Our attention has been drawn to various publications on taxation of exempt income distributed to shareholders which have resulted to requests for clarifications. The publication provides an analysis on the coming into effect of the Finance Act 2018 amendments on dividends taxation.

The Finance Act 2018 (FA 2018) was assented to on 21st September 2018 with the effective dates of the various provisions provided for in the FA 2018. This alert concentrates only on the dividend taxation regime in Kenya pre-& post FA 2018.

Dividends distributed from untaxed profits Pre-FA 2018, the taxation of dividends distributed from untaxed profits was covered by the now repealed Section 7A the Income Tax Act (ITA). Due to various tax incentives, a company can have an accounting profit but tax losses.

An example of this is where a company claims investment deductions of 150%. The said company can then make accounting profits but due to the huge investment deduction it has tax losses.