Corporate Tax — Computation and Administration

Corporate Tax — Computation and Administration

Syllabus tag: KASNEB CPA | Advanced Level | CA35S1 Advanced Taxation

1. Corporate tax rates

Resident companies: 30% on taxable income. Non-resident companies with a permanent establishment in Kenya: 37.5% on income attributable to the PE. Newly listed companies on the Nairobi Securities Exchange: 25% for five years from the date of listing (where at least 25% of shares are offered to the public). Registered insurance companies: 20% on investment income above a threshold.

Alternative Minimum Tax (AMT): where a company's normal tax is less than 1% of gross turnover, the company pays 1% of gross turnover as AMT, unless exempt (e.g. companies in tax holidays, those with genuine losses).

2. Computation of taxable income

Net profit before tax per accounts           X
Add: disallowed items
  Depreciation                               X
  Donations not qualifying                   X
  Fines and penalties                        X
  General provisions                         X
  Personal expenses                          X
Less: allowable items
  Capital allowances                        (X)
  Donations to approved institutions        (X)
  Export processing zone incentives         (X)
Taxable income                               X
Corporation tax @ 30%                       30%X
Less: instalment taxes paid                 (X)
Corporation tax payable on filing            X

3. Instalment taxes

Companies must pay corporation tax in instalments during the year of income. The due dates and amounts:

1st instalment — by 20 March    : 25% of estimated tax
2nd instalment — by 20 June     : 50% of estimated tax (cumulative)
3rd instalment — by 20 September: 75% of estimated tax (cumulative)
4th instalment — by 20 December : 100% of estimated tax (cumulative)

Underpayment of instalments attracts a late payment penalty of 20% per annum on the shortfall. Final return and balance of tax are due by 30 April of the year following the year of income.

4. Capital gains tax (CGT)

CGT is charged at 15% on the gain arising from the transfer of property situated in Kenya. Gain = proceeds – cost of acquisition – improvement costs. CGT applies to: land, buildings, investments in private companies. Excluded: shares listed on the NSE, transfer of property between spouses in the course of marriage.

5. Tax reliefs for companies

Investment allowance: companies in manufacturing, hospitality, and other specified sectors enjoy enhanced investment deductions. Export promotion: qualifying exports receive additional deductions. Special Economic Zones (SEZs): companies operating in SEZs pay 10% corporation tax for the first 10 years, 15% for the next 10 years. EPZs (Export Processing Zones): 0% corporation tax for the first 10 years.