Gazettement of Additional Land Parcels with Respect to the Nairobi Land Registration Unit

Posted on September 10th, 2021

Further to our legal alerts issued on 13th January 2021 and 6th April 2021, we wish to inform you that on 16th July 2021, the Ministry of Lands and Physical Planning (the Ministry) issued Gazette Notice 7146 of 2021(the Gazette Notice), which revoked Gazette Notice Numbers 11348 of 2020 and 520, 1706 and 1707 of 2021 on conversion and migration to new parcel numbers with respect to the Nairobi Land Registration Unit.

Consequently, please note that Gazette Notice 7146 of 2021 is the only subsisting conversion list from the Ministry. Additionally, the Gazette Notice stipulates that all transactions or dealings pertaining to the listed parcels shall be carried out in the new registers from 1st November 2021. As such, the proprietors of the listed parcels will acquire new titles to enable future effective dealings in their properties.

The public has been invited to scrutinize the parcels listed in the Gazette Notice and where a person is dissatisfied with information contained in the Gazette Notice, the grievance mechanisms provided under the Land Registration (Registration Units) Order of 2017 promulgated under section 6 of the Land Registration Act, 2012 are available.

Further, any person aggrieved by the information in the conversion list, or the cadastral maps contained in the Gazette Notice, may lodge a complaint with the Registrar within ninety (90) days of Gazette Notice’s publication. The aggrieved person may also register a caution pending the clarification or resolution of the complaint. Lastly, an aggrieved party may appeal the decision of the Registrar in Court.

From the foregoing, concerned proprietors are advised to exercise vigilance, to peruse and comply with the Gazette Notice in order to facilitate a smooth transition of their respective properties’ records. Members of the public are also advised to peruse the conversion list so as to confirm whether they have any interest in any of the listed parcels. If so, they should promptly liaise with the respective proprietors for the necessary compliance.

Please click here to download the alert.


This alert is for informational purposes only and should not be taken as or construed to be legal advice. If you have any queries or need clarifications with respect to this alert, please do not hesitate to contact Pamella Ager (pamella@oraro.co.ke), James Kituku, Partner (james@oraro.co.ke) or Anna Kandu (anna@oraro.co.ke) or your usual contact at our firm.

Appealing Tax Appeals Tribunal Determinations at the High Court: Commissioner of Investigations and Enforcement v Grain Bulk Handlers Limited

Posted on July 28th, 2021

Background

In a Judgement delivered on 17th June, 2021 in Income Tax Appeal No. E005 of 2020: Commissioner of Investigations and Enforcement v Grain Bulk Handlers, the High Court dismissed an appeal by the Commissioner of Investigations and Enforcement (“the Appellant”) against the Judgment of the Tax Appeals Tribunal delivered on 18th December 2019.

Issues for determination

The Appellant raised seven grounds of appeal which the Court summarized as follows to arrive at its determination:

  1. Whether the respondent’s appeal before the Tribunal was filed out of time;
  2. Whether the Tribunal erred in finding that the respondent was not an importer and that no tax was payable on terminal tolerance or that the respondent required a destruction certificate or that the respondent was liable for un-customed goods;
  3. Whether the Tribunal erred in finding that the appellant’s documents were inadmissible; and
  4. Whether the Tribunal erred in holding that the assessment against the respondent was similar to that of its Managing Director.

The Court’s analysis & decision

  1. Whether the Appeal filed out of time (suspension of time by consent)

There was undisputed evidence that after the objection decision, Grain Bulk Handlers (“GBH”) filed a Petition in the High Court in Petition No. 239 of 2012 (the Petition) wherein the High Court suspended the 30-day period for filing an appeal and stayed the proceedings of the Committee. The stay orders were thereafter extended by consent of both parties until determination of the Petition. By this action, computation of time stopped and resumed when the High Court determined the Petition.

After the petition, the GBH appealed to the Tribunal, wherein KRA objected to the appeal on the basis that the GBH’s appeal at the Tribunal was time barred. The Tribunal dismissed the objection.

The High Court found that the appeal at the Tribunal was filed within time given that computation of time was stayed by consent of the parties. As a result, the High Court found that this ground of appeal failed.

  1. Whether the GBH was an importer (question of fact in an appeal)

The second ground was that the Tribunal erred in finding that the GBH was not an importer and that no tax was payable on terminal tolerance (grain loss that occurs during transfer from one vessel to another). KRA further claimed that the Tribunal erred in finding that the GBH did not require a destruction certificate or that it was not liable for un-customed goods.

The High Court noted that S. 56 (2) of the Tax Procedures Act limits an appeal to the High Court to questions of law only. The Court further noted that the exception to the rule was that a question of fact can give rise to a question of law on a lower court/tribunal’s misapprehension of evidence which leads to a bad decision.

On hearing the appeal, the Court found that the KRA failed to demonstrate how the Tribunal’s findings on facts were so perverse that it would amount to conversion of a point of fact into a point of law warranting the High Court’s intervention. In addition, the High Court found that the KRA failed to prove that the GBH imported grains as no tangible evidence was adduced in this regard. Further no evidence was adduced by KRA to support their allegation that GBH had sold grains to third parties. To the contrary there was sufficient evidence adduced by GBH to demonstrate that any grains released to third parties were undertaken upon instructions of their clients with whom they had executed Service Provision Agreements. The claim of dealing with un-customed goods was therefore unsubstantiated. As a result, this ground of appeal failed.

  1. Admissibility and weight of evidence (summary of bank transactions)

KRA argued that the Tribunal erred in finding as inadmissible evidence proving that GBH delivered grains to clients who were not importers. On its part GBH submitted that the Tribunal did not declare the said documents as inadmissible but that they fell short of proving the KRA’s claim that income had been earned from sale of grain as had been alleged.

The evidence relied on by KRA in support of the alleged assessment was a banking summary relating to the GBH’s director and not the GBH itself. Further, the Tribunal found that the banking summary did not disclose the relevant bank details, account name, account number or bear a signature.

The Court agreed with the Tribunal as the documents did not prove that income had been derived from the Respondent’s grain sales and held that this ground of appeal failed.

  1. Appeal on an undetermined matter

Lastly, the fourth ground argued by KRA was that the Tribunal erred in holding that the assessment against the GBH was similar to that against the GBH’s director. The Court determined that the Tribunal did not make any such determination in its judgment and stated that the KRA could not appeal on an issue that was never determined by the Tribunal in the first instance. As a result, this ground of appeal failed.

Based on the above, the Judge dismissed KRA’s Appeal in its entirety with costs to the Respondent.

