Income from businesses
For the purposes of section 3(2)(a)(i)-
(a) where a business is carried on or exercised partly within
and partly outside Kenya by a resident person, the whole
of the gains or profits from that business shall be deemed
to have accrued in or to have been derived from Kenya;
(b) the gains or profits of a partnership shall be the sum of -
- (i)remuneration payable to him by the partnership together with interest on capital so payable, less interest on capital payable by him to the partnership; and
- (ii) his share of the total income of the partnership, calculated after deducting the total of any remuneration and interest on capital payable to any partner by the partnership and after adding any interest on capital payable by any partner to the partnership
Provided that in computing the total income of
a partnership, there shall be deducted the cost
of medical expenses or medical insurance cover
paid by the partnership for the benefit of any
partner, subject to a limit of one million shillings
per year.
(c) a sum received under an insurance against loss of profits, or received by way of damages or compensation for loss of profits, shall be deemed to be gains or profits of the year of income in which it is received. Finance Act 2012 09 June 2011
(d) where in computing gains or profits for a year of income any expenditure or loss has been deducted, or a deduction in respect of any reserve or provision to meet any liability has been made, and in a later year of income the whole or part of that expenditure or loss is recovered, or the whole or part of that liability is released, or the retention in whole or in part of that reserve or provision has become unnecessary, then any sum so recovered or released or no longer required as a reserve or provision shall be deemed to be gains or profits of the year of income in which it is recovered or released or no longer required:
- Provided that if the person so chargeable with tax in respect of any such sum requests the Commissioner in writing to exercise his power under this proviso, the Commissioner may divide the sum into as many equal portions, not exceeding six, as he may consider fit, and one such portion shall be taken into account in computing the gains or profits of that person for the year of income in respect of which the sum is so deemed to be gains or profits and for each of the previous years of income corresponding to the number of portions;
(f)
(4A)
Income from businesses where foreign exchange gain or loss is realized
(1)
A foreign exchange gain or loss realized on or after the 1st January,1989
in a business carried on in Kenya shall be taken into account as a trading
receipt or deductible expenses in computing the gains and profits of that
business for the year of income in which that gain or loss was realized: Provided that:-
- (i) no foreign exchange gain or loss shall be taken into account to the extent that taking that foreign exchange gain or loss into account would duplicate the amounts of gain or loss accrued in any prior year of income; and
(ii) the foreign exchange loss shall be deferred (and not taken into account)–
(a) where a foreign exchange loss is realized by a company whose gross interest paid or payable to related persons and third parties exceeds thirty per cent of the company’s earnings before interest, taxes, depreciation and amortization in any financial year; (Finance Act 2022-wef-01-July-2022)
(b) to the extent of any foreign exchange gain that would be realized if all foreign currency assets and liabilities of the business were disposed of or satisfied on the last day of the year of income and any foreign exchange loss so deferred shall deemed realized in the next succeeding year of income
- (ii) the foreign exchange loss shall be deferred (and not taken into account) and claimed over a period of not more than five years from the date the loss was realized by a person whose gross interest paid or payable to a nonresident person exceeds thirty per cent of the person’s earnings before interest, taxes, depreciation, and amortization in any year of income; (Finance Act 2023 wef 1st-July-2023 s4a)
(2)
The amount of foreign exchange gain or loss shall be calculatedin accordance with the difference between (a times r1) and (a times r2) where -
- a is the amount of foreign currency received, paid or otherwise computed with respect to a foreign currency asset or liability in the transaction in which the foreign exchange gain or loss is realized;
- r1 is the applicable rate of exchange for that foreign currency ("a") at the date of the transaction in which the foreign exchange gain or loss is realized;
- r2 is the applicable rate of exchange for that foreign currency ("a") at the date on which the foreign currency asset or liability was obtained or established or on the 30th December, 1988, whichever date is the later.
(3)
For the purposes of this section, no foreign exchange loss
shall be deemed to be realized where a foreign currency
asset or liability is disposed of or satisfied and within a
period of sixty days a substantially similar foreign currency
asset or liability is obtained or established.(4)
For the purposes of this section -"foreign currency asset or liability" means an asset or liability denominated in, or the amount of which is otherwise determined by reference to, a currency other than the Kenya Shilling;
“control" shall have the meaning ascribed to it in
paragraph 32 (1) of the Second Schedule; Deleted by (Finance Act 2021- wef-01July2021)
“company" does not include a bank or a financial
institution licensed under the Banking Act (Cap. 488) or non-deposit taking microfinance businesses under the Microfinance Act, 2006, entities licensed under the Hire Purchase Act and persons exempt under section 16 (2) (j) (iii)*.(Finance Act 2022-wef-01-July-2022*)
“all loans” shall have the meaning assigned in section16(3).
(4B)
Export processing zone enterprise.
Where a business is carried on by an export processing zone enterprise, the provisions of the Eleventh Schedule shall apply.
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