Tax Implications for Kenyan Forex traders Who Reside in Kenya

Many Kenyan forex traders are not sure what their legal tax obligations are towards the Kenyan Revenue Authority (KRA). Many trading accounts are overseas, and the gains made from their trading are not visible to the KRA, some traders may open trading accounts with forex brokers located in Kenya, or with brokers who have branches in Kenya. In this case, these traders’ capital won’t leave the country.

Trader Must Pay Tax On Earnings

It is a common misperception that traders don’t need to pay tax on profits made in offshore trading accounts. If a Kenyan resident generates profit from trading in an offshore trading account while residing within the borders of Kenya, the profit is regarded as normal taxable income and needs to be declared in Kenyan Shilling in their tax returns. In this case, it doesn’t matter where the income originates from, but rather where the person resides while generating that income.

Tax Rates for Individual Traders 

Forex traders who trade in their individual capacity are subject to the following tax, source: https://www.kra.go.ke/en/media-center/press-release/819-taxation-of-online-traders-and-digital-trading-platforms

Turnover Tax (TOT)

Turnover Tax(TOT) is a tax charged on gross sales of a business as per Sec. 12(c) of the Income Tax Act.

First introduced vide Finance Act 2006, replaced by Presumptive Income Tax vide Finance Act 2018 then reintroduced vide Finance Act 2019.

The effective date of TOT is 01/01/2020

Who should pay TOT?

Turnover Tax (TOT) is payable by resident persons whose gross turnover from business is more than Kshs. 1,000,000 and does not exceed or is not expected to exceed Kshs 50,000,000 in any given year. 

TOT does not apply to:

1. Persons with business income below Ksh. 1,000,000 and above Kshs. 50,000,000 per annum
2. Rental Income,
3. Management, Professional and Training Fees,
4. Any income that is subject to a final withholding tax under the Income Tax Act

 Note:

• Eligible taxpayers are advised to log onto iTax, add the TOT obligation, file the monthly returns and make payment.
• A taxpayer whose turnover is within the above threshold, but chooses not to be taxable under TOT, shall be deemed to have informed the Commissioner of this choice by not registering for TOT. 

What is the rate for Turnover Tax (TOT)?

• Turnover Tax is charged at the rate of 1% on gross monthly sales. 
• Expenses are not deductible.
• This is a final tax.

Filing of TOT Returns

TOT will be filed and paid on a monthly basis. The due date is on or before 20th of the following month.

Turnover Tax Return

1. Login to iTax
2. Under the returns menu, select file return, then turnover tax and download the excel return.
3. Complete the return and submit
4. After filing the return, go to payment menu, select ‘payment’, select the amount payable, and generate a payment slip.
5. Make the payment at a partner bank or through M-pesa

Tax Rates Business Entities

Forex traders who trade as a business owner are subject to the following tax, source: https://www.kra.go.ke/en/media-center/press-release/819-taxation-of-online-traders-and-digital-trading-platforms

Kenya Revenue Authority (KRA) has directed business owners trading on digital platforms to charge Value Added Tax (VAT) on their transactions and remit the taxes to KRA.

The Commissioner Domestic Taxes, Ms. Elizabeth Meyo said in a statement that KRA, had noted with concern that some digital business owners had failed to charge VAT as required by law.

“KRA wishes to inform such persons that they are obligated under the VAT Act, 2013 to charge and remit VAT as follows:

1. All the sales made through their digital platforms.
2. The commission charged to the vendors for the use of their digital platforms.

“All non-compliant traders are hereby advised to comply to avoid penalties and interests on outstanding taxes failure to which appropriate action will be taken in accordance to the law. Where fraud will be detected, appropriate criminal proceedings shall be brought against the offenders,” said the Commissioner.

The Finance Act 2019, sought to clarify that income from digital transactions are VAT payable.

This article is a general guide only and is not intended as individual legal tax advice. For more specific information on Kenyan tax legislation please consult a registered tax practitioner or the Kenyan Revenue Authority .