Kenya has increased the number of double-taxation pacts with key trade partners, signalling resolve to boost in-flow of investments. Parties who get these deals are protected from double taxation, one of the demands keeping investors at bay.
New double-tax treaties (DTTs) with key trade partners such as the East African Community (EAC) and the United Arab Emirates (UAE) have been concluded.
“We reached a deal with other EAC partners on the double tax arrangement and Treasury will make it operational through an official gazette,” David Nalo, the permanent secretary in the ministry of EAC Affairs, said.
The EAC is a key market for the country with one of its members — Uganda — being the single largest exporter of Kenyan goods. Kenya this week also signed a double tax deal with the UAE, which remains the country’s largest source of imports mainly because of the large quantities of petroleum it supplies to East Africa.
The UAE, with goods worth Sh126 billion or 24.3 per cent of total imports, was the largest source of imports to Kenya in the first eight months of the year.
“The tax treaties are critical in luring investors because no one wants to be pinched twice in terms of taxes,” Sammy Onyango, a partner with Deloitte said.
Double taxation leads to losing significant portion of income. Corporations too face the challenges of double taxation in that apart from paying company taxes on their earnings they could also have their shareholders taxed.
But even with such disadvantages, Kenya has over the years, only had a handful of DTTs with key trade and investment partners, losing out to rivals such as Mauritius with a more favourable tax regime, efficient judicial system and robust asset protection laws.
Kenya has double tax treaties with the UK, Canada, Denmark, Norway, India, Sweden, Zambia and Germany while negotiations are ongoing to sign such an arrangement with France and Italy. It also has draft agreements for negotiation with Seychelles, Nigeria, South Africa, Mauritius, Finland, Russia and Iran.
“The race for investments is tough and each country must prove its case through favourable tax regimes,” Mr Onyango said. Mauritius has given countries in the region a run for their money owing to its favourable tax regime.
For instance, while Kenya only had it place a few DTTs, the Indian Ocean country has more than 30 of them with countries in the region as well as abroad. Uganda, Botswana, Lesotho, Mozambique, Rwanda, South Africa, Swaziland, Tunisia and Uganda are among African nations that have signed double taxation treaties with Mauritius.
Globally it has signed DDTs with fast rising economic tigers such as China and India, Singapore, United Arab Emirates and Malaysia. Besides the DTTs a review of the business climate in Mauritius showed an attractive package for foreign investors.
For instance, the Mauritius Revenue Authority offers a 15 per cent tax rate on a company’s taxable income which consists of business or trading profits and other passive income. This rate is much lower compared to Kenya where the company tax is pegged at 30 per cent.
Several funds and multi-nationals with a wide portfolio of investment and operations in Kenya and across the eastern and southern Africa are registering holding companies in the Indian Ocean nation as they seek to further grow their footprint.
Rift Valley Railways (RVR), Kibo Fund and AUREOS East Africa Fund LLP (AEAF) are among firms with interest in Kenya that have taken to keeping their registration base in Mauritius.
Waguthu Holdings (K) Limited, which is associated with the multi-billion shilling Tatu real estate project planned for Nairobi, is also has a holding company incorporated in Mauritius as MCIH.