On 8 February 2019, the Kenya Revenue Authority (KRA) published a notice clarifying the new measure introduced by the Finance Act, 2018. The Act introduced a new corporate rate on untaxed gains or profits from which dividends are distributed with effect from 1st January 2019. The KRA introduced the new rate in section 7A of the Finance Act 2018.
Under the section 7A of the Income Tax Act, where a dividend is distributed out of gains or profits on which no tax is paid, the company distributing the dividend shall be charged to tax in the year of income in which the dividends are distributed at the resident corporate rate of tax on the gains or profits from which such dividends are distributed (standard corporate rate currently 30%).
KRA also clarified that the new section 7A does not apply to the distribution of income as dividends where the income:
- received by a registered collective investment scheme;
- received (dividend) by a resident company from a subsidiary, whether local or foreign;and
- subjected to capital gains tax provisions.