Grain Bulk Handlers Limited was represented at the High Court by our tax team led by George Oraro SC, Founding Partner, assisted by Renee Omondi, Tax Partner, Wanjala Opwora, Associate and Nzioka Wang’ombe, Associate.

Please click here to download the alert.


This alert is for informational purposes only and should not be taken to be or construed as a legal opinion. If you have any queries or need clarifications, please do not hesitate to contact Renee Omondi (renee@oraro.co.ke), Wanjala Opwora (wanjala@oraro.co.ke), Nzioka Wang’ombe (nzioka@oraro.co.ke) or your usual contact at our firm, for legal advice.

Tax Appeals Tribunal Rules Apple Concentrate is not a Beverage: Kenya Breweries Limited v Commissioner of Customs & Border Control

Posted on July 19th, 2021

In a Judgement delivered on 25th June, 2021 in Tax Appeal No. 282 of 2020: Kenya Breweries Limited v Commissioner of Customs & Border Control (2020) eKLR, the Tax Appeals Tribunal (the “Tribunal”) allowed an appeal by Kenya Breweries Limited (“KBL”) setting aside the Commissioner of Customs & Border Control Tariff Ruling dated 5th June, 2020. The Tribunal also asserted that the Apple Concentrate that KBL intended to import for manufacturing Tusker Cider, an alcoholic beverage is classifiable under HS Code 2106.90.20 (food preparations) of the East African Community Common External Tariff, 2017 (CET), thus subject to a lower customs rate.

The main dispute between the parties was the classification of the Apple Concentrate (an ingredient used for manufacturing Cider, an alcoholic beverage). KBL’s position was that the concentrate ought to be classified under Chapter 21 (edible preparations) which attracts a duty rate of 10%. On the other hand, the Kenya Revenue Authority (“KRA”) argued that the Concentrate was classifiable under Chapter 22 (beverages, spirits & vinegar), which attracts a duty rate of 25%.

The Law on Classification of Commodities

The East African Customs Management Act, 2004 (“EACCMA) governs customs administration in the East African Community and the CET governs classification of imported goods for the purpose of duty calculation. The CET ought to be interpreted in accordance with the World Customs Organization (“WCO”) General Interpretation Rules for the Interpretation of the Harmonized System (“GIRs”) and the explanatory notes to the CET.

GIR 1 provides that: “The titles of sections, chapters and sub chapters are provided for ease of reference only; for legal purposes, classification shall be determined according to the terms of the headings and any relative section or Chapter Notes.” Basically, when classifying a commodity, one should first refer to the terms of the headings of that subject then the terms of the Section then the relevant Chapter Notes.

The submissions by the parties

KBL argued, in both its Application for a Tarif Ruling before KRA and before the Tribunal, that the Apple Concentrate was classifiable under HS Code: 2106.90.20 on “Preparation of a kind used in manufacturing of beverages” in Chapter 21 that covers “Miscellaneous Edible Preparation”. KBL through its lead counsel Mr. George Oraro, SC emphasized that KRA ought to have considered the purpose, intended use, and chemical composition of the product in determining the class under which it falls. KBL further emphasized that whereas the Apple Concentrate had an alcoholic percentage of up to 14%, it was not a beverage that could be offered for human consumption in that state thus could not be classified under Chapter 22 of the CET.

KRA, on the other hand, insisted in both its Opinion and Tariff Ruling dated 5th June, 2020 that the product was classifiable under Heading 22.06 on “other fermented beverages (for example, cider, perry, mead, sake) … not elsewhere specified” under Chapter 22 that covers “Beverages, sprits and vinegar”

In KRA’s view, the Apple Concentrate was not classifiable under Chapter 20 (preparations of vegetables, fruit…) or 21 (edible preparations) due to its 14% alcohol content thus classified it under Chapter 22 of the CET. KRA based its position on Explanatory Note (d) to Chapter 20 of the CET that classifies fruit or vegetable juices of an alcoholic strength by volume exceeding 0.5% volume under Chapter 22. Further, KRA argued that the Apple Concentrate was fermented fruit thus classifiable under Chapter 22 that deals with fermented beverages such as cider.

In response to KRA’s arguments, KBL stated that the Apple Concentrate was neither a fruit nor a vegetable thus Explanatory Note (d) did not apply. KBL further argued that it would be unreasonable to insist that the Apple Concentrate is a beverage when it cannot be consumed in its imported state and had to processed to produce Tusker Cider which is fit for human consumption.

The Decision

Having heard the parties, the Tribunal was of the view that GIRs ought to be interpreted in cascading order. GIR 1 is the foremost rule of classification. This means that classification is determined first by the terms of the headings, then the section or chapter notes and other GIRs (if necessary).

The Tribunal further determined that, in establishing the appropriate Tariff Code of a product, one must consider the words of the Section and Chapter titles as a guide and faulted the Respondent for disregarding this basic yet fundamental rule.

Additionally, the Tribunal echoed that in determining classification of products, KRA must give due regard to the purpose and intended use of the product. In this respect, the Tribunal took cognizance of the undisputed fact that the Apple Concentrate was a raw material for manufacturing Cider, an alcoholic beverage. Consequently, the Tribunal found that the Apple Concentrate was not a beverage.

In conclusion, the Tribunal found that KRA had erred in classifying the Apple Concentrate under HS Code 2206.00.10 (Chapter 22) and agreed with the KBL’s argument that the concentrate ought to be classified under HS Code 2106.90.20 (Chapter 21). Accordingly, KRA’s Tariff Ruling dated 5th June, 2020 was set aside and KBL’s Appeal was allowed.

Kenya Breweries Limited was represented at the Tax Appeals Tribunal by our tax team led by George Oraro SC, Founding Partner, assisted by Renee Omondi, Tax Partner, Wanjala Opwora, Associate and Nzioka Wang’ombe, Associate.

Please click here to download the alert.


This alert is for informational purposes only and should not be taken to be or construed as a legal opinion. If you have any queries or need clarifications, please do not hesitate to contact Renee Omondi (renee@oraro.co.ke), Wanjala Opwora (wanjala@oraro.co.ke), Nzioka Wang’ombe (nzioka@oraro.co.ke) or your usual contact at our firm, for legal advice.

The Finance Act, 2021 – Breakdown and Analysis

Posted on July 8th, 2021

The Finance Act, 2021 (the Act) was assented to by the President and passed into law on 29th June 2021.

We are pleased to share with you, our views and comments on the salient changes that the Act has introduced below.

