Interested parties in the financial derivatives regulations 2022, have a week to submit their comments on the draft regulations. The deadline for the submission of the feedback to the Kenya Revenue Authority Commissioner general is the 30th of this month.
The Finance Act 2022 introduced a 15% withholding tax on income from financial derivatives contracts earned by a non-resident person. The tax regime takes effect from 1st January 2023 and follows an amendment to section 3(2) of the Income Tax Act, Cap 470.
The Kenya Revenue Authority has also developed the draft Income Tax (Financial Derivatives) Regulations 2022, and a copy posted on the KRA website where members of the public and stakeholders can submit their input.
The draft regulations indicate that gains on a financial derivative transaction accruing to a non-resident person, other than a non-resident person having a permanent establishment in Kenya, shall be chargeable to a final tax at the rate specified in the Act.
Regarding the realisation of gain or loss, a gain or a loss from a financial derivative shall be deemed realised when the underlying asset changes hands, or on settlement of the subject to the provisions of contract, or on the payment of option premium, or on the expiry of the financial derivative contract.
At the same time, the regulations provide that realised losses by a resident person from financial derivatives shall be allowed as a deduction against gains accruing from similar activities.
On Tax avoidance, the regulations stipulate that no deduction shall be allowed in respect of realised losses against the income of a resident person where no tax has been paid contrary to the provisions of these Regulations.
The regulations also provide that all income arising from financial derivative activities shall clearly be characterised as “other income” (financial derivative gains/losses) in the tax returns for the period and shall be treated as a separate source in accordance with Section 15(7) of the Act.
The tax under these regulations shall be due and payable by the 20th of the month.
