Capital Gains Tax in Kenya: What is it, Rates, Transfer Value, Exemptions and How To Pay Capital Gains Tax
Learn about the ins and outs of Capital Gains Tax in Kenya, from calculation formulas to allowable expenses. Become an expert in property transfer taxation.
The Kenya Revenue Authority (KRA) stands as the entity entrusted with the monumental task of collecting revenue on behalf of the government. Established by an Act of Parliament, Chapter 469 of the laws of Kenya, the KRA has been at the forefront of ensuring that the nation's financial resources are well-mobilized and utilized effectively since its inception on July 1, 1995.
Within its jurisdiction, the KRA not only assesses and collects revenue but also provides essential guidance on matters about the administration and collection of revenue under written laws. Additionally, it takes on various functions as directed by the Minister, all aimed at ensuring the financial stability and prosperity of the nation.
Key Takeaways
- Capital Gains Tax (CGT) in Kenya is a property transfer tax payable by the transferor.
- The CGT rate in Kenya is 15% of the net Gain, considered a final tax.
- CGT is calculated using a formula that considers the transfer value, incidental costs, and adjusted costs.
- CGT should be paid on or before the 20th day after the property transfer and can be initiated online via iTax. Payment modes include cash, cheque, or RTGS.
- As of January 1, 2023, the CGT rate has increased from 5% to 15%, impacting property transactions and tax planning strategies.
What is Capital Gains Tax (CGT)?
Capital Gains Tax, commonly abbreviated as CGT, is a tax levied on the transfer of property in Kenya. This tax applies to property acquired on or before January 2015. The responsibility of declaring and paying CGT falls on the transferor of the property. If you're transferring property ownership, you must pay CGT.
Understanding the Rate of Tax
Kenya's Capital Gains Tax rate is a straightforward 15% of the net Gain. Notably, this tax is considered final, which means that after paying the 15% tax rate, the Capital Gain is not subject to further taxation. The formula for calculating the net Gain is reasonably simple:
Net Gain = (Transfer value - Incidental Costs on Transfer) - Adjusted Cost (Acquisition Cost + Incidental Costs on Acquisition + Any enhancement Cost).
What Constitutes a Transfer?
A transfer is not confined to the traditional property sale; it encompasses various scenarios. A transfer could occur when property is sold, exchanged, conveyed, or disposed of in any manner, whether for consideration or even as a gift. Moreover, it includes occasions where property is lost, destroyed, or extinguished unless compensation is reinvested to reinstate the property. Surrender, cancellation, or forfeiture of property also qualifies as a transfer, as does the expiration of substantially all property rights. In all these cases, CGT comes into play.
Allowable Expenses and Transfer Value Determination
To arrive at the Transfer Value for CGT, you should consider the amount received for transferring the property, sums received for abandonment or forfeiture of the property, amounts received for the use or exploitation of the property (e.g., rent), compensation received for damage or injury to the property, and insurance policy reimbursement in respect of injury, loss, or damage to the property. It's crucial to consider these factors while determining the taxable value.
Exemptions on Capital Gains Tax
Specific scenarios are exempt from Capital Gains Tax. These include income that is already taxed elsewhere, issuance of a company's shares and debentures, property transfers for the sole purpose of securing a debt or loan, transfers by creditors to return property used as security, transfers by personal representatives of property to beneficiaries during estate administration, transfers of assets between spouses, and more. Additionally, a private residence qualifies for exemption if the owner has continuously occupied it for the three years immediately preceding the transfer.
How to Pay Capital Gains Tax
Paying Capital Gains Tax is a straightforward process. The tax is due on or before the property transfer but by the 20th day after the transfer. Payment can be initiated online via iTax, including cash, cheque, or RTGS. After initiating payment, you'll receive a payment slip online, which you can then present at any KRA-appointed bank to complete the payment. Be mindful that the payment slip has a 30-day validity.
Recent Updates on Capital Gains Tax
As of January 1, 2023, the Finance Act 2022 increased the CGT rate from 5% to 15%. This rate applies to the net gains upon the transfer of immovable property. Companies, individuals, and entities involved in property transactions should be aware of this change.
READ ALSO: KRA PIN Registration for Companies and Partnerships in Kenya: A Comprehensive Guide
Final Thoughts
Capital Gains Tax in Kenya is essential to the nation's revenue collection framework. Understanding its principles, rates, and exemptions is crucial for individuals and entities involved in property transfers. As of January 1, 2023, the CGT rate has increased to 15%, which impacts property transactions significantly. Staying informed about the latest developments and guidelines from the Kenya Revenue Authority is essential for complying with tax regulations.
Frequently Asked Questions
What is the Kenya Revenue Authority (KRA)?
The Kenya Revenue Authority is a government agency responsible for collecting revenue on behalf of the Kenyan government. It was established by an Act of Parliament and played a crucial role in the nation's financial administration.
What is Capital Gains Tax (CGT) and who pays it?
CGT is a tax levied on the transfer of property situated in Kenya. The responsibility for declaring and paying CGT falls on the transferor of the property, whether an individual or entity.
How is the rate of Capital Gains Tax determined?
The rate of CGT in Kenya is a flat 15% of the net Gain. This tax is considered final, meaning no additional tariffs are imposed after paying the 15% rate.
What are some allowable expenses for CGT?
Allowable expenses for CGT include loan/mortgage interest, costs of advertising to find a buyer, costs incurred in property valuation, legal fees, and expenses of property enhancements.
How can I determine the Transfer Value for CGT?
The Transfer Value includes the amount received for transferring the property, sums received for abandonment or forfeiture of the property, amounts received for the use or exploitation of the property (e.g., rent), compensation received for damage or injury to the property, and insurance policy reimbursement for property-related losses.
Are there exemptions from Capital Gains Tax in Kenya?
There are exemptions, including cases where income is taxed elsewhere, issuance of a company's shares and debentures, transfers for securing a debt or loan, transfers by creditors returning property used as security, and more. Additionally, a private residence may be exempt if certain conditions are met.
How do I pay Capital Gains Tax in Kenya?
To pay CGT, initiate the payment online via iTax, indicating your preferred payment mode (cash, cheque, or RTGS). After initiating payment, you'll receive a payment slip online, which you should present at any KRA-appointed bank to complete the payment. Note that the payment slip expires within 30 days.
When did the CGT rate change in Kenya, and what is the new rate?
The CGT rate in Kenya increased from 5% to 15% effective January 1, 2023. This change impacts property transactions and requires individuals and entities to adjust their tax planning accordingly.
