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Kenya: Guidance on Natural Resource Income Withholding Tax

Kenya Issues Guidance on Natural
Resource Income Withholding Tax
The Kenyan Revenue Authority (KRA) Feb. 20 released guidance on withholding tax on natural resource income, introduced under the Finance Act 2014 and effective Jan. 1, 2015.
The guidance details what constitutes natural resource income, the taxpayer liability, the withholding rate and the instructions to file and remit the tax to the KRA
According to the guidance, the Finance Act defines natural resource income as:

(a) an amount — including a premium or such other like amount — paid as consideration for the right to take minerals or a living or non-living resource from land or sea. This covers all natural resource royalties, such as the right to enter land and remove a natural resource (minerals or living or non-living resources, e.g. timber); or
(b) an amount calculated in whole or in part by reference to the quantity or value of minerals or a living or non-living resource taken from land or sea. This covers all private overriding royalties paid in relation to an exploration or prospecting right. The amount is calculated by reference to the quantum or value of resources taken, notwithstanding that the recipient of the payment may have no rights in those resources.
The guidelines clarify that natural resources include, but are not limited to minerals, sand, quarries, fish, and timber.
The rules apply to both residents and non-residents. However, a payment made to a resident subject to withholding tax is levied at a rate of 5 percent of the gross amount payable. Whereas, payments to non-residents are subject to a 20 percent withholding tax of the gross amount payable.
Under the provisions of the tax, the individual or entity (whether resident or non-resident) making a payment constituting a natural resource income to another resident or non-resident is required to deduct the withholding tax before making the payment, the guidance explained. However, it pointed out that the withholding tax does not apply to payments made to those who are exempt from income tax.
Declarations and Payments
The tax is to be paid on or before the 20th day of the month following the month of deduction and the tax must be declared and paid using the withholding tax return. Failure to deduct and remit the withholding tax is an offense, the KRA stressed, warning that penalties will be imposed in accordance with the Income Tax Act.