The Double Taxation Relief (Taxes on Income) (Kenya) Order 1977

EXPLANATORY NOTE

The Agreement (as amended by the Protocol) with Kenya scheduled to this Order contains a number of provisions similar to those included in the previous Arrangement which was made in 1952 and terminated by Kenya with effect from 6 April 1973. The most important are those relating to the taxation of shipping and air transport profits, certain trading profits not arising through a permanent establishment and earnings from employment. Where income continues to be taxable in both countries credit will, as in the earlier Arrangement, be given by the country of the taxpayer's residence for the tax payable in the country of origin of the income. Under the new Agreement the United Kingdom will also give credit for tax spared under certain provisions of Kenyan law.

There are significant changes in the treatment provided for dividends, interest, royalties, management fees and pensions.

The treatment of dividends takes account of the introduction of the imputation system of company taxation in the United Kingdom. Where a United Kingdom company pays a dividend to a resident of Kenya (other than to a company which controls 10 per cent or more of the voting power in the paying company), the recipient will, subject to certain conditions, receive the tax credit to which an individual resident in the United Kingdom and in receipt of such a dividend would be entitled, less a deduction at a rate not exceeding 15 per cent on the aggregate of the dividend and the tax credit. Dividends paid by Kenyan companies to residents of the United Kingdom will, in general, be subject to tax in Kenya at a rate not exceeding 15 per cent.

The rate of tax in the country of source on interest and royalties flowing to the other country will, in general, not exceed 15 per cent; interest received by the Government (or a governmental institution) will be exempt from tax in the country of source.

The rate of tax in the country of source on management fees flowing to the other country will, subject to certain conditions, not exceed 12 ½ per cent of the fees.

The tax chargeable by the country of source on pensions (other than Government service pensions) is limited to the lower of 5 per cent of the pension or the amount of tax chargeable on the pension in the country of the pensioner's residence.

Governmental remuneration will normally be taxed by the paying Government only. The remuneration of visiting teachers and certain payments made to students will (subject to certain conditions) be exempt in the country visited.

There is provision for the taxation of capital gains on immovable property by the country in which the property is situated. Capital gains arising from the disposal of movable property will normally be taxed only in the country of the taxpayer's residence unless they arise from the disposal of assets of a permanent establishment or fixed base which the taxpayer has in the other country.

There are also provisions for the exchange of information, for consultation between the taxation authorities of the two countries and for the safeguarding of nationals and enterprises of one country against discriminatory taxation in the other country; an additional tax—not exceeding 7 ½ per cent—may however be charged on profits earned in one country by a permanent establishment of a company which is a resident of the other.

The Agreement is to take effect in the United Kingdom as respects income tax and capital gains tax for the tax year 1976–77 and subsequent years and as respects corporation tax for the financial year commencing on 1 April 1976 and subsequent years.