Member Article

KENYA: Amnesty granted to landlords

In terms of the new section 123C, introduced into the Income Tax Act by Finance Act 2015 (the “Act”), the Kenya Revenue Authority (“KRA”) has granted a tax amnesty to landlords with effect from 1st January 2016.

The Act provides amnesty for persons who shall willingly declare their 2014 and 2015 rent, pay the implied principal tax and file returns (original or amended) between 1 July 2015 and 30 June 2016. For the two years (2014 and 2015), penalties and interest shall be waived, as well as the principal, interest and penalties for 2013 and prior years.

The provisions of Section 123C are wide and do not limit the scope of the amnesty, save for the instances relating to issued assessments and on-going audits or investigations. As such, individuals and any body of persons, be they incorporated or unincorporated, resident or non-resident, can take advantage of the amnesty. Taxpayers are also at liberty to apply the amnesty to rental income generated from residential, retail or commercial owned property.

In addition, where a person has no documentation to support expenditure, such person shall be allowed a deduction of forty percent of the gross rent, premium or similar consideration for the use or occupation of immovable property.

NIGERIA: Recharges are not tax deductible under deemed profits basis of assessment

On 18 December 2015, the Lagos Tax Appeal Tribunal (“TAT”) gave its decision in VF Worldwide Holdings Limited (VFW) v. Federal Inland Revenue Service (TAT/LZ/019/2012), reinforcing the decision of the Court of Appeal in Federal Board of Inland Revenue (FIRS) v. Halliburton Limited (CA/L/320/2009) that a taxpayer filing returns under the deemed profit basis is not entitled to any deduction other than the 80% deemed cost. Accordingly, recharges are not allowable deductions when computing a non-resident company's income tax under the deemed profits basis of assessment.

In the past, the FIRS accepted tax returns filed by non-resident companies (“NRCs”) under the deemed profits basis.  Under this regime, NRC’s profits are deemed to be 20% of its turnover. In terms of section 30(1)(b) of the Companies Income Tax Act (“CITA”), the FIRS has the discretion to assess and charge a company for that year of assessment on such fair and reasonable percentage of that part of the turnover attributable to the fixed base, where such company has no assessable profits or in its opinion, the profits are less than expected or cannot be ascertained.

In the case at hand VFW, a NRC, was awarded a contract to render visa-related services to the Secretary of State for Foreign and Commonwealth Affairs of the United Kingdom (“UKBA”) in various countries including Nigeria. In order to execute the Nigerian portion of the contract, the Appellant set up a Nigerian company, VF Nigeria Limited (“VFNL”). VFW executed a service agreement with VFNL under which VFNL would be compensated for its services at cost plus 8%.

VFW filed its Nigerian tax returns on the deemed profit basis, calculating its deemed profit as 20% of its net turnover, after deducting the amount paid to VFNL. The FIRS disallowed the deduction on the basis that tax should be imposed on the gross turnover, as all costs are deducted under the 80% deemed costs.

The FIRS issued a public notice on 28 January 2015 directing NRCs to henceforth file their tax returns based on actual profits in line with section 55 of the CITA.

NIGERIA: Financial transactions subject to stamp duty

On 15 January 2016, the Central Bank of Nigeria issued a circular CBN/GEN/DMB/02/006 (the “Circular”) directing all deposit money banks (“DMBs”) and other financial institutions to charge and collect NGN50 stamp duty on all receipts issued in acknowledgement of banking transactions on electronic transfers and teller deposits of at least NGN1,000.

The following receipts are exempt from stamp duty:

• payments, deposits or transfers from self to self, whether inter- or intra-bank; or
• any form of withdrawals or transfers from savings accounts.

The directive takes immediate effect.

Sources include IBFD, IHS and other