Kenya woos Mauritian firms by enacting double tax avoidance agreement
Kenya now offers a favourable environment for companies registered in Mauritius who are seeking to invest locally since they will not only avoid double taxation, but enjoy friendlier taxes. (Image: IMF)
Kenya has ratified its double taxation avoidance agreement with Mauritius amid expectations of the Kenyan government that island companies will be keen to set up shop in the East African economy, attracted by favourable corporate and income tax rates.
This recently enacted agreement with Kenya, which was signed as far back as May 2012, will allow firms that are registered both in Mauritius and in Kenya, to pay taxes in only one country with effect from January 2015.
Also, for Mauritian companies owning at least a tenth of a Kenyan firm, withholding tax on dividends stands reduced to only 5% instead of the 10% that applies to companies from other countries.
Besides, the withholding tax on interest stands reduced from 15% to 10% for Mauritian companies. Also, companies registered in Mauritius will give only 10% of royalties to the Kenyan Treasury, against the local rate of 20%.
In addition, Mauritian expatriates, except those occupying senior executive positions, will no longer suffer double taxation on remuneration earned by working in Kenya, because these expatriates will be taxable only in their country of origin under this new fiscal treaty.
“The provisions of this agreement shall apply in Mauritius on income for any income year beginning on or after the first day of January 2015,” Kenyan Treasury secretary Henry Rotich said in a Gazette notice.
The Kenyan government has the intention to introduce tax on capital gains. And, in pursuance of the tax treaty, taxation on capital gains realised in Kenya by a company based in Mauritius will stay in Mauritius.
The taxation benefits apply to Kenyan companies doing business in Mauritius, as well as to a growing number of companies owned by Kenyans that are registered in Mauritius and do most of their business locally.
Centum Investments, for instance, has incorporated six companies in Mauritius, using them as vehicles to execute its geographical diversification strategy. Besides, financial services firms Britam, Jubilee Insurance and I&M Bank are already doing business in Mauritius.
The ratification of this treaty by the Kenyan government intervenes just after critics drawn from Kenyan civil society called the Mauritian financial centre a ‘tax haven’ that was responsible for important income leaks from the Kenyan Government.
In line with their estimates, the former fiscal treaty signed with Mauritius resulted in leaks of more Rs 30 billion.
Kenya now offers a favourable environment for companies registered in Mauritius who are seeking to invest locally since they will not only avoid double taxation, but enjoy friendlier taxes.
According to tax experts, the new law will also allow Mauritian firms to set up shop in Kenya and use it as a base from which they can enter East Africa with minimum tax exposure.
Mauritius has entered into a considerable number of double tax avoidance treaties with over 30 African countries, including Egypt, Gabon and Nigeria, making it a country of choice for investors as they seek to invest in Africa.
Double taxation relief can be availed in different ways. One way is to give a company or individual an option to pays taxes in the country of residence and then claim exemption in the foreign country where the income is derived.
The second takes the form of taxes being paid in the foreign country instead, and exemption is sought in the country of residence.
Finally, a company or individual can pay taxes charged in the foreign country and then declare this payment to the country of residence as withholding tax.