INCOME TAX ACT, CAP 470

Provision Amended   Amendment Our Comments
S.2(a) Amends Section 2 of the ITA

Inclusion of the definition of “control” in scenarios where:

  • a person holds at least 20% of the voting rights of a company whether directly or indirectly;
  • a person advances a loan facility constituting at least 70% of the total book value of the assets of a company or guarantees 70% of the total debt of the debtor (excluding loans from unrelated financial institutions);
  • a person appoints more than half of the board of directors of another entity or at least one director or executive member of the governing board of that entity;
  • a person owns intellectual property rights which a company wholly depends on in the manufacture or processing of goods or articles carried on by the person;
  • a person who supplies at least 90% of the sales of an entity and upon assessment by the Commissioner, the person influences the price or other conditions relating to the supply or purchases by the other person;
  • a person who purchases or designates a person to purchase at least 90% of the sales of another person and upon assessment, the Commissioner deems influence in the price or any other conditions of the sales of another person;
  • a person who has any other relationship, dealing or practice with another person that the Commissioner may deem to constitute control.
The term “control” was previously defined under the Second Schedule of the Income Tax Act to mean the holding of 25% or more of the shares or voting rights within a company. The provision was subsequently deleted by the Tax Laws (Amendment) Act, 2020. This amendment is geared towards reintroducing the definition of the word “control” and expanding its scope in light of the introduction of beneficial ownership disclosure under the Companies Act. It, therefore, expands the scope of those in control of a company from ordinary shareholders to include suppliers, financiers, guarantors and even consumers provided that they exercise control in companies.

Additionally, a related company that supplies another company with at least 90% of its sales will have to comply with the transfer pricing rules under the Income Tax Act.

Further, the last amendment gives the Commissioner a wide discretion to determine what constitutes control of another person. This creates a level of uncertainty for taxpayers on the criteria used for determination of control.

These amendments will affect the application of the law on thin capitalisation and transfer pricing to include a wider range of transactions between related parties which were not clear or expressly provided for thus widening the taxable income base.

Introduction of the definition of “infrastructure bond” to mean a bond issued by the government for the financing of a strategic public infrastructure facility including a road, hospital, port, sporting facility, water and sewerage system, communication network or energy project. This will improve certainty for potential investors  whose listed bonds are infrastructure bonds, hence exempt them from paying income tax on the accruing interest.

For purposes of taxation, it is extremely useful and necessary to have express definitions for avoidance of doubt and to provide clarity.

The amendment redefines a “permanent establishment” (PE) as follows:

paragraph (a) has expanded the definition to include a warehouse (in relation to persons providing storage facilities to others), a farm, plantation or any other place where agricultural, forestry plantation or related activities are carried on as well as a sales outlet;

paragraph (b) includes a building site, construction, assembly or installation project or any supervisory activity connected thereto, only if it continues for a period of more than one hundred and eighty-three days;

paragraph (c) lists the provision of services (including consultancy), through employees or other persons only where such services are related to business in Kenya for an aggregate period of at least 91 days in any 12-month period or ending in the year of income concerned;

paragraph (d) also classifies an installation/structure used in the exploration of natural resources for a period of not less than ninety-one days as a PE;

paragraph (e) also includes a dependent agent of a principle for activities the principal undertakes in Kenya (including habitually concluding contracts, playing the principal role leading to the conclusion of contracts without material modification by the person).

A fixed place of business through which business is wholly or partly carried on; and a building site, construction, assembly or installation project or any supervisory activity connected to the site or project, but only if it continues for a period of more than 183 days.

Paragraph (a) expands the definition of a PE to include sales outlets, farms, plantations or any place where related activities are carried out irrespective of the duration of activity.

Paragraph (b) seeks to quell the mischief of persons carrying out building & construction projects in Kenya:

a.  using different related entities for short periods each to avoid being deemed to be operating in Kenya for more than one hundred and eighty-three days; or

b.  by carrying out projects intermittently using a single entity to avoid carrying out business for a continuous period of one hundred and eighty-three days.

By deeming such to be PEs for purposes of income tax.

Paragraph (c): Service provision for an aggregate of 91 days in any 12-month period shall be regarded as a PE. This will affect the way non-resident service providers do business with resident entities.

Paragraph (d):Installations/structures used in natural resource exploration are now PEs if they are up for a period exceeding ninety-one days.

Paragraph (e): Non-residents acting through local agents to habitually conclude business in Kenya shall be deemed to have a PE in Kenya.

However, the determination of a PE excludes certain activities of a preparatory or auxiliary character.

S.3 The Act expands the scope of income to be subject to income tax by including income accrued from business carried out over the internet or electronic networks, including through a digital marketplace. This amendment subjects income from business carried out online to income tax. Previously, only income from a digital marketplace was subject to income tax.
The Act now defines a “digital marketplace” as an online or electronic platform which enables users to sell or provide services, goods or other property to other users. The amendment brings certainty as to what constitutes a digital marketplace.

However, the Digital Marketplace Regulations have not yet been enacted. Therefore, there is no clear mode of collecting taxes accruing from a digital marketplace.

S.11 The Act introduces section 11(3A) to the Income Tax Act to require the application of section 11(3) to registered trusts in the following instances:

a) any amount paid out of the trust income on behalf of any beneficiary and is used exclusively for the purpose of education, medical treatment or early adulthood housing;

b) income paid to any beneficiary which is collectively below Kshs. 10 million in the year of income;

c) such other income as may be prescribed by the Commissioner from time to time and at such rate as prescribed in paragraph 5 of the 3rd Schedule.

This amendment exempts all amounts paid out by a registered trust (to or on behalf of a beneficiary) except for:

a.  payments from the trust for the exclusive purpose of education, medical treatment or early adulthood housing;

b.  income paid to a beneficiary that amounts to less than KES ten million per year of income;

c.  any other amount prescribed by the Commissioner.

The amendment has restricted the applicability of income tax payments out of a registered trust that meet the above conditions. This will ultimately reduce tax collections on payments by trusts to beneficiaries. This amendment may be erroneous.

S. 12D The Act introduces subsection (1A) to exempt the following persons from paying minimum tax:

a) persons engaged in business whose retail price is controlled by the Government;

b) persons engaged in insurance business;

c) persons engaged in manufacturing and their cumulative investment in the preceding 4 years from assent is at least KES. 10 billion shillings;

d) persons licensed under the Special Economic Zones Act, 2015; and

e) persons engaged in distribution business with income based solely on a commission.

This amendment is a welcome move seeking to exempt the following persons from payment of minimum tax:

a.  businesses whose retail price is regulated by the government e.g. petrol stations;

b.  those in insurance business e.g. agents & brokers;

c.   manufacturers who have invested a sum of at least KES ten billion within the preceding four years;

d.   Special Economic Zone (SEZ) operators; and

e.   distributors who earn only commissions.

