As a Kenyan living in the diaspora, you may be faced with the challenge of double taxation. This is a situation where you are required to pay taxes in both Kenya and the country where you reside. This can be a burden, especially if you are not familiar with the tax laws in both countries. Fortunately, Kenya has a double taxation relief mechanism in place to help ease the burden for its citizens living abroad.
Double taxation relief is a system that allows taxpayers to avoid paying taxes twice on the same income in two different countries. It ensures that you do not pay taxes on the same income in both Kenya and the country where you reside. The aim is to encourage international trade and investment by reducing the tax burden on taxpayers.
Kenya has entered into double taxation agreements (DTAs) with several countries to prevent double taxation of income. These agreements are bilateral treaties that provide a framework for cooperation between Kenya and the other country in areas of taxation. They specify the rules for determining the taxable income, the applicable tax rates, and the procedures for resolving any disputes that may arise.
The DTA provides relief from double taxation in two ways: the credit method and the exemption method. Under the credit method, the tax paid in one country is credited against the tax liability in the other country. For example, if you are a Kenyan living in the United Kingdom and you pay taxes on your income in the UK, you can claim a credit for that tax paid against your tax liability in Kenya. This ensures that you do not pay taxes on the same income in both countries.
Under the exemption method, the income is exempt from tax in one country if it is taxed in the other country. For example, if you are a Kenyan living in Canada and you pay taxes on your income in Canada, that income is exempt from tax in Kenya. This means that you only pay taxes on the income earned in Kenya.
To benefit from the double taxation relief mechanism, you must ensure that you comply with the tax laws in both countries. You must file your tax returns in both Kenya and the country where you reside. You must also keep proper records of your income, expenses, and taxes paid.
In conclusion, double taxation can be a burden for Kenyans living in the diaspora. However, the double taxation relief mechanism in place provides a solution to this challenge. By taking advantage of the DTAs between Kenya and other countries, you can avoid paying taxes twice on the same income. It is important to comply with the tax laws in both countries to benefit from this mechanism.
By Joyce Nawiri, Associate Advocate (LL.B (Hons)-UoN, Dip-KSL)