Today, we will examine corporate tax in Kenya.
We will describe what it is, what a resident company is, acceptable and disallowable expenses, among others.
Since this is a lawful issue with many unusual terms, I will try to simplify it as much as possible.
What is Corporate Tax?
Corporate Tax is portion of the income tax that is charged to corporate bodies. It is essential to note that they have to adopt a corporate form for businesses to work in Kenya.
These corporate bodies may be co-operatives, limited companies, or precise trusts taxed on their income.
However, it is essential to note that corporations live in two major forms: resident companies and non-resident businesses for tax purposes.
What is a Resident company?
For taxation objectives, a company is a resident company if it satisfies the following criteria.
For any given year of earnings, the company’s affairs and management’s control appear in Kenya.
A company contained in the Kenyan law.
When a notification is published in the Kenyan gazette after the cabinet secretary in control of the National Treasury declares this company a citizen in a given year of income.
It is important to cite that this distinction between a resident and non-resident companies is crucial as both have distinct tax rates.
What tax do rates apply to corporate entities in Kenya?
Resident corporate commodities are taxed at 30% on taxable income. However, non-resident businesses with a permanent installation in Kenya are taxed at 37.5% on any taxable income attributed to the Kenyan office.
However, it is essential to note that on 25th March 2020, the president announced different measures to cushion Kenyans from the results of CODV 19.
One of these dimensions was the reduction of Corporate tax from 30% to 25%.
Therefore, the present Corporate tax for resident groups in this year of income is 25%.
Moreover, it is very essential to note that the taxable income is based on profits.
It’s worth noting that we do not use the analysis profit for taxation purposes.
We have to adjust the analysis profit by adding back all disallowable costs and subtracting all allowable expenses.
It is therefore necessary to point out some of the allowable expenses.
Allowable Expenses for corporate tax in Kenya
Any costs incurred on scientific research
Subscriptions to trade organizations such as the Kenya Association on Manufacturers(KAM), among others.
Any expenditures incurred before starting processes.
Costs incurred on recording on Nairobi Stock exchange
Donations made subject to specific conditions such as COVD 19 donations
Payment of capital nature to farmlands
All monies donated to the NSSF
Realized foreign exchange loss or gains
On leasing property for company use, any legal fees incurred
Expenses incurred in supporting sports
Personal expenses – all costs not incurred in the production of income
All amortization and devaluation costs
Pension contributions by the employer that have surpassed the amounts prescribed by KRA
Unrealized foreign exchange losing
Upkeep of building and other capital repairs
Other general requirements
Provisions for bad deficit
What if a business incurs defeats even after adjusting acceptable and disallowable expenses?
A business that has incurred loss can haul it forward for 10 years. Moreover, when these ten years expire, the business must write to the finance minister for an elongation.
However, companies performing in the gas, oil, and mining industries can indefinitely maintain their losses.
Conclusion on corporate tax in Kenya
For your business to succeed, you must adhere to the set tax debts.
Many documented resident companies have not yet begun paying their returns. This is a difficult place to operate from in Kenya.