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Executive summary
The First Schedule to the TPA provides a schedule of transactions and activities for which a KRA PIN is required beforehand. Under the schedule, a KRA PIN is required when opening an account with any financial institution or an investment bank in Kenya.
However, section 12 (5A) of the TPA provides that the KRA may, upon receipt of an application made by or on behalf of any person or class of persons, exempt such person or class of persons from the requirement for a PIN for any of the transactions specified in the First Schedule to the TPA.
In our experience, the grounds for exemption include but are not limited to the following:
If the foreign investor does not have a Permanent Establishment (PE) in Kenya
The income generated from Kenya is mainly passive, i.e., dividends and interest income
Where the foreign investor satisfies the KRA that their activities qualify for exemption, they are granted a private ruling which they can provide to banks or other financial institutions to open a bank or investment account in Kenya without being required to provide a KRA PIN certificate.
Detailed discussion
Background
The introduction of a mandatory requirement to provide a KRA PIN when opening a bank or investment account in Kenya presented an administrative challenge to foreign investors who sought to participate in the local capital market. This is because while the law provides for the possibility of a foreign investor appointing a tax representative to account for their taxes in Kenya, the risk associated with being a tax representative discourages many prospective tax agents from taking such a role.
It then follows that the foreign investors had to register a company or a branch in Kenya to be able to obtain a KRA PIN. The administrative and compliance costs of operating a company or a branch discouraged investors from participating in the local capital market.
The law was thus amended to provide the opportunity of being granted an exemption which eliminates the administrative and compliance burden and, in a bid, to encourage foreign investors to participate in the local capital market.
Some of the foreign investors who should explore exemption include nonresident persons who are engaged in the following activities:
Buying and selling government bonds
Buying and selling corporate bonds
Trading in other investment securities listed at the Nairobi Securities Exchange (NSE)
Based on our experience, some of the foreign investors who are likely to receive this exemption include the following persons:
Fund managers
Investment banks
Banks
Insurance companies
Family offices
Other financial sector players
For additional information with respect to this Alert, please contact the following:
Ernst & Young (Kenya), Nairobi
- Francis Kamau
- Christopher Kirathe
- Hadijah Nannyomo
- Robert Maina
- Peter Kinyagu
Ernst & Young Société d’Avocats, Pan African Tax – Transfer Pricing Desk, Paris
Bruno Messerschmitt
Alexis Popov
Ernst & Young LLP (United Kingdom), Pan African Tax Desk, London
- Kwasi Owiredu
Ernst & Young LLP (United States), Pan African Tax Desk, New York
Brigitte Keirby-Smith
Dele Olagun-Samuel
For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.