Family businesses and taxes in Kenya - EY · Taxation of Family Businesses in Kenya 3 Contents EY cares about your family and your family business 4 Taxation of Family Businesses

1Taxation of Family Businesses in Kenya

Taxation of Family Businesses in Kenya

2 Taxation of Family Businesses in Kenya


ContentsEY cares about your family and your family business 4

Taxation of Family Businesses in Kenya 5

Introduction 5

Key Tax Aspects Family Businesses need to Consider 6

1. Tax registration 6

2. Corporation tax 6

3. Specified sources of income 6

4. Withholding tax 7

5. Employee Taxes 7

6. Value Added Tax (VAT) 8

7. Excise Duty 9

8. Customs and International Trade 9

9. Capital Gains Tax 10

10. Income of a deceased person 10

11. Tax arbitration process 10

Other key areas of concern for family businesses 11

1. Various business forms in Kenya 11

2. Tax implication of succession, income settled on children and trusts 12

3. Uncompensated work by employees who are family members 12

4. Cost of usage of company assets for family business and vice versa 12

5. Loan by directors/ shareholders to the company 13

6. Directors sitting allowances 13

7. Documentation juggernaut for family businesses 13

Other levies & statutory deductions 14

1. Stamp duty 14

2. National Hospital Insurance Fund (NHIF) 14

3. National Social Security Fund (NSSF) 14

4. National Industrial Training Authority 14

Contacts 16


EY cares about your family and your family businessWe are the world leader in advising, guiding and recognizing entrepreneurs. We will work with you to preserve your life’s work and develop it further for the next generation. Our services help you deal successfully with the challenges of today’s marketplace with its multi-layered uncertainties and opportunities and support you as you go forward into the future.

We know that the two strands can’t be separated — if your family isn’t happy with your personal financial situation, your business may suffer; if your business isn’t flourishing, your family may feel the pain.

That’s why we offer highly personalized services for you and your family members, to enable you to plan for the future, and practical assistance and professional advice that will help enhance the way your business works.

We are the most globally integrated organization with over 230,000 people across 150 countries. Whether you want to move into new growth markets or are planning to launch a product in a nearby market, we have the right connections. Our internationally seamless service and support can smooth your path to new possibilities in both emerging and developed markets.

We are able to leverage our experience of working on complex cross-border issues, providing an integrated team that addresses your family business agenda. We are constantly updating our information and services in line with new legislation and business changes in every country. We understand local customs, laws, languages and cultures — our global professionals can guide you wherever you do business.

We offer each family business a bespoke service to suit their needs. We know that your business is not like any other; your personal issues are just that — personal. Your company is unique. It’s that uniqueness that makes you successful — and it’s something we will help you to preserve.

We will give you independent and practical advice to help you strengthen and grow your business. We have industry and subject-matter professionals in key business sectors who understand the specific issues you face every day, and can give you informed counsel and advice on how to leverage international leading practices.

We will be proactive on your behalf at all times — sharing with you new developments that may affect your business, aiming to suggest options before a problem even arises. EY supports the world’s most entrepreneurial, innovation oriented companies. We can help you manage the delicate balance between sustaining growth and innovation, while managing risk and maintaining personal wealth. We can help you to succeed for generations.


Introduction

Some of the world’s most successful businesses started out and remain family owned. Family businesses tend to share a number of common goals. Owners want to grow their family business, increase their personal wealth, capitalize on the unique benefits of family ownership, plan for succession, manage risk, protect the financial value of their legacy and create something that will succeed for generations. Family businesses have been a major contributor to growth of the economy and job creation across various sectors.

Family businesses are characterized by a combination of dynastic will, family ownership and professional management. This combination offers competitive advantages, but also harbours potential risks. Managing this complexity is a balancing act between the strategic issues related to the family and those connected to the business. It also means steering the business successfully between the forces at work in the marketplace and within the family. Family businesses require professional assistance in order to be able to deal effectively with the challenges and opportunities presented as their business grow and move forward into the future.

