In the unfortunate demise of an individual, there are various rights that accrue to different persons depending on the relationship between that person and the deceased. For example, wives and children of the deceased will be considered ‘automatic’ beneficiaries/heirs of the deceased and they will not need to prove their dependency on the deceased. This is contrasted to persons like parents of the deceased whose beneficiary status is not automatic, that is, they have to prove their dependency on the deceased immediately before his/her demise. Because of the ‘automatic’ status of the wife/wives and children of the deceased, it is usually assumed that their rights over the property of the deceased are superior to the rights of any other potential beneficiary.
However, this is not always the case. There are instances where the rights of other individuals, who are not necessarily wives or children of the deceased, may override the rights of the deceased’s heirs. These include persons such as: joint land owners and nominees, among others.
This article focuses on the rights of nominees and it explains why their rights over the estate of a deceased override those of heirs.
Nominees are third parties who are selected by the deceased during their lifetime to receive their benefits in various entities upon their death. These include benefits held in insurance policies, SACCOs, retirement benefit schemes, bank accounts, company shares, chamas, among other entities. Such entities usually require a member to nominate persons who would receive the benefits held by them upon their demise. Once the nomination is done by the deceased, the benefits held no longer form part of the ‘free property’ that is the subject of probate and administration proceedings, neither can they be bequeathed by the deceased under a will.
The nominated benefits will be subject to the laws that govern the various entities such as the Insurance Act, the Retirement Benefits Act, the Co-operative Society Act and the Sacco Societies Act. These laws recognize nominations and they provide that property which has been duly nominated should go to the nominee. For example, Section 36A of the Retirement Benefits Act provides that, “Upon the death of a member of a scheme, the benefit payable from the scheme shall not form part of the estate of the member for the purpose of administration and shall be paid out by the trustees in accordance with the scheme rules.” Its Regulations require the Scheme Rules to provide for the benefits of a deceased member to be paid to a nominated beneficiary.
This is a position that has been affirmed by the Kenyan courts on various occasions. An example is the case of In re Estate of Carolyne Achieng’ Wagah (Deceased)  eKLR which was decided by Hon. Justice Musyoka. In this case, the administrator of the estate of the deceased sought to have the benefits of the deceased, such as terminal benefits upon death, pension, group life insurance and shares in a co-operative society be considered as part of the deceased’s estate and distributed among the beneficiaries according to the laws of succession. The deceased had made a will which only included assets that were subject to statutory nomination. The court dismissed the administrator’s application and held that funds which were subject to nomination did not form part of the deceased’s estate and could not pass under a will. The court also held that despite the fact that there was a will, all the deceased’s assets under the will had been nominated by the deceased and could only be given to the nominees and not to any other beneficiaries. Thus, the grant issued to the administrator was worthless since it sought to distribute property that the probate court had no jurisdiction to distribute in the first place.
In view of the foregoing, it is clear that the right of a nominee will override the right of an heir in instances where nomination is allowed by law. It is therefore important for one to understand the impact of nominating the funds they hold in various schemes to their preferred kin. When making a will, a person needs to be aware of the assets they have already nominated which will usually be funds held in the entities discussed above. The will should not include these funds otherwise it will be in vain because the funds will be paid to the nominee.
Since it is usually a requirement for one to make a nomination in the entities mentioned above, it is crucial for a person to keenly consider who their preferred nominees will be and the allocation of the share of the funds that they will give each of their nominees. Any person qualifies to be a nominee including one’s husband, wife, children, siblings, parents, friend, and so on. Consequently, one’s heirs can also be their nominees.
Thus, nomination is another way in which a person can bequeath their assets. In fact, one of the main advantages of nomination is that a nominee will directly receive the nominated funds upon the demise of the nominator and will not need to go through any court processes for the nomination to take effect. The other major advantage is that a nomination is not likely to be contested and will therefore pass as indicated by the nominator without objection from other parties. Therefore, it is advisable for one to take advantage of the option of nomination if available.
Article by Ivyn Makena
This article is intended for general knowledge only. It does not create an advocate-client relationship between any reader and Mboya Wangong’u & Waiyaki Advocates. For particular expert advice on any matter dealt with above, please contact us through
As part of the Government’s efforts to enhance the ease of doing business, the Ministry of Lands and Physical Planning formulated the Land Registration (Electronic Transactions) Regulations, 2020 (“the Regulations”) early this year to provide an enabling framework for the roll out of a system for carrying out of electronic land transactions. The Regulations were gazetted on 14th July 2020 and apply to the Nairobi Land Registry.
The electronic land registry
The Regulations require the Chief Land Registrar to maintain an electronic land register which will enable land transactions to be carried out through the system. The Registrar may through the system:
- issue a notice, certificate or any document which is required to be issued by the Registrar under the Act;
- certify a form, document or extract of a document required to be certified by the Registrar under the Act; or
- send any document issued or certified by the Registrar to the electronic addresses provided by a user for that purpose.
