How taxpayers can benefit from Kenya’s foreign income amnesty

The Kenyan government, through the Finance Act 2016, introduced a tax amnesty programme targeting all taxes, penalties and interest for tax taxpayers with foreign-earned taxable income for the periods before December 31, 2016.

While there has been a lot of debate on the kind of income that the Kenya Revenue Authority (KRA) is targeting, the window to declare the foreign income in order to qualify for the amnesty is fast closing. The June 30, 2018 deadline was an extension of the earlier one of December 31, 2017.

The typical Kenyan last-minute culture will once again rear its head as the deadline looms. As the rush begins, here are the things to note while preparing for the declaration.

The tax amnesty guidelines provide that income that is earned through foreign investments, including employment income, should be declared.

Many pundits are conflicted as to what relates to this foreign income. Kenya operates a source-based tax system where the income that is subject to tax in Kenya is that which is either derived in Kenya or partly in Kenya and outside Kenya. This is the target of the amnesty.

Therefore Kenyan residents with foreign income derived through activities in Kenya or partly in Kenya and outside the country need to take advantage of the amnesty and declare this income.

Those with income derived from foreign sources and do not meet the tax residency threshold need not declare that income but should they wish to declare, this will be purely voluntary as there is no law requiring them to be taxed in Kenya.

To take advantage of the amnesty one needs to apply online through i-Tax. The online A/37B form has now been enhanced to include declaration of liabilities that are associated with the foreign assets.

This had been one of the issues raised when the form was initially deployed. While the form is straightforward in filling, it is wise to check with your tax consultants so as to aptly capture the essence of the declarations and avoid unnecessary liabilities in future due to erroneous entries.

The granting of the amnesty is pegged on the taxpayer repatriating the assets that are abroad. The KRA has clarified that the assets to be repatriated should be in cash form and hence there is no need to liquidate the physical assets that are abroad but they should be clearly declared in the form.

For the form to be submitted the taxpayer needs to upload proof that the repatriated cash has been transferred to Kenya. A bank transfer documentation is adequate for this. The repatriated cash can then be re-invested in Kenya.

One of the loopholes in this amnesty programme is the weak foreign transaction controls in Kenya. The repatriated cash can be immediately reinvested abroad legally hence beating the original purpose of the amnesty, which is to spur economic growth in the country.

One of the issues of concern is the use of the information that will be provided by the taxpayers seeking amnesty. While the granting of the amnesty is not automatic, the KRA has sought to assure the taxpayers that the information received will not be used against them or shared with other government agencies.

However, the KRA put a rider that this will only apply if the activities that the taxpayer is involved in are legal. Further, the law mandates the KRA to share any information on any taxpayer with other agencies should there be any investigation on their affairs.

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Once the amnesty is over, what next? Taxpayers should note that the main objective of the amnesty is information gathering. Kenya was the 94th jurisdiction to sign the multilateral convention on mutual administrative assistance in tax matters in Paris in 2016.

This is an initiative of the Organisation for Economic Co-operation and Development (OECD). The OECD is an international body of countries that seeks to enhance international trade.

Kenya’s signature to this convention forms the basis for sharing tax information with other jurisdictions as well as receiving information on Kenyan taxpayers from other tax jurisdictions. This will be fully implemented when Kenya signs the Common Reporting Standards, which is the formal tool for this information sharing.

Partakers of the amnesty will be relieved if the jurisdictions where they have assets share their information with the KRA as they would be a head of the game. However, the tax amnesty is for the period before December 31, 2016. This means that going forward, the taxpayers that have participated in the programme whether granted or not should pay the tax due from the declarations.

The KRA is expected to issue an acknowledgement of the filing for the amnesty and a formal communication that the amnesty has been granted. We expect this kind of communications and seeking of clarity from the tax payers after the deadline lapses.

William Muema is the Managing Partner at Andersen Tax, Kenya. [email protected]