S.12E The Act states that non-resident persons whose income is derived or accrues in Kenya through a business carried out over the internet or an electronic network including a digital marketplace shall be subjected to Digital Service Tax (DST). Such non-resident persons shall be required to remit the DST on or before the twentieth day of the following month. Additionally, income subject to Withholding Tax shall not be further subjected to DST. This amendment restricts the applicability of Digital Service Tax (DST) to non-residents.

The amendment further provides that DST returns are to be filed and DST paid before the twentieth day after the end of the month when the service was offered (similar to the filing deadline for VAT, WHT and excise duty).

However, DST shall not apply to income subject to WHT or income from provision of radio, television or internet services.

S. 15 The phrase assigning the meaning of “control” as per the Second Schedule of the Act is deleted.

The Act also removes the cap of 10 years for offsetting taxable losses to an indefinite period.

For purposes of Section 15, “control” shall take up the definitions listed in Section 2 above. This expands the definition of control and creates consistency in its definition.

This amendment removes the 10-year restriction on carrying forward tax losses, thus enabling businesses to infinitely carry forward business losses.

S. 16 The Act prohibits payment of gross interest to related persons and third parties exceeding 30% of earnings before interest, taxes, depreciation and amortization (EBITDA) of the borrower in any financial year. Further, any income exempt from tax is proposed to be excluded from the calculation of EBITDA.

The above provision shall apply to interest on all loans; payments that are economically equivalent to interest; and expenses incurred in connection with raising the finance.

Thin capitalization will now be determined by the total value of loans as a percentage of EBITDA, a change from the previous position where loans were compared to the total equity in the balance sheet.

This will change the thin capitalisation rule of debt-to-equity ratio of 3 to 1 to a restriction of payment of gross interest at not more than 30% of EBITDA. Related companies that are thinly capitalised will have to make necessary adjustments based on EBITDA. This amendment also encompasses any payments equivalent to interest, thereby sealing the loopholes resulting from persons declaring interest in other forms/classifications.

However, banks and financial institutions licensed under the Banking Act and Micro and Small Enterprises registered under the Micro and Small Enterprises Act, 2012 shall be exempt from this provision.

The Act introduces a new paragraph (ja) to Section 16 (2) to prohibit deductions on deemed interest where the person is controlled by a non-resident person alone or with not more than four other persons where the company is not a bank or financial institution licensed under the Banking Act. This provision already existed in Section 16(2)(j) and the amendment is for clarity purposes only.
S.18B The Act requires an ultimate parent entity of a multinational enterprise group to submit a return to the Commissioner describing the group’s financial activities in Kenya, where its gross turnover exceeds the prescribed threshold, and in all other jurisdictions where the group has a taxable presence.

The information to be provided in the returns include the amount of revenue, profit or loss before income tax, income tax paid, income tax accrued, stated capital, accumulated earnings, number of employees and tangible assets other than cash or cash equivalents regarding each jurisdiction in which the group operates.

Ultimate parent companies (that exceed a turnover threshold set by the Commissioner) must now file annual returns that include all the group’s financial activities in all other jurisdictions where the group has a taxable presence.

This will give the Revenue Authority first hand access to information on related parties.

S. 25 The Act refines the definition of the term “settlement” to include the phrase “through a registered family trust”. This amendment clarifies that registered family trusts are subject to income tax similar to other trusts.
S. 26 The definition of the term “settlement” is amended to include the words “other than a registered family trust” immediately after the word “covenant”. This excludes registered family trusts from the provisions of Section 26. As a result, income earned by a trust shall not be deemed as the taxable income of the creator of the trust.
S.31 Provision of insurance relief for contributions made to the National Hospital Insurance Fund (NHIF).

 

NHIF contributions shall now be allowable as insurance relief for resident individuals in their income tax returns, thus equalizing all tax payers when claiming relief on insurance.
S.39B Employers who engage at least 10 graduates from technical and vocational education and training as apprentices for a period of 6 to 12 months shall now also be eligible for a tax rebate the following year after such engagement. The amendment is meant to widen the scope of apprenticeship tax rebates to include employers offering 6–12-month apprenticeships to graduates from Technical and Vocational Education and Training (TVET) institutions, thus encouraging them to not only engage university graduates as apprentices but also graduates from TVETs.
S.41 The Act deletes the current section 41 of the Act and replaces it with a new section 41 that provides that any special arrangement for relief from double taxation between Kenya and another country shall have effect in relation to income tax and the said agreement shall be subject to the provisions of the Treaty Making and Ratification Act, 2012.

Additionally, where the agreement provides that the income derived from Kenya is exempt or excluded from tax, or the application of the arrangement results in the reduction of the rate of tax in Kenya, the arrangement shall not apply unless 50% or more of the underlying ownership of the entity is held by a person in the contracting state for the purposes of the agreement. However, this provision shall not apply if the resident of the other contracting state is a company listed in the stock exchange of the contracting state.

DTAs shall now come into effect upon compliance with the requirements of the Treaty Making and Ratification Act (parliamentary approval). This is a change from the previous position where DTAs came into effect upon issuance of a Notice by the Minister in charge of finance.
S. 41A The Act amends the provision by deleting the words “specified in the notice being arrangements”. This is an administrative amendment following the removal of the requirement of a Notice by the CS for a DTA to come into force.
S. 133 Subsection (6) of the section has been amended to extend the duration of application of paragraph 24E of the Second Schedule to 31st December 2022. The extension is as a result of the ongoing construction of the Standard Gauge Railways which entitles the making of deductions due to the ongoing works.
The Act amends section 133 by including subsection (7) which stipulates that subject to the provisions of section 12 of the Act, any investment allowance shall be claimed on a straight-line basis. The mode of calculating written down values for purposes of investment allowance shall be straight-line only. This allows persons investing to claim investment allowance within a shorter period.
Paragraphs 36, 57 and 58 of the 1st Schedule Paragraph 36 is amended by inserting sub-paragraph (g) to include property, including investment shares, which is transferred or sold for the purpose of transferring the title or the proceeds into a registered family trust. The following income tax exemptions have been added under the 1st Schedule to the ITA:

a.  property transferred or sold by an individual for the purpose of transferring them to a registered family trust;

b. income of a registered family trust;

c.  capital gains resulting from transfer of immovable property t a family trust.

The amendment expands the scope of income exempt from income tax to dealings relating to registered family trusts.