The ever changing tax landscape has a significant impact on strategic planning for family businesses. Whether the focus is on investments, financing, liquidity, or plans for growth or expansion, tax laws heavily influence the decision-making process. With the Kenya Revenue Authority looking for ways to maximize revenues, it is more important for family business owners to understand the tax implications of all the business decisions they make, as well as the structure, processes and policies related to tax controversy and risk management.

Being able to anticipate and address tax issues at all times is key to achieving the business objectives.

Many smaller fast-growth family businesses do not fully consider the tax consequences of doing business. Non-compliance with tax legislations can wipe out the profit margin and make business unsustainable.

The ‘tax life cycle’ consists of four stages - planning, provision, compliance and controversy with your needs at the center. The stages of the life cycle are not sequential; there is no defined start or end point and the different stages may come in any order (e.g., compliance may lead directly to planning or managing a revenue authority enquiry). Through its different stages, it addresses tax in the context of the whole business, while bringing our specialist services to bear.

It recognizes that planning, provision, compliance and controversy are not separate issues, they are all interconnected. It helps us provide quality service by linking all of the four elements.

Taxation of Family Businesses in Kenya


1. Tax registration

Any person with income chargeable to tax is required to register with the Kenya Revenue Authority (KRA). Registration is done online via the iTax platform and an online account is created for the tax payer. When registering, the tax payer should select the tax obligations that are appropriate for their situation.

Failure to register with KRA attracts a penalty of KShs. 100,000 as per the Tax Procedures Act, 2015.

2. Corporation tax

Businesses incorporated in Kenya are required to pay corporation tax on their profits.

Business means “any trade, profession or vocation, and every manufacture, adventure and concern in the nature of trade, but does not include employment.”

The corporation tax rate is 30% for resident companies and 37.5% for non-resident companies (branch).

Expenditure wholly and exclusively incurred in generation of business income can be deducted against income to determine the taxable profit or loss.

Expenses not wholly and exclusively incurred to generate business income are not deductible e.g. private expenses for family members, expenses that are not supported by a receipt or invoices, donations which do not meet the conditions for deductibility.

Tax losses can be offset against taxable profits. Tax losses can be carried forward for a maximum of nine years.

• Corporate tax returns

Corporate tax self-assessment return should be filed with KRA by the 6th month after year end. For companies, the tax return should be accompanied by audited financial accounts - if this is a requirement for such entities under the Companies Act.

• Payment of tax

Instalment tax is payable by the 20th day of the 4th, 6th, 9th and 12th months in that year of income. Agricultural enterprises however pay tax in two instalments by the 20th of the 9th month (75%) and 20th of the 12th month (25%).

The instalment tax is based on the lower of preceding year’s tax multiplied by 110% or the current year’s estimated tax.Tax balance payable by the last day of the 4th month after the end of the financial year.

3. Specified sources of income

Gains or profits of a person from specified sources of income should be computed separately. Any loss realised from a specified source of income can only be deducted against future gains or profits from the same source of income.

The specified sources of income under the Income Tax Act include: Rental income, employment income, income from agricultural activities (including pastoral, horticultural and forestry), surplus funds withdrawn from registered pension/provident funds, disposal of interest in a person in the case of immovable property, natural resource income and other sources relating to business income but not relating to sources listed above.

Key Tax Aspects Family Businesses need to Consider


4. Withholding tax

Withholding tax is deducted on specific payments such as management and professional fees, agency fees, consultancy and contractual fees, royalties, dividend, interest etc.The party making the payment should withhold tax at the relevant withholding tax rate and pay it to KRA.

Withholding tax is a tax paid in advance by the party offering the service and can be used to offset the final tax liability on the income. There are however instances where withholding tax is a final tax.

Withholding tax is deductible upon payment of a taxable amount and should be paid by the 20th day of the month following that in which tax is deducted.