To access any service on the Land Information Management System (LIMS), one must register, whether as a natural or legal person or community. The registration requirements differ for various categories of users. A user can access the system in their individual capacity or through an authorized representative or user, who must be a qualified advocate. An advocate may be an authorized user upon providing additional information including their advocates Number on the system. What is not clear is whether other persons such as guardians, persons holding powers of attorneys may be deemed as authorized users under the system.
Upon registration, a One Time Password (OTP) in the form of a text message shall be sent to the user’s telephone number to authenticate every log-in. Registration also makes one subject to various obligations of the users, meant to ensure safety and accuracy of the information provided or submitted when using the system.
Conduct of Searches and Valuation
A registered user may conduct official searches on the system after paying the requisite fees. He or she may also conduct a historical search over the property which will provide a list of all transactions in a chronological order together with the status and date of each entry. Valuation of documents for payment of stamp duty may also be done electronically. Once valuation is concluded, the amount of stamp duty payable shall be communicated via text message or email notification or other electronic means. The rules in the Land Registration Act as regards indemnity that apply to the physical Land Registry also apply to the Electronic Land Registry.
Users seeking to register interests in land will be required to submit the application, instruments or documents for registration in the system and pay the prescribed fee, where applicable. The regulations provide that the usual forms prescribed under the Land Registration Regulations will be used subject to such modifications as the Chief Land Registrar may make, to enable their use electronically.
Notably, the instrument presented for registration may be executed by use of advanced electronic signature of parties. Advanced electronic signatures range from a simple electronic signature represented in the form of a scanned signature of the person as an indication of a name of a sender (not encrypted), to a digital signature that is based on cryptographic authentication of a sender by technological means in the form of a coded message or an encrypted data.
Where it is not possible to execute the instruments or documents by way of an advanced electronic signature, the user may enter the required information in the applicable electronic form, print the duly filled form for execution and attestation, scan and upload the duly executed and attested form onto the system and attach the relevant supporting documents as may be required. Where it is an Advocate undertaking the registration process, they must first submit the client’s instructions through the relevant form which requires each client to sign the said form, personally.
- Tracking Numbers in the Registration process
The Regulations prescribe use of tracking numbers similar to booking numbers in manual registrations. The tracking number determines the priority of registration of the instrument. An instrument or document shall be deemed to be received for registration when the system generates a notice of electronic filing with a tracking number for the electronically filed application, instrument or document.
The Registrar may reject applications if they are substantially defective, or submitted without the relevant supporting documents. One can lodge afresh after making the necessary corrections or appeal the rejection as provided in the Regulations. The Registrar shall, for the purposes of processing the applications, rely on the documentation and data available within the system and may, where necessary, refer to the backup of manual records. The authorized user may also be called upon to present a document manually where production of an original is required.
Registration is completed upon the approval of the transaction and the making of corresponding entries into the register by the Registrar. Upon registration, there shall be an electronically generated notice to the effect that the document has been registered. The Registrar shall then issue an electronic certificate of title or lease in accordance with which shall contain unique serial numbers and security features which can be used to verify the authenticity of the certificate. The registered instruments and documents shall be made available for download by the authorized user or any person conducting a search electronically.
The publication of the enabling Regulations is just a step towards the welcome rolling up out of an electronic land registration system. It is hoped that with the enabling legal framework in place, steps towards the complete operationalization of the electronic system will be hastened to enhance the ease of doing business. It is also commendable that the Regulations have recognized the teething problems associated with transition to online platforms. In this regard, they have given room for transactions to be conducted manually where the electronic registration system cannot be used or through such other means as the Chief Land Registrar may determine. This would go a long way in easing the transition from the manual system to the electronic system.
By June Njoroge and Pauline Njau
On nearly a daily basis, you often are required to provide information about yourself that is personal. You walk into an office of a service provider,
Through a Legal Notice dated 18th February, 2020, the Attorney General has published the Companies (Beneficial Ownership Information) Regulations, 2020 (the “Regulations”). The Regulations seek to operationalize the provisions of the Companies Act on keeping of records regarding a company’s beneficial ownership. The enactment of the Regulations is geared towards aligning Kenya’s laws with international standards which recommend minimum levels of transparency concerning the beneficial owners of companies, trusts and other legal arrangements in order to promote implementation of legal, regulatory and operational measures for combating money laundering, and terrorism financing.
As Kenya is not immune to these vices, the country first introduced a law requiring companies to keep a register of beneficial owners in 2017. The regulations contemplated under the said law are what forms the subject of this article, which highlights the salient provisions by answering a few questions.
Who is A beneficial owner?
