Introduction

Can a company that has been dissolved be liable for tax? The issue was recently resuscitated by the Kenya Revenue Authority (KRA) when it decided to impose tax on a company which had been dissolved, raising the question of whether a company that has been dissolved continues to exist for the purposes of tax.

The issue fell for determination before the Tax Appeals Tribunal (Tribunal), bringing into focus the extent of KRA’s powers to raise or enforce purported tax liabilities once the company is dissolved.

The Appeal

The firm represented a Client before the Tribunal, where the question of enforcing alleged tax liabilities against a dissolved company was conclusively determined.

The Dissolved Company was deregistered in 2018 under the provisions of the Companies Act (Cap. 486). In accordance with the requirements of the Tax Procedures Act (TPA) it was required to apply for deregistration as provided under section 10 of the TPA. It applied for its PIN to be deregistered and provided the relevant documents as requested by KRA. As is common in many instances no decision was made or communicated by KRA.

In 2024, KRA issued a notice indicating its intention to migrate the legacy balances to the Dissolved Company’s iTax ledger. The alleged balances comprised unsubstantiated ledger balances spread over a period ending more than ten years prior to the date of migration. The Appellant, a former director of the Dissolved Company, objected to the migration on the basis that, at the time of dissolution, the Dissolved Company had no outstanding tax liabilities. KRA nevertheless issued an objection decision affirming its decision to migrate the disputed liabilities, prompting the Appellant to file an appeal before the Tribunal.

KRA contended that a director had no standing to file an objection because he was not the taxpayer to whom the notice of migration had been issued.

Determination

In its decision, the Tribunal determined that once a company is deregistered, it ceases to exist as a legal entity and cannot be subjected to tax enforcement proceedings unless it is first restored to the register of Companies. Attempting to enforce tax liabilities against a non-existent entity without such restoration was legally untenable.

The Tribunal found that a director like the Appellant was qualified as an “aggrieved person” under section 52(1) of the TPA and sections 3 and 12 of the Tax Appeals Tribunal Act and could appeal against an appealable decision. He was a person who could be directly affected under section 897(6) of the Companies Act, notwithstanding the Company’s dissolution. Accordingly, the former director had the requisite standing to file the appeal.

The Tribunal further held that, upon the Company’s application for cancellation of its PIN and in the absence of any substantive response from KRA within six months, the PIN was deemed deregistered by operation of law pursuant to section 10(7) of the TPA.

The Significance of this Judgment

This Judgment underscores that once a company is legally dissolved and its KRA PIN deregistered, its “tax life” effectively ends, unless the company is restored through a court order.

Proper compliance during dissolution is essential. Companies must notify KRA of their dissolution and make an application for cancellation of their KRA PIN in accordance with section 10 of the TPA. Where this is done correctly, the company cannot be pursued for tax liability unless it is first restored to the Companies register.

For practitioners and businesses, the takeaway is that dissolution of a company is not a loophole to escape pre-existing liabilities. Rather, it serves the purpose of finality and legal certainty by shielding the company from claims or debts that did not exist at the time of dissolution. For any claim to be sustained, due process must be followed as provided for under the Companies Act.

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Read the Judgment here.