With mandatory online filing effective 1 August 2015, one can only utilize withholding tax to offset a final tax liability if the withholding tax certificate is reflected on their iTax ledger.

• Dividends and Interest

• Dividends paid by a resident company is taxed in the year it is received.

• Dividends received by a resident company from another resident company in which it controls 12.5% or more of the voting power are not subject to tax.

• Dividends received by specified financial institutions (listed on the Fourth Schedule to the Income Tax Act) are deemed to be income subject to tax.

• Qualifying dividends paid to residents are subject to withholding tax, which is final tax.

Interest income earned by individuals from financial institutions licensed under the Banking Act, a building society or government bearer bonds is subject to withholding tax which is final tax.

5. Employee Taxes

Income from employment can be cash or non-cash benefits. Any benefit or advantage an employee receives by virtue of employment whose aggregate value is more than KES. 36,000 per annum is taxable.

All benefits received by family members who are employees are subject to Pay As You Earn (PAYE). Allowances or non-cash benefit paid to or for directors are also taxable.

Where employer pays employees net of tax, the tax paid by the employer on behalf of employees is in itself a benefit chargeable to tax.

PAYE should be remitted by the employer by the 9th of the month following payroll month. The employer is also required to file monthly PAYE returns. Late payment of tax – penalty of 25 % of the tax due and interest at 1% per month for the period the tax remains unpaid. Non-filing of PAYE return – penalty of 25% of the tax due or a minimum of KES. 10,000. Failure to register as a tax payer – penalty of KES. 100,000.

• Tax deductions

Contributions to a registered pension or provident fund, up to a maximum of KES. 240,000 p.a. Interest, up to a maximum of KES. 300,000 p.a. effective 1st January 2017, on borrowings to finance the purchase of owner-occupied residential property. Contributions to a home ownership savings plan, up to a maximum of KES. 48,000 per year.

• Reliefs

Resident taxpayers are granted the following reliefs against tax payable:

• Personal relief in the amount of KES. 15,360 per year, effective 1st January 2017.

• Insurance relief (including life, education and health insurance) in the amount of 15% of premiums paid, up to a maximum relief of KES. 60,000 per year.


• Tax Rates

The following tax rates apply for employment, self-employment (sole proprietorship) income.

Taxable income Tax rate Tax due Cumulative tax due

KES % KES KES

First 121,968 10 12,197 12,197

Next 114,912 15 17,237 29,434

Next 114,912 20 22,982 52,416

Next 114,912 25 28,728 81,144

Above 466,704 30 — —

Taxable income Tax rate Tax due Cumulative tax due

KES % KES KES

First 134,164 10 13,416 13,416

Next 126,403 15 18,960 32,376

Next 126,403 20 25,281 57,657

Next 126,403 25 31,601 89,258

Above 513,373 30 — —

Effective 1st January 2017 the rates increased as follows:

6. Value Added Tax (VAT)

• Registration

Any person who in the course of business has supplied, or expects to supply taxable goods or services or both with a value of KES. 5 million or more in a period of 12 months should apply for registration within thirty days. VAT registration is currently done online by adding a VAT obligation which must be reflected in the Taxpayer’s registration certificate or Personal Identification Number (PIN). However, a person who makes or intends to make taxable supplies but does not meet the turnover threshold of KES. 5 million may apply to the Commissioner for voluntary registration.

• Deregistration

Where the value of taxable supplies made by a registered person in a period of 12 months is less than KES. 5 million, he may apply in writing to the Commissioner, for cancellation of the registration.

Where the registered person ceases to make taxable supplies, the registered person shall apply in writing to the Commissioner, for cancellation of the registration.

• VAT obligation

VAT is payable by the 20th of the following month and a return should be submitted by the same day.

