KENYA DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) EXPANDED AND RATIFIED

THE MAURITIUS – KENYA DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) EXPANDED AND RATIFIED

On 10 December 2019, a new DTAA and Protocol between Mauritius and Kenya was ratified and gazetted in the form of a legal notice by the government of Mauritius. Both the governments of Kenya and Mauritius had previously demonstrated their wish to strengthen economic and bilateral relationship by signing a DTAA on 16 October 2019. However, ratification and publication from the Kenyan government is awaited in order for the DTAA to have the force of law.

The new DTAA between the two countries has proven to be more beneficial than the repealed initial 2012 DTAA.

The salient features of the new Mauritius – Kenya DTAA are as follows:

 

                                                                                      SUMMARY OF KEY FEATURES
 

Articles

Rates as per DTAA and Protocol (%) Non-Resident Tax Rates in Republic of Kenya (%) Non-Resident Tax Rates in Republic of Mauritius (%)
Dividends 8 Exempt /10 Exempt
Interest 10 15 Exempt / 15
Royalties 12 20 15
Technical Fees 10 20 10
Capital gains on sale of shares 0/5 5 Exempt

Non-resident withholding tax rates as per local legislation will apply where they are more favourable than treaty rates.

The objective of this DTAA is to further boost investments from Mauritius to Kenya.

It is however, important to note that the capital gains article states that Mauritius will have sole taxing right on gain on sale of shares of a Kenyan resident entity except where:

  • Mauritius residents hold directly or indirectly, at least 50% of the capital of the Kenyan entity; or
  • The shares derive more than 50% of their value directly or indirectly from immovable property situated in Kenya.

It is also important to highlight that since Mauritius is a signatory to Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (BEPS) since July 2017, the DTAA shall include a Principal Purpose Test (PPT), which originates from OECD BEPS Action Plan 6: Prevent Treaty Abuse. Under the PPT, where it can be reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining treaty benefit was one of the principal purposes of any arrangement or transaction, treaty benefits could be denied.

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