Income from dividends.
(1*) For the purposes of section 3(2)(b) -
(a) a dividend paid by a resident company shall be deemed to be income of the year of income in which it was payable;
(b)a dividend paid by a resident company shall be deemed to
be income of the year of income in which it was payable; an amount shall be deemed to be a dividend distributed
by a company to a shareholder where-
(c) when, in relation to a company that is being wound up
voluntarily, profits (including profits realized on the
disposition of assets of the company) whether earned
before or during the winding up are distributed (whether
in cash or otherwise), the distribution shall be deemed to
be payment of a dividend;
(d) where a company issues debentures or redeemable
preference shares to any of its shareholders and receives
therefrom no payment, the issue of those debentures or
redeemable preference shares shall be deemed to be a
payment of a dividend on the shares held by the
shareholders of an amount equal to the nominal value or
redeemable value, whichever is the greater, of the
debentures or redeemable preference shares;
(e) where a company issues debentures or redeemable
preference shares to any of its shareholders for a sum less
than their nominal value or redeemable value whichever
is the greater, the issue of those debentures or redeemable
preference shares shall be deemed to include a payment
of a dividend on the shares held by the shareholders of an
amount equal to the excess:
Provided that this paragraph shall not apply if the sum paid for the
debentures or redeemable preference shares is ninety-five per cent or more of
their nominal value or redeemable value, whichever is the greater;
(f) where a company issues ordinary or any other shares or
rights to acquire shares to any of its shareholders in
respect of their existing shares in a ratio not proportionate
to their holding of the existing equity, such distribution
shall be treated as a dividend to the recipient shareholders to the extent of the value of the proportionate increase in
their ownership of the company. (b,c,d,e,f were Amended by Finance Act, 2018effective date 1st July*.
(a) a dividend paid by a resident company shall be deemed to be income of the year of income in which it was payable;
(b)
- (i) any cash or asset is distributed or transferred by that company to or for the benefit of that shareholder or any person related to that shareholder;
- (ii) the shareholder or any person related to that shareholder is discharged from any obligation measurable in money which is owed to that company by that shareholder or related person;
- (iii) the amount is used by that company in any other manner for the benefit of the shareholder or any person related to that shareholder;
- (iv) any debt owed by the shareholder or any person related to that shareholder to any third party is paid or settled by that company;
- (v) the amount represents additional taxable income or reduced assessed loss of that company by virtue of any transaction with the shareholder or related person to such shareholder, resulting from an adjustment.
(2) Notwithstanding section 3(2)(b), a dividend received by a resident company, other than a dividend received by a company which controls directly or indirectly less than twelve and one-half percent of the voting power of the company paying the dividend, shall be deemed not to be income chargeable to tax.
(3) A dividend received by the financial institutions specified in the Fourth Schedule shall be deemed to be income chargeable to tax in accordance with this section.
7A-Dividend tax
account.
(2) The initial amount in the dividend tax account shall be established in accordance with subsection (6) and the balance of the dividend tax account as of the due date for filing a return of income as defined in section 52B shall be carried forward to the subsequent year of income.
(3) The dividend tax account shall be increased for accounting periods for the years of income commencing in or after 1993 as follows -
(a) by one shilling for every shilling of income tax paid by the company, excluding any final withholding tax paid on qualifying dividends received by the company, after the commencement of the accounting period in respect of years of income commencing in or after 1988;
(b) by one shilling for every shilling of compensating tax paid by the company, as provided in subsection (5);
(c) by one shilling for every shilling of import duty set-off as provided in Section 39A;
(d) in the case of dividends received by the company from another company one shilling multiplied by the fraction equal to t/(l-t) times one shilling for every one shilling of such dividends received in accounting periods for years of income commencing in or after 1993 (where ‘t’ is a percentage equal to the current corporation rate for the company).
(4) The dividend tax account shall be decreased by an amount equal to t/(l-t) times one shilling for every one shilling paid by the company as dividends to its shareholders in accounting periods for years of income commencing in or after 1993 where such dividends are declared with respect to accounting periods for years of income commencing in or after 1988.
(5) If the amount of the dividend tax account would be decreased below zero in any instance as a result of the deduction required under subsection (4), the company shall pay compensating tax with respect to the accounting period in which the dividend causing the negative balance is paid in an amount sufficient to bring such a resulting negative balance up to zero.
(6) The initial balance in the dividend tax account shall, at the election of the company, be made upon filing of a self assessment return for the accounting period for the year of income 1993 and be either -
(a) zero; or
(b) an amount equal to the sum of all taxes paid by the company prior to the accounting period for the year of income 1993 in respect of accounting periods for the years of income commencing in or after 1988 (other than final withholding tax on qualifying dividends), and an amount equal to t/(l-t) times all dividends received from another company during accounting periods for years of income 1988 to 1992 less an amount equal to t/(lt) times the amount of all dividends actually paid by the company during the accounting periods for the years of income 1988 to 1992 (and not with respect to any prior years), where ‘t’is equal to the corporation rate of tax for the year of income 1993.
(7) For the purposes of this section, gains from trading in venture company shares, which are exempt from tax under the First Schedule, shall be treated as dividends.
(7A)
- Dividend Distributed
out of Untaxed gains or
profit
Finance Act, 2018 effectivefrom 1st January 2019. Where a dividend is distributed out of gains or profits on which no tax is paid, the company distributing the dividend shall be charged to tax in the year of income in which the dividends are distributed at the resident corporate rate of tax on the gains or profits from which such dividends are distributed:
7B*. Repatriated income.
(1) A non-resident person who carries on business in Kenya through a permanent establishment shall pay tax on repatriated income for the year of income.
(2) The repatriated income under subsection (1) shall be computed using the following formula— R=A1 + (P - T) – A2
Where—
- R is the repatriated profit;
- A1 is the net assets at the beginning of the year;
- P is the net profit for the year of income calculated in accordance with generally accepted accounting principles;
- T is the tax payable on the chargeable income; and
- A2 is the net assets at the end of the year.
(3) The tax imposed under this section shall be in addition to tax chargeable on the income of the permanent establishment under section 4.
(4) For the purposes this section, “net assets” means the total book value of assets less total liabilities for the year of income and shall not include revaluation of assets. (Finance Act 2023 wef 1st-January-2024 s6*)
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