank and the CBK requires banks to notify it of foreign currency remittances amounting to or exceeding USD 100,000 per day. The CBK has issued specific guidelines on foreign exchange for the internal regulation of foreign exchange dealers, which includes authorised banks and foreign exchange bureaus licensed by the CBK. These guidelines basically require such dealers to obtain appropriate documentation for transactions above the equivalent of USD 10,000. The procedure for a foreign investor to open a bank account in Kenya will depend on the administrative procedures of the specific bank. Standard KYC procedures are completed and where the foreign investor has established a legal entity in Kenya, it would be required to provide certified copies of the constitutional documents and confirmation that it is registered for tax. Tax Income tax The rate of income tax for a Kenyan company is 30% of pre-tax profits. The rate is 37.5% for a branch. A Kenyan company must also deduct the withholding tax of 10% on the payment of any dividend to a non-resident.
Individuals resident in Kenya are also subject to income tax on their world-wide employment income. There is a sliding scale depending on salary with a top rate of 30%. Tax penalties in Kenya are extremely punitive. Accordingly, considerable care should be taken to ensure tax compliance. Value Added Tax Value added tax ( VAT ) is levied on most taxable goods and services supplied in, or imported into, Kenya. The present standard rate of VAT is 16%. Certain specified goods and services are exempt from VAT or subject to zero-rating. Subject to minimum thresholds (which apply in limited cases), suppliers of goods or services which are liable to VAT must register for VAT before supplies commence. Taxable services include consultancy, advisory and management services. Recipients of imported services may be liable to account for the applicable VAT. Any person who in the course of their business has made taxable supplies or expects to make taxable supplies the value of which is 5,000,000 Kenya Shillings (approximately USD 50,000) or more within a 12-month period must register for VAT with the Kenya Revenue Authority. Withholding Tax Withholding tax is applied to a wide range of payments made to both residents and non-residents. The applicable non-resident rates for the most common payments are: • 10% on dividends; • 15% on interest; • 15% on equipment rentals; and • 20% on management, professional and other consultancy fees. These rates may be reduced under an applicable double taxation treaty. In particular: • management or professional fees paid to a resident of the United Kingdom attract withholding tax at the rate of 12.5% (15% for Germany and Canada); • interest and royalties payable to residents of Mauritius 2 or South Africa attract withholding tax at the rate of 10%; • interest on dividends payable to residents of Mauritius may be reduced to 5% in certain circumstances; and • withholding taxes may be reduced by reference to the lower rates where the country in question has a most- favoured nation provision in its double taxation treaty.
2 The Kenya – Mauritius double taxation treaty has been ratified and will come into force upon exchange of diplomatic notes.
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