All VAT returns should be filed online effective 1 August 2015.Registered suppliers are required to charge VAT (output tax) at the rates indicated below:

StatusVAT Rate

Basis

Taxable 16%All supplies not listed as zero-rated or exempt

Zero-rated 0%All supplies listed in the 2nd Schedule of the VAT Act, 2013

Exempt - All supplies listed in the 1st Schedule of the VAT Act, 2013

Registered suppliers are also required to issue their customers valid tax invoices.

Input tax is tax paid on supply to a registered person to be used by him for the purpose of his business. Input tax is claimable by a registered person provided that:

• The person is in possession of valid documentations such as a tax invoice, a certified copy of original tax invoice or a valid import document

• Not more than 6 months have lapsed after the input tax became due and payable

• Tax is not restricted (e.g. input tax on acquisition and repairs of passenger vehicles is restricted)

• Tax does not relate to exempt supplies either directly or upon apportionment with taxable supplies


• Common Non- compliance issues

• Lack of proper documentation in support of non-taxable supplies and input tax

• Failure to register, account or charge VAT

• Non declaration/payment of VAT on taxable imported services where applicable

• Erroneous claim of restricted/non-deductible input tax

• Failure to complete the VAT returns correctly

• Lack of valid tax invoices

• Withholding VAT

• Any person can be appointed as a withholding VAT agent by the Commissioner.

• Appointed agents are required to withhold 6% of the taxable value of taxable supply subject to VAT at the rate of 16% and remit the VAT withheld to KRA.

Withholding VAT certificates are generated through iTax once the withholding VAT agent remits the VAT withheld.

7. Excise Duty

Excise duty, commonly referred to as “sin tax” is a tax on the importation or local manufacture of excisable products and supply of excisable services.

Excisable goods and services and excise duty rates thereon are listed in the First Schedule to Excise Act, 2015.

Common Non- compliance issues

• Undertaking an activity which requires excise duty license/ registration without being licensed or registered in case of excisable services

• Failure to comply with excise stamps requirements and regulations

• Failure to register for excise duty obligation and submit excise duty returns online

8. Customs and International Trade

Goods are imported into a country either for home consumption, warehousing, transit, temporary importation, Export Processing Zone or re-export. Customs duties are charged on imported and some exported goods.

If the goods are entered for home consumption; all applicable import taxes will be paid at the Customs Service Department. The duties and charges levied on these imported goods are generally categorised into import duty, excise duty and VAT on imports. Import Declaration Fee (IDF) is an additional charge that is collected on every import into Kenya. With a few exceptions of goods listed in the 2nd Schedule to the Miscellaneous Fees and Levies Act, 2016. Effective 1 July 2013; the Railway Development Levy was introduced on imports into Kenya with the exception of goods imported for Official Aid Funded projects.


9. Capital Gains Tax

Capital Gains Tax (CGT) is a tax chargeable on the gain to a company or an individual on the transfer of property situated in Kenya. CGT is chargeable on any transfer that occurred on or after 1st January, 2015.

The rate of tax is 5% of the net gain. The net gain is the excess of the transfer value over the adjusted cost of the property.CGT is payable upon transfer of property but not later than the 20th day of the month following that in which the transfer was made.

Capital losses realised in any given period can be utilised against capital gains earned in that period, in so far as such losses have not already been utilised against gains from subsequent periods.

Effective 1st January 2016, CGT does not apply to gains realised from securities listed on the Nairobi Securities Exchange.

10. Income of a deceased person

Income that would have been received or earned by a deceased person but for his death shall be taxable on his executors or administrators in the year of income in which it is received.

11. Tax arbitration process

Tax disputes may arise between a taxpayer and KRA on a tax assessment issued by KRA. Outlined below is the process of handling a disputed assessment:

• Once an assessment is confirmed, a tax payer has a period of 30 days from the date of service to submit a notice of appeal

• The tax payer should pay KES. 20,000 before making the appeal

• The tax payer shall within 14 days of submitting the notice of appeal, submit the following documents to the clerk of the Tribunal:

• A Memorandum of Appeal;

• Statement of Facts; and

• The tax decision.