Inclusion of paragraph 57 to exclude the income or principal sum of a registered family trust.
The Act has included paragraph 58 to exclude capital gains relating to the transfer of title of immovable property to a family trust.
Paragraph 1 of the 2nd Schedule

 

The Act amends the Investment Allowance rates. The words “on a reducing balance” have been deleted and replaced with the words “in equal instalments” under sub-paragraphs (a), (b), (c) and (d) of Paragraph 1 to the 2nd Schedule.

 

Investment deduction (ID) on commercial buildings, machinery & purchase/acquisition of indefeasible rights to a fibre-optic cable by a telecommunications operator shall be on a straight-line basis; a change from reducing balance. However, the allowance rates on the same will not change.

In addition, ID will now be allowable on exploration machinery whether or not such operations are being carried out under a mining right.

The amendment also includes machinery used for electricity production whether or not the electricity is supplied to the national grid.

The amendment has also defined:

a.  civil works for purposes of ID. This definition is inclusionary and thus to the benefit of taxpayers.

b. Farm works for the purposes of ID are now defined in the Act.

Paragraph 1A of the 2nd Schedule The Act introduces paragraph 1A to the 2nd Schedule to stipulate that the investment deduction shall be at 100% in the following circumstances:

a) where the cumulative investment value in the preceding 3 years outside Nairobi County and Mombasa County is at least 2 billion shillings;

Provided that where the cumulative value of investment for the preceding 3 years of income was 2 billion shillings on or before the 25th April 2020 and the applicable rate of investment deduction was 150%, that rate shall continue to apply for the investment made on or before 25th April, 2020.

b) where the investment value outside Nairobi County and Mombasa County in that year of income is at least 250 million shillings; or

c) where the person has incurred investment in a special economic zone

ID shall be allowed at 100% on investments outside Nairobi & Mombasa counties if such investment is cumulatively at least KES Two Billion for the preceding three years.

However, where such investment cumulated to at least KES Two Billion for the three preceding years before 26th April 2020, an ID rate of 150% shall continue to apply on investments made before 26th April 2020.

ID shall be allowed at 100% for investments outside Nairobi & Mombasa counties if they amount to at least KES Two Hundred and Fifty Million in that year of income.

ID shall be allowed at 100% on investments in an SEZ.

S. 133 a) subsection (6) is amended by deleting the expression “31st December, 2021” and substituting therefor the expression “31st December, 2022”;

b) the following new subsection has been inserted immediately after subsection (6)

“(7) Subject to the provisions of section 12 of this Act, any investment allowance on any written down values as at the date of commencement of this Act, shall be claimed on a straight-line basis.”

This extends the applicability of ID on construction of bulk storage & handling facilities for SGR support to 31st December 2022 from the previous cut-off date of 31st December 2021.

The above-mentioned ID is at 150%.

Subject to S. 12 of the ITA, any ID is to be claimed on a straight-line basis.

Paragraph 5 of the 3rd Schedule The Act introduces sub-paragraph (jb) to apply a rate of 25% income tax in respect to the disbursement of deemed income under section 11(3)(c) of the Act. Income tax rate on payments from a trust to a beneficiary in the form of annuities or other such payments designated to be paid free/net of tax shall be 25%.
9th Schedule

 

The provisions on the taxation of the extractive industries have been amended as follows:

a) reduction in the rate of depreciation for machinery first used to undertake operations from 100% to 50% in the first year of use and 25% per year, in equal instalments;

b) reduction in the rate of depreciation for machinery first used to undertake exploration activities from 100% to 50% in the first year of use and 25% per year, in equal instalments;

c) increase in withholding tax for non-resident subcontractor for the provision of services to either a licensee or a contractor from 5.625% to 10%;

d) reduction of the deductible withholding tax by a contractor in cases of management, training or professional fees from 12% to 10% of the gross amount of the management or professional fees payable.

This amendment is to ensure conformity of ID rates by reducing ID on prospecting & exploration equipment from 100% to 50% in the first year and 25% per year on a straight-line basis (as per the 2nd Schedule).

WHT on service fees due to non-resident contractors by licensees and contractors in mining/petroleum operations has been increased from 5.625% to 10%.

WHT on payments to non-resident contractors with a PE in Kenya for management & professional services has been reduced from 12.5% to 10%.

 

 

 

Para 18 of the 9th Schedule The amendment deletes it and replaces it with the following new paragraph:

“The provisions of section 16(2)(j) shall apply to a contractor or a licensee.”

Thin cap provisions on deductibility of interest shall apply to contractors and licensees.

Please click here to read the full alert.


The content of this alert is for general information purposes and should not be relied upon without seeking specific legal advice on the matter. If you have any queries or need clarifications, please do not hesitate to contact Renee Omondi (renee@oraro.co.ke), Wanjala Opwora (wanjala@oraro.co.ke ) and Nzioka Wang’ombe (nzioka@oraro.co.ke), or your usual contact at our firm for legal advice relating to the Finance Act and how the same might affect you.

Related Insights

An Overview of the Proposed Environmental Management and Co-ordination (Extended Producer Responsibility) Regulations, 2021

Posted on June 15th, 2021

The National Environmental Management Authority (“NEMA” or the “Authority”) in exercise of its powers and pursuant to the recommendations of the Standards and Enforcement Review Committee under section 86 of the Environmental Management and Co-ordination Act, 1999, (“EMCA”), has formulated the Environmental Management and Co-ordination (Extended Producer Responsibility) Regulations, 2021 (“EPR Regulations”). The EPR Regulations shall apply to producers, EPR Compliance Schemes and Producer Responsibility Organizations (“PROs”).

The key objective of the EPR Regulations is to provide for extended producer responsibility in respect all products and packaging and in all phases of their life cycle so as to enhance environmental sustainability. This is achieved through reduction of pollution and environmental degradation; sustainable use of natural resources; promotion of circular economy; reduction of waste at the source; promotion of environmentally friendly product design and promotion of a culture of environmental consciousness and responsibility.

Salient Features of the EPR Regulations

  1. Extended Producer Responsibility Obligations

Part II of the EPR Regulations provides that every producer is required to bear EPR obligations to reduce pollution and environmental impacts of the products that they introduce to the market.

Producers may fulfil the obligations through Collective EPR Schemes, Individual EPR Compliance Schemes or they may transfer their individual responsibility to Collective EPR Schemes.

  1. Producer Responsibility Organization

PROs shall be responsible for executing EPR obligations on behalf of members (comprising producers). Further, they shall take the organizational and management responsibility for collection, sorting, material recovery, recycling, treatment, and end life management of its members products.

The EPR Regulations, further provide that there should be only one PRO per product in the market.

