What Corporation Tax incentives do newly listed companies enjoy?
Currently the Income Tax Act does not offer a preferential tax regime for newly listed companies. These provisions were deleted effective 25th April, 2020 by The Tax Laws (Amendment) Act, 2020.
Are EPZ exempt from Corporation Tax?
An Export Processing Zone (EPZ) enterprise which does not engage in any commercial activities is exempted from paying any corporation tax for a period of 10 years starting with the year in which production, sales or receipts relating to the activities for which that enterprise has been licensed as an EPZ enterprise commence.
After the 10th year, the corporation rate of tax will be 25% for the period of 10 years commencing immediately thereafter.
“Commercial activities” referred to above, include trading in, breaking bulk, grading, repacking, or relabelling of goods and industrial raw materials
Though exempt from corporation tax, there following are tax obligations that the EPZ enterprise would be liable for during the period in which it is exempt from corporation tax:
- The enterprise shall be deemed to be a non-resident subject to a non-resident rate of withholding tax on payments made to the enterprise. Where such payments are made by a person who is not an EPZ enterprise, the tax shall be final tax; and
- Payments by an export processing zone enterprise to any person other than a resident person shall be deemed to be exempted from tax.
- The employees and directors, other than non-residents, of an export processing zone enterprise shall be liable to tax on their employment income and the EPZ enterprise employing them will be required to deduct and remit tax from their employment income.
It is important to note that for the period an EPZ enterprise is exempt, it will still be required to submit an annual return of income.
In the event of failure to submit a return or late submission of a return, the enterprise will be liable to a penalty of two thousand shillings per day for as long as the return remains unfiled. This penalty shall for purposes of provisions relating to the deduction and recovery of the tax be deemed to be tax.
Do Partnerships pay Corporation Tax?
Partnerships do not pay corporation tax. Partnership income is declared through the partnership return.
The table income is distributed to the individual partners as per the agreed profit sharing ratios.
The share of profit then forms part of each individual's partner’s income. It will be added to any other income and the total income taxed accordingly.
Do self-employed people pay Corporation Tax?
Self-employed people and Sole proprietorships are not subject to corporation tax.
They are required to declare their total income of the year in the Individual Income Tax Return and pay Income Tax.
Can I claim my company expenses?
When filing your Corporation Tax Return (also referred to as Income Tax - Company Return) you are only allowed to claim expenses that have been wholly and exclusively incurred in the production of your income as guided in section 15 and 16 of the Income Tax Act, Cap. 470.
What if I had incurred losses?
A company is allowed to carry forward its losses that will be offset against future taxable income.
However, losses cannot be transferred to a different entity.
Companies in the extractive industry e.g. mining, oil and gas industries, are only allowed to carry their losses forward for a period of three years, from the year of income in which the loss arose.
Do I need to have an auditor?
You should ensure that you get a certified auditor, to verify the records used to prepare your financial statements.
How to account for investment deductions.
Buildings (Including Hotels)
- Building plans and architect's certificates.
- Bills of quantities
- Local authority occupation certificates.
- Factory layout sketches showing the location of machinery.
- Other supporting documents to support the expenditure incurred e.g. suppliers' invoices, contract documents, certificates of occupation etc.
Plant and Machinery
- Suppliers invoices and vouchers.
- Customs documents where machinery is imported.
- Clearing and forwarding documents.
- Documents to support foreign currency transactions.
- Documents to support cost of installation of machinery.
NOTE: To make it easier for us to examine the documents, prepare a breakdown of the costs and the relevant supporting documents.
How to account for dividends and bonuses paid by a cooperative society as allowable deductions.
Dividends and bonuses are treated as allowable deductions, against total taxable income.
- A Society designated co-operative society, other than a designated primary society can pay 100% of total income as dividends to and bonuses to its members.
- The dividiends are subject to Withholding Tax at the rate of 15%, treated as Qualifying Dividends while bonuses would be subject to PAYE.
- If a Society dividends and bonuses do not comprise 100% of total taxable income, then the remaining amount is subjected to 30% corporate tax
- The dividends and bonuses payable cannot exceed 80% 100% of the society’s total income.
"designated co-operative society" means a co-operative society registered under the Co-operative Societies Act;
"primary society" means a co-operative society registered under the Co-operatives Societies Act whose membership of which is restricted to individual persons.
Deducting dividends and bonuses from adjusted income only happens if;
- Payment is made in cash or by cheque to the members.
- Payment is approved at the AGM by the members of the primary co-op society.
- Payment is approved by the commissioner of co-op societies.