The facets of corporate tax are of great interest to companies and investors both locally and internationally as both parties are extrinsically motivated to strategically design efficient tax planning policies.
On 28th July 2023, the Court of Appeal lifted conservatory orders barring the implementation of the Finance Act 2023 which ushered in new tax legislations, key amongst them is the taxation of repatriated income. In this article, we shall illuminate the impact of integrating repatriated profits in the ambit of tax
What is Repatriated Income?
These are proceeds earned and transferred by multinational entities conducting business in foreign jurisdictions (Kenya) to their home country.
The Finance Act defines repatriated income as movement in net assets plus the net profit calculated in accordance with generally accepted accounting principles after deducting the tax payable on the chargeable income. For the purposes of the repatriated income, net assets shall not include the revaluation of assets.
Who is subject to Repatriated Income Tax
Effective 1st January 2024; A non-resident person who carries on business in Kenya through a permanent establishment shall within five working days withhold and remit tax at 15% on repatriated income realized.
It’s imperative to note that the Finance Act 2023 harmonized the corporate tax rate of nonresident persons with a permanent establishment in Kenya from 37.5% to 30%
Computation of Repatriated income
A further refinement which is relevant, is the determination of repatriated income;
R=A1+(P-T)-A2
Where:
R= Repatriated Income
A1=net assets at the beginning of the year
P= net profit for the year of income
T=tax payable on the chargeable income
A2 = net assets at the end of the year
Conclusion
In a bid to expand the tax base, the government introduced withholding tax on repatriated income being an additional tax to corporate tax. Henceforth, board decision-making by multinational entities intending to repatriate income from Kenya shall critically analyze the tax implications arising thereof and foreign exchange risks amongst others.
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