Billionaire investor Baloobhai Patel stands to save up to Sh10.8 million in taxes on dividends from the transfer of his 49.9 percent direct stake in Carbacid Investments Plc to his private firm Aksaya Investment Holdings Limited.
The transaction is among several that the businessman says are part of succession planning. In the case of Carbacid, it will also lead to a reduction of taxes.
Mr Patel has been incurring a withholding tax of five percent on dividends paid by the Nairobi Securities Exchange-listed firm, with the levy applicable to all individual investors.
Kenyan companies on the other hand are exempted from the tax if they own a stake of more than 12.5 percent in the firm paying the dividend.
Carbacid paid a dividend of Sh1.7 per share for the year ended July 2022.
This saw Mr Patel get a net dividend of Sh205.3 million, having incurred a withholding tax of 10.8 million based on the 127.1 million shares he holds in the carbon dioxide manufacturer.
Once the shares are transferred to Aksaya, they will be shielded from the withholding tax as the conditions for the exemption will have been met.
The exemption was designed to reduce the tax burden on local firms.
Dividends paid to foreign investors attract a withholding tax of between 10 percent and 15 percent.
It is not clear which other assets Mr Patel directly owns will be transferred to Aksaya.
The businessman has significant stakes in scores of listed firms including Sanlam where his ownership stands at 20.9 percent.
The transfer of the Carbacid stake will accelerate a succession process that started in 2015.
Mr Patel, 84, introduced his wife, Amarjeet, in 2015 as a co-owner of the stocks in multiple publicly-traded firms such as Bamburi Cement, Absa Bank Kenya and Co-op Bank.
Their son, Rohan, who runs the family’s property investment, has taken a more active role in managing the listed equities portfolio.
The family’s portfolio of NSE-listed stocks is valued at more than Sh3 billion.