Ascertainment of income of insurance companies.
(1)
Notwithstanding anything in this Act, this section shall apply for the purpose of computing the gains or profits of insurance companies from insurance business which is chargeable to tax; and for the purposes of this Act a mutual insurance company shall be deemed to carry on an insurance business the surplus from which shall be ascertained in the manner provided for in this section for ascertaining gains or profits and which shall be deemed to be gains or profits which are charged to tax under this Act.(2)
Where an insurance company carries on life insurance business in conjunction with insurance business of another class, the life insurance business of the company shall be treated as a separate business from any other class of insurance business carried on by the company.(3)
The gains or profits for a year of income from the insurance business, other than life insurance business, of a resident insurance company, whether mutual or proprietary, shall be the amount arrived at after –(a) taking, for that year of income, the sum of –
- (i) the amount of the gross premiums from that business (less such premiums returned to the insured and such premiums paid on reinsurance as relate to that business); and
- (ii) the amount of other income from that business, including any commission or expense allowance received or receivable from reinsurers and any income derived from investments held in connection with that business; and
Provided that the reserves are estimated on the basis of actuarial principles, including discounting of ultimate costs; and
(c) deducting from the figure arrived at under paragraphs (a) and (b) –
(a) taking, for that year of income, the sum of –
(c) deducting from the figure arrived at under paragraphs (a) and (b) -
(c) deducting from the figure arrived at under paragraphs (a) and (b) –
- (i) the amount of the claims admitted in that year of income in connection with that business (provided that claims incurred but not paid or not reported before the end of the accounting period are estimated on the basis of actuarial principles including the discounting of ultimate costs); less any amount recovered in respect thereof under reinsurance; and
- (ii) the amount of agency expenses incurred in that year of income in connection with that business; and
- (iii) the amount of any other expenses allowable as a deduction (excluding costs and expenses attributable to earning exempt income as determined by the ratio of exempt investment income to the sum of investment income to the sum of investment and exempt investment income) in that year of income in computing the gains or profits of that business under this Act
(4)
The gains of profits for a year of income from the insurance business, other than life insurance business, of a non-resident insurance company, whether mutual or proprietary, shall be the amount arrived at after -(a) taking, for that year of income, the sum of –
- (i) the amount received or receivable in Kenya of the gross premiums from that business (less such premiums returned to the insured and such premiums paid on reinsurance, other than to the head office of the company, as relate to that business); and
- (ii) the amount of other income from that business, not being income from investments, received or receivable in Kenya including any commission or expense allowance received or receivable from reinsurance, other than from the head office of that company, of risks accepted in Kenya; and
- (iii) such amount of income from investments as the Commissioner may determine to be just and reasonable as representing income from investment of the reserves referable to that business done in Kenya; and
(c) deducting from the figure arrived at under paragraphs (a) and (b) -
- (i) the amount of the claims admitted in that year of income in connection with that business (provided that claims incurred but not paid or not reported before the end of the accounting period are estimated on the basis of actuarial principles including the discounting of ultimate costs) less any amount recovered in respect thereof under reinsurance; and
- (ii) the amount of agency expenses incurred in that year of income in connection with that business; and
- (iii) an amount being such proportion as the Commissioner may determine to be just and reasonable of those expenses of the head office of that company as would have been allowable as a deduction in that year of income in computing its gains or profits if the company had been a resident company, in so far as those amounts relate to policies the premiums in respect of which are received or receivable in Kenya.
(5)
The gains or profits for a year of income from the life insurance business of a resident insurance company, whether mutual or proprietary, shall be the sum of the following –- (a)the amount of actuarial surplus, as determined under the Insurance Act and recommended by the actuary to be transferred from the life insurance* fund for the benefit of shareholders. Amended by (FA 2025-wef 1st July-2025 S14*).
- (b) any other amounts transferred from the life insurance* fund for the benefit of shareholders; Amended by (FA 2025-wef 1st July-2025 S14*). and
- (c) thirty per centum of management expenses and commissions that are in excess of the maximum amounts allowed by the Insurance Act. CAP. 487
(5A)
Where the actuarial valuation of the life insurance* fund results in a deficit for a year of income and the shareholders are required to inject money into the life insurance* fund, the amount of money so transferred shall be treated as a negative transfer for the purposes of subsection (5) (a):Provided that the amount of negative transfer shall be limited to the actuarial surplus recommended by the actuary to be transferred from the life insurance* fund for the benefit of shareholders in previous years of income. Amended by (FA 2025-wef 1st July-2025 S14*).
