Data from the Central Bank of Kenya (CBK) shows that Kenyans abroad remitted up to USD 4.19 billion (approx. KES 544.7 billion) in 2023. A survey report released in December 2021 by the CBK indicates that more than 40% of 2021 diaspora remittances amounts went to investment in real estate and payment of mortgage in that year, translating into more than USD 1.68 billion (approx. KES 217.88 billion) in 2023.
With these insane numbers, of what significance is tax compliance by the diaspora community regarding property investments locally?
Kenyans abroad hardly ever see the need to comply with the local tax laws mainly because they usually visit home but briefly and have no active in-person engagements here. Others remain noncompliant for not knowing their abiding local tax compliance obligations.
Tax noncompliance in Kenya currently has grim consequences, ranging from late payment penalties and interest to civil or criminal charges. But a special repercussion of noncompliance that is worth noting is the impact on one’s investments at home. As it is currently, the acquisition of immovable property requires clearance from the KRA in varied ways.
For the registration of property locally, the KRA tax PIN is a mandatory requirement. Through this PIN, your intention to develop or acquire a property would trigger compliance check from the KRA who would also query the sources of funds utilized in the investment and potentially establish whether the said incomes were properly taxed here.
Additionally, an acquirer of property in Kenya has an obligation to pay stamp duty, payable only by registered taxpayers. From the stamp duty declaration, the KRA has access to rich data on your investment by which they may want to verify your tax compliance levels. For a smooth and successful investment in property, tax compliance, therefore, is vital.
What’s more, the KRA also has powers to attach, as security, land, buildings or any other registrable property to the taxes owing from the owner of such property. Unbelievable, right?
This is what the law says, “Where a taxpayer, being the owner of property in Kenya, fails to pay a tax by the due date, the Commissioner may notify the Registrar in writing that the property, to the extent of the taxpayer’s interest in the property, shall be the subject of a security for the unpaid tax specified in the notification”. This provision restrains the defaulting taxpayer from the disposal, mortgage, or charge on the property until the tax due is settled.
We have seen instances where a buyer of property is compelled to settle unexpected tax liabilities before concluding a land transfer process. What an inconvenience, when in most cases you may not even be aware of the said tax liabilities!
Yet, tax compliance in Kenya by the diaspora community remains to be such an intricacy. The uncertainty of whether Kenyans abroad should pay taxes in Kenya, the relevant tax rates and double taxation complexities are largely responsible for the widespread noncompliance. And the fact that, depending on various circumstances, Kenyans abroad may or may not actually be liable to taxes in Kenya has added to the confusion.
According to the said CBK survey, most Kenyans abroad are employed, adding to the tax compliance tapestry. Do not fall into the mistake of supposing that just because you stay and work abroad, your employment incomes are not taxable in Kenya. The taxation of diaspora employment income is dependent on the nature of the income in question; in which country it was earned/sourced; and where the earner is normally based. Complex indeed!
With these and more tax compliance complexities, the diaspora community should, therefore, be wary of their tax compliance obligations and endeavour to comply for smooth investment activities here. The Government, through the Treasury and KRA, should also simplify the tax compliance framework for the diaspora community so as not to discourage their choice of Kenya as an investment destination.
Where one is uncertain of their tax obligation in Kenya, or where there arises a tax dispute at the point of pursuing your investment at home, seeking the help of a competent tax consultant may provide the much-needed relief.