  1. Formulation of an EPR Plan

Both individual and collective EPR Compliance Schemes are required to submit a two-year working EPR plan to the Authority. The EPR plan should contain amongst others, minimum targets for reuse, recycling, or recovery operations; collection, logistics, recycling and composting systems and end of life disposal; public awareness and consumer education information program on waste segregation and proper handling of post-consumer products; annual reporting mechanisms; training and capacity building of members; financing models for the Scheme and any other actions necessary for execution.

  1. EPR Schemes and Waste Management Services

Constitutionally, waste management services are a function devolved to County Governments. The EPR Regulations therefore provide that PROs may collaborate with County Governments through Public Private Partnerships (“PPPs”), for the purposes of establishing and operationalizing collection, take-back, disposal and setting up material recovery and sustainable waste management facilities.

The import of the EPR Regulations is to incentivize producers to promote product designs for the environment and support the achievement of public recycling and materials management goals.

Stakeholders should take the necessary steps to comply with the provisions of the of the EPR Regulations and plan accordingly for the necessary costs associated therewith. Wilful failure to comply with the provisions of the EPR Regulations is an offence and may attract penalties on the non-compliant producers.

Please click here to download the alert.


The content of this alert is for general information purposes and should not be relied upon without seeking specific legal advice on the matter. If you have any queries or need clarifications, please do not hesitate to contact Pamella Ager (pamella@oraro.co.ke), and Anna Kandu (anna@oraro.co.ke ) or your usual contact at our firm for legal advice relating to the EPR Regulations and how the same might affect you.

Conversion of Long-Term Leases to Sectional Units

Posted on May 19th, 2021

On 7th May 2021, the Cabinet Secretary for the Ministry of Lands and Physical Planning (the “Ministry”) issued a notice (the “Notice”) informing the general public of the conversion of long-term leases that do not conform with section 54 (5) of the Land Registration Act, 2012 (the “LRA”) and section 13 of the Sectional Properties Act, 2020 (the “SPA”).

Section 54 (5) of the LRA stipulates that the Registrar shall register long-term leases and issue certificates of lease to confer ownership in apartments, flats, maisonettes, town houses or offices (collectively “units”). The registration and issuance of title will only be done where the units comprised are properly geo-referenced and approved by the statutory body responsible for the survey of land.

Section 13 (2) of the SPA stipulates that all long-term sub-leases that were intended to confer ownership of an apartment, flat, maisonette, town house or an office and were registered before the commencement of the SPA, shall be reviewed so as to bring them into conformity with section 54 (5) of the LRA highlighted above.

In a bid to harmonise the foregoing provisions of the LRA and SPA, the Ministry is set to embark on the conversion of long-term leases previously registered on the basis of architectural drawings, to conform with the current land regime. Further, the Ministry has stipulated that from 10th May 2021, it will no longer register long-term leases supported by architectural drawings intending to confer ownership. We however note that as of the date of this alert, the Lands Office, for the time being, continues to accept long-term leases supported by architectural drawings.

The effect of the Notice is that all sectional units shall now be required to have properly registered sectional plans. All sectional plans submitted for registration should be geo-referenced, indicate the parcel plans, the number identifying the unit, the approximate floor area of each unit and the user of the units. The sectional plans must also be signed by the proprietor; and signed and sealed by the Director of Survey.

For purposes of conversion of already registered long- term sub-leases, the owners of the property will be required to make an application in the prescribed form and attach the following documents at the land’s registry:

  • a sectional plan;
  • the original title document;
  • the long-term lease previously registering the unit; and
  • the rent apportionment for the unit.

The Registrar may however dispense with the production of the original title if the developer is not willing or is unavailable to surrender the title, for the purposes of conversion.

Upon submission of the above, the sectional plan will be registered, and the previous register closed. A new register will be opened with respect to each unit in a registered sectional plan and a Certificate of Lease issued. It is indicated that owners will not incur fresh or additional stamp duty charges upon conversion if the requisite stamp duty was paid when registering the long-term lease.

The above developments come in the wake of numerous land-related changes in Kenya, ranging from digitization to conversion of titles issued under old land title regimes to new titles. In spite of the progressive steps taken, there are still some concerns around the conversion process. These include the absence of clearly articulated procedures for conversion; regulatory gaps as the draft Sectional Property Regulations are still at the stakeholder engagement stage; and opacities in relation to ongoing transactions.

We note that the Law Society of Kenya and the Ministry are currently engaged in discussions to resolve some of the issues arising from these legislative gaps. We are therefore, keenly following these developments and ongoing discussions and shall keep you updated.

Please click here to download the alert.


This alert is for informational purposes only and should not be taken as or construed to be legal advice. If you have any queries or need clarifications, please do not hesitate to contact Pamella Ager, Partner (pamella@oraro.co.ke), Tesrah Wamache (tesrah@oraro.co.ke), Anna Kandu (anna@oraro.co.ke) or your usual contact at our firm.

Further Update on the Launch of the National Land Information Management System

Posted on April 28th, 2021

Further to our Legal Alert issued on the 6th April, 2021, on the ‘Imminent Roll Out of The National Land Information Management System (NLIMS)’, we wish to inform you that on 27th April, 2021, His Excellency President Uhuru Kenyatta launched first phase of the National Land Information Management System (the “NLIMS”) with the full digitization of the Nairobi Registry, which sees the advent of the digitization of land records.

The launch is founded on the provisions of the Land Act, 2012 and the Land Registration (Electronic Transactions) Regulations, 2020, which provide for the development and implementation of an electronic National Land Information System in collaboration with the National Land Commission.

The NLMIS comes in force against the backdrop of a Lands Office weighed down by delays in completing matters and allegations of fraudulent transactions, as such making land transactions generally cumbersome. The launch of the NLIMS will hopefully streamline land transactions and expedite the land ownership process.

We note that the Ministry of Lands is currently working to digitize land records in twenty counties by the end of 2021 and hopes to fully implement a country-wide digitization of land records by the end of 2022. On this premise, it is important that the general public cooperates with the Ministry of Lands and Physical Planning to allow for the smooth transition into the digital system.

Please click here to download the alert.


This alert is for informational purposes only and shall not be taken or construed as a legal opinion. If you have any queries or need clarifications, please do not hesitate to contact Pamella Ager (pamella@oraro.co.ke), or your usual contact at our firm.

The High Court Suspends the Newly Introduced Minimum Tax

Posted on April 21st, 2021

On 19th April 2021, the High Court in Constitutional Petition No. E005 of 2021(“the Petition”) issued conservatory orders suspending the payment, implementation, administration, application and/or enforcement of the law on minimum tax pending the final determination of the Petition. Minimum Tax was introduced by the Finance Act 2020 at the rate of 1% of the gross turnover and it was effective from 1st January 2021.