(6)
The gains or profits for a year of income from the long term insurance business of a non-resident insurance company, whether mutual or proprietory, shall be the sum of the following -- (a) the same proportion of the amount of actuarial surplus recommended by the actuary to be transferred to the shareholders as the actuarial liability in respect of its long term insurance business in Kenya bears to the actuarial liability in respect of its total long term insurance business; and
- (b) the same proportion of any other amounts transferred from the life insurance* fund for the benefit of shareholders as the actuarial liability in respect of its long term insurance business in Kenya bears to the actuarial liability in respect of its total long term insurance business; Amended by (FA 2025-wef 1st July-2025 S14*).and
- (c) the same proportion of thirty per cent of management expenses and commissions that are in excess of the maximum amounts allowed by the Insurance Act as the actuarial liability in respect of its long term insurance business in Kenya bears to the actuarial liability in respect of its total long term insurance business.CAP. 487
(6A)
Where the actuarial valuation of the life insurance* fund results in a deficit for a year of income and the shareholders are required to inject money into the life insurance* fund, the proportionate amount of the money so transferred shall be treated as a negative transfer for the purposes of subsection (6) (a):Provided that the amount of negative transfers shall be limited to the amount of actuarial surplus recommended by the actuary to be transferred from the life insurance* fund for the benefit of the shareholders in the previous years on income. Amended by (FA 2025-wef 1st July-2025 S14*).
(6B)
For the avoidance of doubt, the gains arising from the transfer of property by an insurance company other than property connected to life insurance business shall be taxed in accordance with the provisions of the Eighth Schedule. Finance Act 2018, effective date 1st July 2018.(7)
In this section -"annuity fund" means, where an annuity fund is not kept separately from the life insurance fund of the company, that part of the life insurance fund which represents the liability of the company under its annuity contracts;
"company" includes a body of persons;
"exempt investment income" means dividends chargeable to tax under section 3(2)(a)(i) plus income from disposal of investment shares traded in any securities exchange operating in Kenya.
"investment income" does not include -
- (a) dividends chargeable to tax under section 3(2)(a)(i); and
- (b) income from the disposal of investment shares traded in any securities exchange operating in Kenya;
"life insurance premiums" means premiums referable to the life insurance business other than annuity business;
"life insurance expenses" means expenses referable to the life insurance business other than annuity business.
(8)
The amount of the gains or profits from insurance business, both from life insurance and from other classes of insurance business, arrived at under this section shall be taken into account together with any other income of the company charged to tax in ascertaining the total income of that company.(9)
(Deleted by 90 s. 32 - Finance Act 2008).
(19A)-Co-operative societies.
(1)
This section shall apply to designated co-operative societies other than -- (a) a society which has been exempted from all the provisions of the Co-operative Societies Act, Cap. 490, section
8692 of that Act; or Finance Act, 2013 effective 1st Jan 2014 (sec 12) - (b) a society in respect of which the Commissioner is of opinion, having regard to the number of members composing it, the nature of its business, the manner in which its business is conducted, the extent of its transactions with non-members or any other relevant factors, is a body corporate carrying on business for its own profit.
(2)
In the case of every designated co-operative society, other than a designated primary society, the income on which tax shall be charged shall be its total income for the year of income deducting therefrom an amount equal to the aggregate of bonuses and dividends declared for that year and distributed by it to its members in money or an order to pay money; but the deduction shall in no case exceed the total income of the society for that year of income.(3)
In the case of every designated primary society, other than a designated primary society which is registered and carries on the business as a credit and savings co-operative society to which the provisions of subsection (4) apply, the income on which tax shall be charged shall be its total income for the year of income deducting therefrom an amount equal to the aggregate of bonuses and dividends declared for that year and distributed by it to its members in money or an order to pay money, but the deduction shall in no case exceed an amount equal to eighty per centum of the total income of the society for that year of income.(4)
In the case of a designated primary society which is registered and carries on business as a credit and savings co-operative society its total income for any year of income shall, notwithstanding any other provisions of this Act, be deemed to be the aggregate of –- (a) Fifty per centum of its gross income from interest (other than interest from its members;
- (b) its gross income from any right granted for the use or occupation of any property, not being a royalty, ascertained in accordance with the provisions of this Act;
- (c) gains chargeable to tax under section 3 (2) (f);
- (d) any other income (excluding royalties) chargeable to tax under this Act not falling within subparagraphs (a), (b) or (c) ascertained in accordance with the provisions of this Act.
(5)
Any loss incurred in respect of any year of income prior to the year of income 1985 shall not be deductible.(6)
Where the written down value of any asset or class of assets cannot be readily ascertained, the Commissioner may, for the purpose of granting any wear and tear allowance in respect of the year of income 1985, determine the amount of the written down value of any assets or class of assets.(7)
In this section -"bonus" and "dividend" shall, for the purposes of sub-sections (2) and (3), have the same meaning as in the Co-operative Societies Act;
"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 the membership of which is restricted to individual persons.
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