A Quick Guide To Capital Gains Tax In Kenya

What is Capital Gains Tax?

Capital Gain Tax (CGT) is imposed on profits obtained from the sale or transfer of property within Kenya, acquired on or after January 2015. A transfer of property is said to have occurred if property is sold, exchanged, conveyed, or otherwise disposed of in any manner (including by way of gift), whether for consideration. Further, a transfer occurs on destruction, abandonment, surrender, cancellation, or forfeiture of property. The tax liability falls on the transferor of the property, who is responsible for both the declaration and payment of CGT.

What is the CGT Tax Rate?

The tax rate applicable is 15% w.e.f. 1 January 2023 (5% prior to 1 January 2023).

When does CGT apply?

CGT is payable on:

(a)  Gains realised by companies, partnerships and individuals on or after 1 January 2015 on transfer of property situated in Kenya excluding securities listed on the NSE are taxable.

(b)  Gains derived from the alienation of shares or comparable interests, including interests in a partnership or trust, if, at any time during the 365 days preceding the alienation, the shares or comparable interests derived more than 20% of their value directly or indirectly from immovable property situated in Kenya, or

(c)  Gains, other than those to which above applies, derived from the alienation of shares of a company resident in Kenya if the alienator, at any time during the 365 days preceding such alienation, held directly or indirectly at least 20% of the capital of that company. w.e.f 1 July 2023

(d)   Effective 1 July 2023 CGT will also apply where:

• a non-resident person who holds more than 20% of the share capital of a Kenyan company directly or indirectly disposes of his/her interest
• gains arising from the sale of shares in a foreign entity which derive more than 20% of their value directly or indirectly from immovable property situated in Kenya.

When is CGT due?

The CGT due date is the earlier of receipt of full purchase price by the vendor or the date the application for transfer is made. w.e.f. 1 July 2023.

What are some exemptions to Capital Gains Tax?

A few situations exempt from CGT include:

(a)    Transactions involving the incorporation, recapitalization, acquisition, amalgamation, separation, dissolution or similar restructuring of a corporate entity, subject to certain conditions; Effective 1 July 2023 groups undergoing internal restructuring will need to have existed for 24 months or more in order to qualify for exemption from CGT;

(b)    Transfer of assets to a company where spouses or a spouse and immediate family hold 100% shareholding;

(c)    Land transfer by an individual value of which is KES 3,000,000 and below;

(d)    Transfer of agricultural land by an individual having an area of 50 acres and below outside municipality;

(e)    Transfer of residential home by an individual (MUST have occupied he house for at least 3 years consecutively before transfer);

(f)    Transfer of assets between former spouses or their immediate family as part of divorce settlement or bona fide separation agreement;

(g)    Transfer of assets:

•  between spouses;
• between former spouses as part of divorce settlement or bona fide separation agreement;
•  to immediate family*; or
•  to immediate family* as part of divorce or bona fide separation agreement.

* Immediate family means children of the spouses or former spouses.

(h)    Transfer of property within 2 years of issue of probate under estate administration;

(i)    Transfer of listed securities;

Transfer to registered family trusts.

It is also important to note that, effective 1 July 2023 when a property is transferred in a transaction that is not subject to CGT and the property is subsequently transferred in a transaction subject to CGT within a period of less than 5 years, then the adjusted cost in the subsequent transfer shall be based on the original adjusted cost as determined in the first transfer.

W&T Advocates LLP are here to assist

The W&T Advocates LLP tax practice in East Africa continues to provide high-quality and sound professional services in our evolving markets. As tax codes become increasingly complex, we help companies and individuals to:

• identify and mitigate tax risks;
• understand and meet their compliance obligations;
• implement tax strategies that complement their business and operational objectives; and
• resolve disputes with tax authorities when they arise.

Should you have any questions about this legal alert, please do not hesitate to contact Andrew Waithumbi or Timothy Thambu.