The Law on The Minimum Tax

Section 12D of the Income Tax Act (ITA) provides as follows:

(1) Notwithstanding any other provision of this Act, a tax to be known as minimum tax shall be payable by a person if-

(a) that person’s income is not exempt under this Act;

(b) that person’s income is not chargeable to tax under sections 5, 6A, 12C, the Eighth or the Ninth Schedules; or

 (c) the instalment tax payable by that person under section 12 is higher than the minimum tax.

(2) The tax payable under this section shall be paid in instalments which shall be due on the twentieth day of each period ending on the fourth, sixth, ninth and twelfth month of the year of income.”

Subsequent thereto, the Kenya Revenue Authority (KRA) in January,2021 issued Guidelines on Minimum Tax (“Guidelines”). The Guidelines provides that Minimum Tax has been introduced to ensure that every person makes a fair and just contribution to the provision of government services regardless of the person’s profit position.

In addition, the Guidelines states inter alia that for persons who more than two-thirds of their income is derived from agricultural, pastoral, or horticultural activities, tax shall be due on the 20th day of each period ending on the 9th and 12th day of month of the company’s financial year. The Guidelines further provide that minimum tax shall not apply to income which is subject to withholding tax, including digital service tax, provided that at the end of the accounting period, the tax payable on taxable income exceeds minimum tax payable.

The Petition  

Petitioners:

The petitioners’ argument was that the Minimum Tax introduced is unconstitutional as it is riddled with ambiguity, uncertainty, contradictions, and lack of clarity and as such in contravention with the provisions of Article 2(4) as read with Article 10 of the Constitution. The argument stems from the fact that whereas the ITA provides that income which is subject to tax under the ITA is income in respect of gains or profits having deducted all expenditure wholly and exclusively incurred in the production of that income, Minimum Tax is chargeable on gross turn over including losses with no possibilities of deducting expenses. This in the view of the Petitioner was an apparent absurdity.

Further, the Petitioner also found issue with the fact that while on the one hand, Section 12D (2) of ITA provides that Minimum Tax shall be paid in instalments and is due on the 20th day of each period ending on the 4th , 6th , 9th  and 12th month of the year of income, on the other hand, the Guidelines provides that for persons who more than two-thirds of their income is derived from agricultural, pastoral, or horticultural activities, tax shall be due on the 20th day of each period ending on the 9th and 12th month of the company’s financial year. This was thus yet, another ambiguity.

As such, the Petitioners position is that they will suffer untold prejudice because their gross turnover will be subjected to an excessive, discriminative, and illegal tax and the enforcement of Minimum Tax stands to kill their business and the livelihoods of millions of Kenyans operating Small and Medium Enterprises(“SME.”)

Respondents:

According to the Respondents the impugned provision shall promote fairness in the sharing of the taxation burden as provide in Article 201 (b) (i) of the Constitution by ensuring that the payment of tax is an obligation imposed on all persons through the introduction of a minimum tax. Further, the 2nd respondent argued that the issuance of conservatory orders will cause confusion hence it is important that the law be retained as it is until the outcome of the Petition and that the Petitioner will not suffer irreparable loss if they pay the minimum tax as the same is quantifiable and can be refunded should the Court hold in favour of the Petitioner.

The Decision

The Presiding Judge, Justice Odunga, having heard the parties found that the issues raised in the Petition were not frivolous as the same raised weighty constitutional issues warranting further investigation by the Court. The Court was also of the view that the lesser evil would be for KRA to continue operating as it has been operating hopefully in the next few months and also to keep the petitioners afloat.

Consequently, the Court granted conservatory orders restraining the KRA, whether acting jointly or severally by itself, its servants, agents, representatives or howsoever otherwise from the implementation, further implementation, administration, application and/or enforcement of Section 12D of the ITA pending the hearing and determination of the Petition.

The Implication of this Decision

The Ruling has in effect suspended the implementation, collection or enforcement of the law on Minimum Tax. The import of this Ruling is that taxpayers are not required to remit Minimum Tax at the rate of 1% of the gross turnover. It has also suspended all penalties and interest that may accrue thereon for non-compliance with the law on Minimum Tax pending determination of the Petition.

KRA has vide statement dated 19th April 2021 confirmed that they will adhere to the Ruling of the Court as they await the outcome of the main Petition slated for hearing on 19th May 2021. We advise that in the event the Petition is disallowed then interest and penalty will be charged on any taxes to be collected subject to contrary directions by the Court.

We shall follow up on the matter and will advise on the progress of this Case and the outcome of the main Petition.

Please click here to download the alert.


This alert is for informational purposes only and should not be taken to be or construed as a legal opinion. If you have any queries or need clarifications, please do not hesitate to contact Renee Omondi (renee@oraro.co.ke) and Wanjala Opwora (wanjala@oraro.co.ke) or your usual contact at our firm, for legal advice.

High Court Confirms Sony Holdings’ KES. 6.4 Billion Commercial Building Allowance Award: The Commissioner of Domestic Taxes vs. Sony Holdings Limited [2021] eKLR

Posted on April 20th, 2021

The High Court in HC Tax Appeals No. E052 OF 2020 reported as Commissioner of Domestic Taxes v Sony Holdings Limited [2021] eKLR recently upheld the decision of the Tax Appeals Tribunal (the “Tribunal”) where the Tribunal had found that Sony Holdings Limited (“Sony Holdings”) was entitled to Commercial Building Allowance in the sum of KES. 6.4 Billion (“CBA”), contrary to Kenya Revenue Authority/the Commissioner of Domestic Taxes’ (the “Commissioner”) Objection Decision that purported to disallow Sony Holding’s CBA claim on the basis that CBA was only claimable on “buildings that were completed and put to use on or after 1st January, 2010”.

Having heard the parties the Tribunal in TAT No. 62 of 2017 concluded that the law on CBA was not couched in the terms advocated by the Commissioner thus finding that Sony Holdings was entitled to CBA. Dissatisfied with the Decision of the Tribunal, the Commissioner appealed to the High Court.

The Law on CBA

The dispute between Sony Holdings and the Commissioner both at the Tribunal and before the High Court revolved around the legal interpretation and application of the law on Commercial Building Allowance (“CBA”) provided for under Section 15 (1) of the Income Tax Act (the “ITA”) on allowable deductions as read together with the then Second Schedule of the ITA that has seen been repealed by Finance Act No. 2 of 2020.

