Investing in Kenya: Deemed Interest & Tax Implications

Introduction

Are you considering investments in Kenya or already involved in international business transactions? It’s crucial to understand the concept of “Deemed Interest” and its tax implications under Kenyan law.

What is Deemed Interest?

Deemed Interest is the notional interest assumed to be payable by a resident person in Kenya in relation to outstanding loans provided or secured by non-resident individuals or entities, especially when those loans are interest-free. It’s subject to withholding tax at a rate of 15%, with the prescribed interest rate determined quarterly.

The Challenge:

Deemed interest has raised concerns among investors, particularly in cases where initial capital outlays are financed through interest-free loans. This additional cost can be a burden during the pre-income generation phase, potentially impacting the attractiveness of investments in Kenya.

Our Perspective:

To foster a thriving investment environment, it’s essential to address the concerns surrounding deemed interest. We advocate for greater clarity in the application of these provisions or, alternatively, a reevaluation of the necessity of deemed interest in Kenya’s tax laws.

We believe that by providing more investor-friendly regulations, Kenya can position itself as an attractive destination for investments, supporting economic growth and development.

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