2020 has been a very difficult year for most individuals and businesses, and one that we will be happy to put behind us as we look forward to 2021 in a much more optimistic light now that there are vaccinations around the corner to protect us against the Covid-19 virus.
However, the world of legal and regulatory affairs continues apace and we want to make you aware of some significant matters that will need your attention in 2021
1. Unclaimed Financial Assets Authority
The Unclaimed Financial Assets Authority (UFAA) was established in 2014 under the Unclaimed Financial Assets Act.
Under the Act, holders of financial assets (which are broadly defined to mean any asset that has a financial value, including unpaid creditors and I presented cheques) are required to identify and pay over such Unclaimed Financial Assets to UFAA.
Where an entity ascertains that it doesn’t hold any Unclaimed Assets, it is required to file a nil return with UFAA by 31 October 2020.
The penalty for failure to remit the Unclaimed Assets or return is between KES 7,000 and 50, 000 per day that the failure continues.
Given that UFAA has largely audited the financial services sector, we expect they will now focus their attention on other corporates. It would be important to review your company’s level of compliance and address any instances of non-compliance.
2. Companies Act (Beneficial Ownership) Regulations, 2020
The Companies Act was amended in 2019 by introducing Section 93A which requires every company to maintain a register of Beneficial Owners and to notify the Companies Registry of any changes in its beneficial owners. To this effect, the Registrar has notified officers of each company and its authorised persons that the Beneficial Ownership (BO) E-Register was operationalised with effect from 13th October, 2020. This notice can be viewed when you access your e-citizen Business Registration Service portal. In this regard, please note that every company is required to comply with the provisions of the Companies Act and submit the BO register within 30 days of its preparation, and no later than 31st January, 2021. Failure to do so within the given timeline makes the company and its officers non-compliant, and liable to a fine of up to KShs500,000/-, and upon conviction, each officer of the company is liable to a fine of up to KShs50,000/- for each day of non-compliance.
3. Minimum Tax
Minimum tax is a tax that was introduced through the Finance Act 2020. It is provided for in Section 12D of the Income Tax Act. As the name suggests, it is the lowest amount of tax that a taxpayer with income will be liable to pay when it becomes effective. It will be 1% of a person’s annual turnover. According to Section 12D, minimum tax is applicable where a person’s instalment tax is lower than their minimum tax (1% of turnover) According to the Kenya Revenue Authority (KRA or the Authority), the tax is intended to foster equity by ensuring that everyone pays a base tax whether they have profits or not.
It will apply to all income except the following: –
- Employment income.
- Income which is subject to tax under the residential rental income tax system. Residential rental income tax is payable by any resident person from income from renting of residential property, where the gross annual rent is between KShs.288,000 and KShs.15M.
- Income which is subject to turnover tax. Business income of between KShs.1M and KShs.50M is by default subject to turnover tax. Rental income and management or professional or training fees are excluded.
- Capital gains.
- Income from petroleum or mining operations.
- Income that is exempt from tax.
It will be most relevant to persons earning business income and rental income.
4. RE CORPORATE, INDIVIDUAL INCOME TAX and VAT
In April 2020 Corporate, Individual Income (PAYE), and Value Added Tax (VAT) rates were reduced as part of the government’s efforts to cushion individuals and businesses from the adverse effects of the COVID-19 pandemic; these measures were always going to be temporary and be reviewed as soon as economic activities picked up.
The measures comprised of:-
- Lowering both corporate tax for resident entities and top individual income tax from 30% to 25%.
- Individuals earning less than KES 24, 000 per month were fully exempted (100%) from Pay As You Earn (PAYE) tax; this effectively increased tax relief for individuals from KES 16, 896 to KES 28, 800.
- Value Added Tax (VAT) was reduced from 16% to 14%.
Effective 1st January 2021, the pre-Covid tax rates will apply as below:-
- the Corporate Tax rate reverts to 30% from the current 25%
- the Individual Income Tax rate reverts to 30% from the current 25%
- the Value Added Tax rate (VAT) reverts to 16% from the current 14%
Some of your systems, e.g. accounting and payroll software, and ETRs will have to be reconfigured early in 2021 so as to re-align them with these rates.
5. Tax Amnesty – The Voluntary Tax Disclosure Programme (VTDP)
The Voluntary Tax Disclosure Programme (VTDP) was introduced in the Finance Act 2020.The VTDP is a program designed to assist tax payers achieve tax compliance, by allowing them to voluntarily declare their historical tax liabilities to the Kenya Revenue Authority and settle the principal tax, while obtaining the benefit of not having to pay, under certain conditions, the resulting penalties and interest. For the relief to apply, the tax payer will first be required to settle the principal tax liabilities, as the benefit is only available with regard to penalties and interest.
The VTDP shall run for a period of three (3) years with effect from 1 January 2021 (1 January 2021 to 31 December 2023)
All taxpayers qualify for the VTDP, provided that:
- The tax liabilities were accrued by the taxpayer within a period of 5 years prior to 1 July 2020 (1 July 2015 to 1 July 2020);
- The taxpayer is not under audit or investigation and is not a party to ongoing litigation in respect of the tax liabilities or any matter relating to the tax liabilities; and
- The taxpayer has not has been notified of a pending audit or investigation by the Commissioner.
Alexanna’s qualified and experienced staff are available if you need advice or assistance in any of the matters above; please contact Charles Miricho (email@example.com) or myself (firstname.lastname@example.org) who will point you in the right direction.