The purpose of this paper is to highlight the key provisions of the agreement that allows both natural and juristic persons to structure their tax obligation, more so on Double Taxation.
The Government of Kenya and United Kingdom have a longstanding relationship since colonisation to date. As it stands, the two States entered into an Agreement for avoidance of Double Taxation, which is said to have been effective in Kenya as of January 01, 1976 and in the United Kingdom as of April 01, 1976 and April 06, 1976 for corporate tax and income tax and capital gains tax respectively.
Save as otherwise to be amended in the near future, the agreement is more favourable towards the United Kingdom as it offers tax avoidance on income tax, corporate tax, and capital gains tax while for Kenya, it is on income tax and graduated personal tax.
In order to have the agreement applied in favour of a person (meaning “Juristic and Natural person”), the person should domicile, have a residence, place of management or any other criterion of a similar nature in the contracting States.
Taxation of Human Beings
When defining who a natural person is, for purposes of taxation, the key areas of consideration shall be the permanent home, where the natural person has personal and economic relations, habitual abode, a State in which the natural person is a national, or effective place of management. The aforementioned do apply separately, for instance, if it is impossible to determine the permanent home, the next option shall be where the person has personal and economic relations. Should all this prove hard, the contracting States will consult for a mutual agreement.
It is of importance to note that an individual who is not a citizen of the contracting States can equally enjoy the provisions of the agreement should it be clear that he works in that State through a juristic person.
Taxation of Corporates
One can analyse the tax regime in the Republic of Kenya and United Kingdom to know whether to have their company have tax obligation towards a given country. Further, if the tax obligation in the United Kingdom is much fair as compared to that of Kenya (remember tax avoidance concerning corporates only apply one way, which is in favour of corporations in the United Kingdom), one can register their company in the United Kingdom and actualise its business activities in Kenya and always remit all its monies to United Kingdom for taxation purposes save where the income is generated from immovable property, as defined from the respective States on what immovable property comprises – but that does not include agricultural, forestry or plantation enterprises.
The reading of Article 6 of the agreement limits the applicability of the agreement should one fail to adhere to the guidelines therein; hence, making it possible for one to face double taxation (this applies to both natural and juristic persons).