Capital Markets Authority chief executive Paul Muthaura. FILE PHOTO | NMG
What you need to know:
The proposal is aimed at countering competition from Mauritius that is using tax incentives to attract global companies.
The Capital Markets Authority (CMA) expressed fears that Nairobi risks losing out to Mauritius capital, Port Luis, in the race to lure large conglomerates.
Mauritius’ low corporate tax rate of 15 per cent, as opposed to Kenya’s 30 per cent, has, however, seen established Kenyan firms incorporate subsidiaries in Port Luis.
Subsidiaries of holding firms, which list shares on the Nairobi bourse, will enjoy a lower tax rate for five years in a fresh bid by the capital markets regulator to woo multinationals.
The proposal, which is still at a stakeholder consultation stage before it can be presented to Treasury secretary Henry Rotich for consideration, is aimed at countering competition from Mauritius that is using tax incentives to attract global companies.
The Capital Markets Authority (CMA) expressed fears that Nairobi risks losing out to Mauritius capital, Port Luis, in the race to lure large conglomerates.
“Encouraging more group companies to list, would enhance Kenya’s position as the regional financial services hub, especially in light of competition from other countries in the region like Mauritius, which has put in place measures to attract group companies to locate their headquarters in Mauritius,” the CMA says in proposal for consideration in Finance Bill 2019.
“In addition, the listing of group entities allows for the offering of more diversified securities that are less susceptible to market volatility due to holding company interests in multiple sub-sectors.”
Mauritius’ low corporate tax rate of 15 per cent, as opposed to Kenya’s 30 per cent, has, however, seen established Kenyan firms incorporate subsidiaries in Port Luis.
Investment group Centum and infrastructure-focused TransCentury #ticker:TCL — both listed on the Nairobi Securities Exchange — are some of the Kenyan firms, which have set up the headquarters of some of their subsidiaries in Mauritius.
TransCentury’s fully-owned subsidiaries incorporated in Mauritius include TC Engineering and Contracting Ltd, TC Railway Holdings, Cable Holdings and Safari Rail Company.
Centum’s #ticker:ICDC geothermal exploration vehicle Investpool Holdings and Centum Development which oversees its real estate interests in Uganda are some of the subsidiaries based in Mauritius.
“Provided that where a listed company is a holding company, the tax rate shall extend to all its subsidiaries registered in Kenya by the Registrar of Companies within the group structure of the company at the time of listing,” CMA says in a proposal to amend the third schedule of the Income Tax Act.
“The applicable preferential tax rate shall only apply to the percentage shareholding of the listed holding company in the subsidiary.”
The regulator also wants the Treasury to cut further preferential corporate tax treatment for firms trading on the NSE for the first five years by between two and 2.5 per cent to as low as 18 per cent for those which relinquishes at least 40 per cent stake for trading.
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