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HMRC internal manual

Double Taxation Relief Manual

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HM Revenue & Customs
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DT: Kenya: double taxation agreement, Article 26: Elimination of double taxation

  1. Subject to the provisions of the law of the United Kingdom regarding the allowance as a credit against United Kingdom tax of tax payable in a territory outside the United Kingdom (which shall not affect the general principle hereof):

(a) Kenya tax payable under the laws of Kenya and in accordance with this Agreement, whether directly or by deduction, on profits, income or chargeable gains from sources within Kenya shall be allowed as a credit against any United Kingdom tax computed by reference to the same profits, income or chargeable gains by reference to which the Kenya tax is computed. Provided that in the case of a dividend the credit shall take into account only such tax in respect thereof as is additional to any tax payable by the company on the profits out of which the dividend is paid and is ultimately borne by the recipient without reference to any tax so payable.

(b) In the case of a dividend paid by a company which is a resident of Kenya to a company which is a resident of the United Kingdom and which controls directly or indirectly at least 10 per cent of the voting power in the company paying the dividend the credit shall take into account (in addition to any Kenya tax for which credit may be allowed under the provisions of sub-paragraph (a) of this paragraph) the Kenya tax payable by the company in respect of the profits out of which such dividend is paid.

  1. For the purpose of paragraph (1) of this Article, the term `Kenya tax payable` shall be deemed to include any amount which would have been payable as Kenya tax for any year but for-

(a) a reduction of tax granted for that year or any part thereof under paragraph(2)(b) of the Second Schedule to the Income Tax (Allowances and Rates) (No. 2) Act 1971, so far as it was in force on, and has not been modified since, the date when this Agreement was signed, or has been modified only in minor respects so as not to affect its general character; or

(b) any other provision which may subsequently be made granting an exemption or reduction of tax which is agreed by the competent authorities of the United Kingdom and Kenya to be of a substantially similar character, if it has not been modified thereafter or has been modified only in minor respects so as not to affect its general character.

 

Provided that relief from United Kingdom tax shall not be given by virtue of this paragraph in respect of income from any source if the income arises in a period starting more than ten years after the exemption from, or reduction of, Kenya tax was first granted in respect of that source.

  1. Where a resident of Kenya:

(a) derives income from sources within the United Kingdom which, in accordance with the provisions of this Agreement, is exempt from Kenya tax but may be taxed in the United Kingdom, then Kenya may, in calculating the tax on the remaining income of that person, apply the rate of tax which would have been applicable if the income derived from sources within the United Kingdom had not been exempted;

(b) derives income from sources within the United Kingdom which may be taxed in both Contracting States, then Kenya shall allow as a deduction from the tax on the income of that person an amount equal to the tax paid in the United Kingdom. Such deduction, however, shall not exceed that part of the Kenya tax as computed before the deduction is given, which is appropriate to the income derived from the United Kingdom.

  1. For the purposes of paragraphs (1) and (3) of this Article income, profits and capital gains owned by a resident of a Contracting State which may be taxed in the other Contracting State in accordance with this Agreement shall be deemed to arise from sources in that other Contracting State.