The law allowing for CBA was first introduced in 2009 vide the Finance Act no. 8 of 2009 which amended the Second Schedule of ITA by introducing a new Paragraphs 1 (ee) and 5 (ff).

The Second Schedule of the ITA provides for as follows:

Deductions:

1(1) “Subject to this Schedule, where a person incurs capital expenditure on the construction of an industrial building to be used in a business carried on by him or his lessee, a deduction equal…

(ee) in a case referred to in paragraph 5(1)(f) or 5(1(ff) for any year of income commencing on or after 1st January, 2010, where roads, power, water sewer and other social infrastructure have been provided, twenty five per cent

5(ff)a building in use as commercial building other than a building referred to in subparagraph (1)(f).”

The Submissions by the parties

On the one hand, the Commissioner’s position was that Sony Holdings was not entitled to claim CBA as an expense in computing taxable income in accordance with section 15 and the Second Schedule of the ITA on the basis that following the enactment of the Finance Act, 2009, which came into effect on 1st January, 2010, CBA was only claimable by a taxpayer who has constructed a building and incurred an expenditure provided that such a building has been constructed and put to use on or after 1st January,2010.

The Commissioner also contended that the Tribunal’s interpretation of the said provision would cause an absurdity that would mean that taxpayers who constructed commercial buildings prior to 1st January, 2010 would infinitely claim CBA.

Sony Holdings on the other hand, submitted that the amendment to the statute was not concerned with the date when an infrastructure was built but rather whether the allowance was being claimed for the year of income commencing 1st January, 2010 provided that the taxpayer has provided social infrastructure such as roads, power, water and other social infrastructure.

Sony Holdings also argued that the Commissioner had introduced words that were not otherwise prescribed for in the Law and in any event, if at all it was the intention of Parliament to have the date of completing a building and putting it into use as criteria for claiming CBA, then it would have stated such intention, expressly.

In addition thereto, Sony Holdings submitted that pursuant to Section 31 of the Tax Procedures Act, it was entitled to amend assessments for a period going back 5 years, hence in this case limited to assessments as far back as 2015. Accordingly, defeating the Commissioner’s argument on the perpetuity of CBA claims, as, once a taxpayer has recovered its capital expenses within 4 years, the same would be extinguished.

The Decision

Justice D. Majanja was of the view that the language of Paragraph 1(1) (ee) of the Second Schedule of the ITA was clear and did not require any technical interpretation. The Court agreed with Sony Holding’s submissions that the provisions elucidated the following conditions for a taxpayer to be entitled to claim for CBA:

  1. Firstly, a taxpayer must incur capital expenditure on construction of the industrial building;
  2. Secondly, the expenditure must be for the years commencing on or after 1st January, 2010; and
  3. Thirdly, the person incurring expenditure, must have provided roads, power, water, sewers and other social amenities.

Additionally, the Court declined to uphold the Commissioner’s argument that an absurdity would likely arise from the “retrospective” interpretation of the statute which would cause a torrent of taxpayers to claim CBA on buildings completed before the year 2010. In the Court’s view, the provision was clear that the expenditure in question must have been incurred on construction “for any year of income commencing on or after 1st January 2010”.

On this premise, the Court affirmed the decision of the Tribunal finding that Sony Holdings had incurred a capital expenditure; there was provision for roads, power, water, sewers and other social infrastructure; and that this expenditure was incurred as from 1st January, 2010. As such, it held that Sony Holdings was entitled to CBA.

The Commissioner has lodged a Notice of Appeal at the Court of Appeal with intention to appeal against the whole of the decision of Justice Majanja.

Sony Holdings Limited was represented both at the Tax Appeals Tribunal and at the High Court by our tax team led by George Oraro SC, Senior Partner, assisted by Renee Omondi, Tax Partner and Wanjala Opwora, Associate.

Please click here to download the alert.


This alert is for informational purposes only and should not be taken to be or construed as a legal opinion. If you have any queries or need clarifications, please do not hesitate to contact Renee Omondi (renee@oraro.co.ke) and Wanjala Opwora (wanjala@oraro.co.ke) or your usual contact at our firm, for legal advice.

The Employment (Amendment) Act, 2021: Pre-Adoptive Leave Entitlement to Employees

Posted on April 12th, 2021

On 30th March 2021, the President signed into law the Employment (Amendment) Bill, 2019. The Employment (Amendment) Act, 2021 (the Amendment Act) amends certain provisions of the Employment Act, 2007 (the Employment Act) with the introduction of the following new aspects:

Definition of an exit certificate

The Amendment Act has amended section 2 of the Employment Act by inserting the definition of an “exit certificate”.

An exit certificate is defined as a written authority given by a registered adoption society to a prospective adoptive parent to take the child from the custody of the adoptive society.

The exit certificate serves as documentation evidencing the intention of the adoption society to place the child in the prospective adoptive parent’s custody.

Introduction of pre-adoptive leave

Section 29 of the Employment Act has been amended by the Amendment Act through the insertion of section 29A on pre-adoptive leave.

An employee shall now be entitled to one (1) month pre-adoptive leave with full pay where a child is placed in the continuous care and control of the said employee, from the date of placement of the child.

An employee eligible for pre-adoptive leave shall be required under the Amendment Act to do the following:

  1. notify the employer in writing of the adoption society’s intention to place the child in their custody at least fourteen (14) days before the placement of the child; and
  2. accompany the written notice in (i) above with documentation evidencing the intention of the adoption society to place the child in their custody (including the custody agreement between the employee and the adoption society and an exit certificate).

Application of sections 29 (2), (3) and (7) of the Employment Act to employees eligible for pre-adoptive leave

Upon expiry of a female employee’s one (1) month pre-adoptive leave, the said employee shall have the right to return to the job she held immediately prior to her pre-adoptive leave or to a reasonably suitable job with terms and conditions as favourable as the job she would have had had she not been on maternity leave.

Additionally, where an employee’s pre-adoptive leave has been extended with the consent of the employer or immediately before the expiry, the employee proceeds on sick leave or with the consent of the employer on annual leave, compassionate leave or any other leave, the employer’s pre-adoptive leave shall expire on the last day of such extended leave.

The new law also provides that an employee entitled to pre-adoptive leave shall not forfeit their annual leave entitlement on account of having taken pre-adoptive leave.

Please click here to download the alert.


This alert is for informational purposes only. If you have any queries or need clarifications, please do not hesitate to contact Georgina Ogalo-Omondi (georgina@oraro.co.ke) (Partner), Anne Kadima (Associate) (anne@oraro.co.ke) or your usual contact at our firm, for advice relating to the Amendment Act and how the same might affect you.

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