The tax regime under the Registered Venture Capital Companies Regulations (2007), the CMA says, has done little to attract foreign firms into Kenya.
The present regulations, which stakeholders says are a drag on new investments, were meant to enhance transparency in the operations of venture capitalists sinking cash in start-ups in the country.
The Capital Markets Authority (CMA) is reviewing the tax framework for venture capital firms 10 years after operating rules were implemented.
The tax regime under the Registered Venture Capital Companies Regulations (2007), the CMA says, has done little to attract foreign firms into Kenya.
“One of the challenges we had when we came up with venture capital regulations is that they were not taken up because we have a lot of venture capital companies saying for tax reasons they are unlikely to establish in Kenya. They will establish in Mauritius or Luxembourg which are very low tax jurisdictions,” CMA chief executive Paul Muthaura said in an interview.
The present regulations, which stakeholders says are a drag on new investments, were meant to enhance transparency in the operations of venture capitalists sinking cash in start-ups in the country.
The rules, Mr Muthaura said, focus on “where the funds are coming from, who is managing those funds and under what regulatory regime they are established”. The rules require international venture funds to appoint a local manager and pay value added tax.
These requirements are said to make Kenya uncompetitive in luring global giants to set up shop in the country.
“In designing this (tax) framework — and that’s why there’s some delay — we’re finding the right balance between local oversight and foreign establishments that will allow sufficient transparency which is what we are pursuing without creating new barriers to the flows of private equity into the economy,” Mr Muthaura said.
“There are a number of public consultations on designing the framework.”
Private equity firms last year raised an estimated Sh25.95 billion ($250 million) for Kenyan firms, a 30.55 per cent drop from a record Sh37.40 billion ($360 million) in 2015, according to a joint survey by East Africa Venture Capital Association and consultancy KPMG.
“Looking forward, Kenya remains an attractive destination for private equity investments. On this strength, the authority is pursuing discussions with private equity firms with a view of encouraging them to realise their investments through exits on the Nairobi Securities Exchange,” the regulator says in the Capital Markets Soundness report for the second quarter.
“This has dual benefits as the public is granted an opportunity to participate in the growth of Kenya’s financial markets through saving and investing in promising listed companies.”
PAYE Tax Calculator
Note: The results are not exact but very close to the actual.