• The appellant shall be limited to the grounds of appeal mentioned in the appeal papers, unless he is granted leave to include other grounds;

• The Commissioner then has 30 days to submit a statement of facts and reasons for the tax decision as advised by the clerk;

• The secretary to the Tribunal shall advise all parties of the time and place of the hearing at least 14 days before the hearing;

• Evidence may be given orally or through affidavits or any other manner as directed by the Tribunal;

• The appellant may appear in person or be represented by a tax agent;

• The decision of the Tribunal will be given within 90 days from the date the appeal is filed.

Common Non- compliance issues

• Incorrect classification of goods – This leads to incorrect duty declaration/payment

• Undervaluation of imported goods

• Incorrect use of certificates of origin – certificate purportedly for preferential treatment country or goods do not meet applicable certificate rules

• Eligible persons importing goods duty free (e.g. vehicles) and transferring ownership and use to others not eligible

• Documentation and non-compliance with customs procedures


Options a taxpayer has during the appeal:

• A party may withdraw the appeal in writing;

• Tribunal dismisses the appeal for lack of prosecution;

• Tribunal dismisses the appeal when the appellant fails to heed its direction;

• Tribunal upholds the appeal if respondent fails to make appearance;

• The parties may reach an agreement, which they will report to the Tribunal.

• Contempt of the Tribunal and disobedience of summons to produce evidence shall attract a penalty of KES. 100,000, a six month imprisonment term or both;

The Tribunal has power to make any of the following decisions, in writing:

• Affirm the decision;

• Vary the decision;

• Set aside the decision and:

• Substitute the decision or

• Refer the matter to the Commissioner for reconsideration.

• An appeal may be filed at the High Court within 30 days of the Tribunals’ decision.

1. Various business forms in Kenya

Business Form Tax Rate Basis of taxation

Corporation (for-profit) 30% Corporation tax is imposed on the taxable income, which is the accounting profit/loss adjusted for allowable and disallowable expenses. The deductibility of expenses is premised on the fact that they were wholly and exclusively incurred in the generation of taxable income.

Branch 37.5% Non-resident companies with a permanent establishment (PE) in Kenya are taxed on the income earned or derived from within the country at the rate of 37.5%, with some restrictions on deductible expenses.

Partnership Nil A partnership is taxed at the partners’ level and not the entity level, whereby the partners are subject to tax on their share of taxable profit for each year of income.

Sole proprietorships Graduated scale rates up to a maximum of 30%

As a sole proprietor must declare all taxable income in his individual capacity.

Non-profit corporation (not-for-profit)

Exempt subject to some conditions.

This is established and registered solely for purposes of the relief of poverty or distress of the public; or for the advancement of religion or education among other activities. An entity needs to evaluate whether its activities qualify for exemption.

Societies (Cooperatives)(SACCOS)

30% Taxable income for Apex co-operatives and Cooperative unions is arrived at after deducting allowable expenses as well as bonuses and dividends paid to the members. However, taxable income for primary society registered and carrying on the business as a credit and saving co-operative society is determined as follows:

The amount taxable is after deducing expenses wholly and exclusively incurred in generation of the income. Tax rate is 30%, akin to other regular businesses.

Nature of income

Percentage of amount taxable

Interest Income from

Members

0% 50% 100% 100%

Other interest

Rent Income

Other incomes

Other key areas of concern for family businesses


2. Tax implication of succession, income settled on children and trusts

Income received by a person in his capacity as a trustee, executor or administrator shall be deemed to be income of that trustee, executor or administrator for tax purposes.

Any amount received as income by a beneficiary from a trustee in his capacity as trustee, or paid out of income by the trustee on behalf of that person, shall be deemed to be income of that person, and to the extent that any such amount is received or paid out of income chargeable to tax on that trustee it shall be deemed to be income:-

• in any case other than that of an annuity directed to be paid free of tax:

• of such gross amount as would, after deduction of tax at the rate paid or payable on that income by the trustee, be equal to the amount received or so paid; and

• that has borne tax at that rate;

• in the case of an annuity directed to be paid free of tax, of such gross amount as is equal to the amount of the annuity together with the amount of the sums paid by the trustee to the annuitant to meet the liability of the annuitant to tax on the annuity.

