Are you a small business or company in Kenya looking to reduce your corporate tax liability? In this post we will explore the best corporate tax planning strategies for you that are legal.
To plan and implement a feasible tax plan, you need a combination of various strategies. These may range from incentives, stock repurchase plans and investing in export processing zones among others.
Tax management tips for companies in Kenya
Similar to tax reduction tips for individuals, you can reduce your income tax liability in Kenya by;
- Adjusting/reducing your gross income as well as adjusted taxable income legally.
- Take advantages of tax holidays and incentives.
- Increase Number of Tax Deductions- Deductions are claims of expenses that can help reduce the tax liability. It is important to know the type of deductions that are applicable to your annual plan.
Tax planning tactics for small businesses in Kenya?
- Use debt in capital structure
- Capital investment allowances
- Invest in an Export processing zones
Use debt in capital structure
One technique that you can reduce your corporate tax in Kenya is lease financing. This is because lease payments made under capital or operating lease is tax deductible on the lessee.
However, you should know that thin capitalization can ne penalized. On the other hand, interest on debt that is in excess of thrice the shareholders equity of a company controlled by a non-resident is not tax deductible.
Utilize capital investment allowances
You can reduce the taxable income chargeable to your company income through various allowances on capital expenditure. These are offered as investment incentives to encourage investors to invest fixed assets
According to the Section 15(2) and the Second Schedule of the income tax Act, following are areas allowable.
- Wear and Tear Allowance for fixed assets
- Investment Deduction.
Invest in an Export processing zone
Are you operating a company whose principal market is foreign? You can opt to set it up in a licensed export processing zone (EPZ) to enjoy a number of tax incentives. A number of them include;
- A 10-year corporate tax holiday
- A significant capital allowances and Value Added Tax exemption
- A 25% corporate tax rate from the11th year to the 20th year.
Invest in an Offshore business
Under section 42 of the income tax act, you can take advantage of the tax credit schemes and the double taxation treaties. Its best for you if you are a multinational that can treat foreign tax pau as a deductible business expense.
To enjoy this, establish your business offshore entity in a tax haven country, one with a relatively lower tax rate or one which is tax free such as Mauritius, Hong Kong, and Dubai
Invest in a venture capital company
Investing in a venture capital company is another method for you to minimise your corporate income tax.
According to the Act, dividends received by a registered venture capital company are tax exempt.
Additional tax saving strategies for small businesses
In addition to the above methods, here are additional examples from other jurisdictions. According to SCORE, you can achieve these goals by hiring family members, accounting for business losses, tracking and accounting for all the expenses such as travel, rent and utilies. Additional options are hiring or consulting a reputable CPA, deducting assets to charity and utilizing start up deductions. If your small business is a sole proprietor, you can utilise retirement plant contributions.
The above methods present some available strategies for you to minimize your tax liability as a small business in Kenya. As a tax management or planning advice, Trailblazers recommends you consult a qualified and competent tax expert for crafting the best tax plan for you.