Capital Gains Tax (CGT) was re-introduced in Kenya with effect from 1st January 2015 after having been suspended in 1985. CGT is chargeable on the whole gain which accrues to any individual or corporate body on the transfer of property situated in Kenya, at a rate of 5% of the gain. CGT is payable by the person (resident or non-resident) transferring the property.
It should be noted that the property must be situated in Kenya and therefore the sale of shares in an offshore holding company which owns Kenyan property does not trigger CGT in Kenya. With effect from 1 January 2016, there is no CGT arising on the sale of securities listed on a securities exchange in Kenya.
What is Capital Gains Tax (CGT)?
CGT is tax that is levied on transfer of property situated in Kenya, acquired on or before January 2015.
It is declared and paid by the transferor of the property
Rate of Tax
The rate of tax is 5% of the net gain.
It is a final tax i.e. the Capital Gain is not subject to further taxation after payment of the 5% rate of tax.
Net Gain is Sales Proceeds minus the Acquisition and Incidental cost
CGT is on gains arising from sale of property.
Exemptions on Capital Gains Tax
- Income that is taxed elsewhere as in the case of property dealers
- Issuance by a company of its own shares and debentures
- Disposal of property for purpose of administering the estate of a deceased person
- Transfer of property between spouses as part of divorce settlement
How do I pay for Capital Gains Tax?
You can either pay in installments, in advance or at the end of the accounting period.
Payment should be initiated online via iTax.
The modes of payment include cash, cheque or RTGS.
After initiating payment, you will receive a payment slip.
Present the payment slip at any KRA appointed bank with the due tax to complete payment.
Note: The payment slip expires within 30 days.
Taxpayers will be required to prepare self-assessment computations, subject to KRA approval, to determine the capital gains arising from their property sales. Once the property is transferred the taxpayer will be required to prepare the CGT 1 form and submit it to the KRA by the due date indicated above. The KRA has also specified the information that will be required to accompany the CGT 1 forms:
- Completed CGT 1 form by the seller;
- Copy of Sale/Transfer Agreement of the property;
- Proof of the incidental costs related to the acquisition and transfer of the property;
- A copy of the title deed or ownership document for the property;
- Report from a registered valuer for property transactions between related parties; and
- Any other document/information that the Commissioner may require.
This latest communication from the KRA sets the stage for the implementation of capital gains tax from the beginning of this year. The form and documentation requirement is fairly simple. However, there may be a challenge for owners of property acquired or developed many years back in terms of proof of costs of acquisition, development or enhancement and there may be need for the KRA to accept alternative evidence in certain cases where it may be impractical to obtain formal records, and bearing in mind that the statutory record keeping period is 7 years. Going forward, taxpayers should maintain proper records relating to property expenditure to facilitate correct assessment of CGT for future taxable disposals.
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