Where, under a settlement, income is paid during the life of the settlor to or for the benefit of a child of the settlor, that income shall be deemed to be income of the settlor for that year of income and is not income of any other person. However this shall not apply to any year of income in which:-

• the income so paid does not exceed KShs. 100; or

• the child attains the age of eighteen years.

Where tax is charged on income settled on children and is paid by the person by whom the settlement was made, that person is entitled to recover from a trustee or other person to whom the income is payable under the settlement the amount of the tax so paid, and for that purpose to require the Commissioner to furnish to him a certificate specifying the amount of the tax so paid, and a certificate so furnished shall be conclusive evidence of the facts appearing therein.

All income which in a year of income accrued to or was received by a person under a settlement from assets being the property of the settlor shall, unless that income is settled under children and is deemed to be income of the settlor for an earlier year of income, it shall be deemed to be income of the settlor for the year of income in which it so accrued or received by that person. It shall not be income of another person whether or not the settlement is revocable and whether it was made or entered into before or after the commencement of the Income Tax Act.

Where in a year of income the settlor, or a relative of the settlor, or any other person, under the direct or indirect control of the settlor or any of his relatives or the settlor and any of his relatives, by agreement with the trustees of a settlement in any way, whether by borrowing or otherwise, makes use of income arising, or of accumulated income which has arisen, under the settlement to which he is not entitled to, then the amount of that income or accumulated income so made use of shall be deemed to be income of the settlor for that year of income and is not income of any other person.

Where, tax is charged on and is paid by the settlor, the settlor is entitled to recover from the trustees or other person to whom the income is payable under the settlement the amount of the tax so paid, and for that purpose to require the Commissioner to furnish to him a certificate specifying the amount of the tax so paid, and a certificate so furnished shall be conclusive evidence of the facts appearing therein.

3. Uncompensated work by employees who are family members

Family businesses engage the services of family members who at times are not compensated or are marginally compensated. The implication of this is that the businesses employee costs are reduced which results in a higher taxable profit being reported. Quantification of the possible remuneration for services offered by such family members in the market place may result in the business reporting a tax loss and thereby not paying corporation tax.

Family businesses need to have a yard stick for measuring the cost of uncompensated family members and the possible tax implication of that e.g. from a corporation and employee tax perspective.

4. Cost of usage of company assets for family business and vice versa

Where company assets are used for private use by family members, should the family members be employees or directors, the usage would be deemed to be a benefit from employment or from the directorship which would be subject to tax.

Any costs incurred for private expenses of family members by the business would not be tax deductible for corporation tax purpose.

Where family assets are used in the business, the company is not able to take advantage of certain deductions that would be available had the assets belonged to the company e.g. use of a personal car for business would not permit the wear and tear of the vehicle to be deducted in determining the taxable profit. The result is that the company reports a higher taxable profit that would have been applicable had company assets been used.


5. Loan by directors/ shareholders to the company

A director’s loan arises when director (or other close family members) get money from family business or family company that is not:

• salary, dividend or expense repayment

• money previously paid into or loaned to the company

This may be subject to Fringe Benefit Tax if given at an interest rate lower than the Commissioner’s prescribed rate.

6. Directors sitting allowances

In principle, all allowances paid to employees are subject to tax including those paid to directors.

7. Documentation juggernaut for family businesses

Maintaining proper records for family businesses in support of expenses incurred can be a challenge. This is due to the convergence of family and business expenses in singular records. In respect to tax, documentation is required to support expenses claimed and to demonstrate that the expense were wholly and exclusively incurred in generation of income for the business.


