Kenya gazettes tax treaty with Mauritius
Kenya gazetted a revised double tax treaty between Kenya and Mauritius, by way of Legal Notice No. 114 of 2020, as published in Official Gazette on 30 June 2020. Last March the Kenyan High Court nullified the previous treaty after declaring a previous Legal Notice (No. 59 of 2014) gazetting the 2012 Kenya-Mauritius tax treaty to be invalid.
The revised tax treaty is similar to its predecessor and provides for reduced withholding tax rates on dividends, interest and royalties, albeit with changes to withholding tax rates. The tax rates for dividends generally are reduced from 10% (5% if the beneficial owner of the dividends is a company holding directly at least 10% of the capital of the company paying the dividends) to 8%. The withholding rates for interest remain at 10%, while the rate for royalties increase for 10% to 12%.
A treaty benefit will be denied if it is reasonable to conclude that it is one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit unless it is established that the benefit in these circumstances would be in accordance with the objective and purpose of the DTA.
A treaty benefit will not be denied if the person makes a request to the relevant contracting state and demonstrates the fact that the tax benefit would have been granted in the absence of the transaction or arrangement.
Capital gains realised by a resident of one state on the transfer of shares or similar interests, may be taxable in the other contracting state if during the past year, the shares or similar interests, directly or indirectly derived more than 50% of their value from immovable property in that other state.
Additionally, gains derived by a resident of a contracting state from the sale of shares of a company which is resident in the other contracting state may be taxed in the other contracting state if the seller at any time during the 12-month period preceding such transfer held directly or indirectly at least 50% of the capital of that company.
The new treaty also provides for exchange of information between the two countries and mutual agreement procedures, while the clause concerning permanent establishment (PE) has been aligned with the recommendations in Action 7 of the Organisation for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) project.
The Zambian government announced on 22 June that it would be terminating its 2012 tax treaty with Mauritius with effect from 31 December 2020, following approval by the Zambian Cabinet. In the Cabinet statement, the Zambian government stated that it did not retain taxing rights to tax dividends, interest and royalties arising in Zambia and payable to residents of Mauritius. It intends to initiate negotiations for a new DTA that will introduce shared taxing rights and anti-abuse clauses.