Other levies & statutory deductions

1. Stamp duty

Stamp duty is charged on various legal documents and agreements. These include:

Rate (%)

Transfer of immovable property: - Urban 4

- Rural 2

Registration of new share capital 1*

Transfer of shares or marketable securities

1**

Registration of a debenture or mortgage 0.2

Lease: - between one and two years 1% of annual rent

- Any other period 2% of annual rent

* Registration of shares on company incorporation is exempt.** Transfer of quoted securities is exempt.

Land purchased for expansion and development of schools is exempt from stamp duty provided the land does not revert to any other use and the approval has been obtained from the relevant authorities.

2. National Hospital Insurance Fund (NHIF)

Prior to 1st April 2015, individuals earning more than KES. 1,000 per month were required to contribute to the fund. The monthly contributions depended on the level of monthly income and ranged from KES. 30 per month to KES. 320.

Effective 1st April 2015, individuals contribute NHIF on a graduated scale rate. The effective rates are as shown below:

Gross Income (KES) Proposed Premiums (KES)

0 - 5,999 150

6,000-7,999 300

8,000-11,999 400

12,000-14,999 500

15,000-19,999 600

20,000-24,999 750

25,000-29,999 850

30,000-34,999 900

35,000-39,999 950

40,000-44,999 1,000

45,000-49,999 1,100

50,000-59,999 1,200

60,000-69,999 1,300

70,000-79,999 1,400

80,000-89,999 1,500

90,000-99,999 1,600

100,000 and over 1,700

*Self-employed (Special) 500

NHIF is payable by the 1st day of the month following the month of deduction. However, in practice, the fund accepts payments made by 9th of the following month without penalties.Late payment of any contribution attracts a penalty equal to two times of the unpaid contribution.

3. National Social Security Fund (NSSF)

Employees are required to contribute 5% of their salary to a maximum of KES. 200 per month. The employer is required to contribute an equivalent amount for each employee. For casual employees, the employer pays 5% of gross wages as a special contribution. The special contributions are treated as surplus available to augment registered individual accounts. NSSF is payable by the 15th of the month following the month of deduction.

With effect from 1 January 2008, membership to NSSF was extended to self-employed and unregistered casual workers. Previously, employees of a non-contributing employer were restricted from joining the fund. Foreign nationals who are members of a social security scheme in their home country and are expected to be in Kenya for less than 3 years at any one time may be exempt from making contributions to the fund. However, they have to make an application for the exemption.

Contributions not paid after the end of the following month attract penalty at 5% per month or part thereof.

A new NSSF legislation (the NSSF Act 2013) was enacted on 24 December 2013 to replace the NSSF Act Cap 258. The NSSF Act 2013 establishes two funds namely, the Pension Fund and the Provident Fund. The new legislation requires the employer and the employee to each contribute 6% of the employee’s monthly pensionable earnings subject to prescribed upper and lower earning limits.

The NSSF Act 2013 was initially slated to take effect on 10th January 2014. However, an industrial court ruling suspending the implementation of critical provisions of the Act is still in effect. The repealed NSSF legislation is therefore expected to remain in force until the suspension is lifted by the court.

4. National Industrial Training Authority

Every employer is required to contribute KES. 50 per employee per month. This is due by the last day of the month. Any amount not paid attracts an interest at the rate of 5% per month.


Catherine MbogoTax PartnerEmail: [email protected]: +254 20 2886000

Geoffrey KaruuTax PartnerEmail: [email protected]: +254 20 2886000

Francis KamauTax PartnerEmail: [email protected]: +254 20 2886000

Mary WeruSenior Manager – TaxEmail: [email protected]: +254 20 2886000

Alex NgingoManager – Indirect TaxesEmail: [email protected]: +254 20 2886000

Contacts

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Family businesses and taxes in Kenya - EY · Taxation of Family Businesses in Kenya 3 Contents EY cares about your family and your family business 4 Taxation of Family Businesses