The Regulations define a beneficial owner to be a natural person who holds at least 10% of the issued shares in the company either directly or indirectly, exercises at least 10% of the voting rights in the company either directly or indirectly, holds a right, directly or indirectly, to appoint or remove a director of the company exercises significant influence or control, directly or indirectly, over the company.
Is the Company required to keep the beneficial owner’s details in the Register of Members?
Yes. The regulations provide that a company shall, where applicable, enter in its register of members details in respect of its beneficial owner including full name, national identity card number/passport number, KRA PIN, nationality, date of birth, postal, residential, telephone and email address, occupation, date on which any person became a beneficial owner, date on which any person ceased to be a beneficial owner and nature of ownership or control. The register of beneficial owners’ particulars is required to be lodged with the companies’ registry. The Regulations also require companies to notify the registry of changes in the particulars of the beneficial owner or of the cessation of the person from beneficial ownership.
Who is Responsible for finding out the Beneficial Owners’ details?
The company has a duty to take reasonable steps to find out and identify its beneficial owners. Where the necessary particulars are not within the company’s knowledge, the company is required to give notice to anyone whom it knows or has reasonable cause to believe to be a beneficial owner. The notice will require the addressee to state whether or not the addressee is a beneficial owner of the company and if so, to confirm or correct any particulars of the addressee that are included in the notice.
What if the Suspected Beneficial Owner fails to comply with the Notice?
The addressee is required to comply with the notice within 21 days from the date of the notice failing which the company may issue a warning notice informing that person that it is proposing to issue the person with a restriction notice with respect to any interest they hold in the company. A copy of the warning notice is also to be kept in its register of beneficial owners. Upon the lapse of 14 days from the warning notice, the company may note a restriction with respect to the particular interest and lodge a copy of the restriction with the registrar and notify that person. Under the Regulations, a restriction notice renders void any transfer of the interest in respect of which the notices were given. It also has the effect of stopping the exercise of any rights in respect of the particular interest. The company may also withdraw the restriction once the person complies with a request for information.
Are there restrictions on sharing of the Disclosed Information?
The company is barred from disclosing the beneficial owner’s particulars except when communicating with the beneficial owner concerned or when complying with any requirement of the Regulations or with a court order. In a rather controversial provision, the Registrar may, upon a written request, disclose protected information to a competent authority which includes the A.G, DCI, law enforcement agencies and authorities that supervise and monitor the financial sector. The Regulations outlaw the disclosure of beneficial ownership information the in any manner other than for the purpose for which such information is obtained.
These regulations are aimed at requiring companies to obtain and hold adequate, accurate and current information on their beneficial ownership. It is also noteworthy that provisions allowing a search to be carried out on the beneficial ownership of the company were dropped in the final draft. It is hoped that with the blanket access given to the authorities, the Regulations will help the government to fight money laundering and tax evasion.
Article By : CG Mbugua and Enock Mulongo
This article is intended for general knowledge only. It does not create an advocate-client relationship between any reader and Mboya Wangong’u & Waiyaki Advocates. For particular expert advice on any matter dealt with above, please contact us through
The outbreak of coronavirus (COVID-19) has been declared a global pandemic by the World Health Organization (WHO) and its impacts are being felt in many sectors, including the transport, manufacturing, sports, tourism and gaming industries.
Since its declaration by the World Health Organization as a global pandemic, Covid-19 has had devastating effects on businesses all over the world. Courts in many jurisdictions including the USA have recognized the pandemic as a natural disaster with far reaching effects. Parties to contracts have had to establish whether the Covid-19 pandemic falls within the scope of the force majeure clause; as well as whether the doctrine of frustration can be relied on for one to be relieved of their contractual obligations. We discussed these two doctrines in our earlier article available here.
Locally, the Government of Kenya has put in place various legislative and policy measures to cushion both citizens and businesses from the ensuing economic hardships. Such measures include reduction of the Central Bank Rate to 7%to enable commercial banks lend to consumers at affordable interest rates, reduction of VAT rate from 16% to 14% leading to reduction on the price of vatable goods and services and reduction of Cash Revenue Ratio to 4.25%. The reduction of the Cash Revenue Ratio by the Central Bank is intended to increase liquidity among commercial banks. This will in turn avail more cash to the banks to continue advancing credit facilities to businesses and other consumers during the pandemic.
Despite the various measures put in place by the government to cushion businesses and consumers from the economic effects of the pandemic, many businesses have experienced and continue to experience reduced turnover. This development has hampered many businesses’ ability to service their credit facilities timeously. This may in turn result in drastic measures by creditors such as commencement of insolvency proceedings which would negatively impact the ability of businesses to operate as going concerns in the long term. Conscious of this, many businesses are struggling to keep their doors open and lights on. In this publication, we explore the various options available to both businesses and creditors for purposes of increasing capital flow so that the businesses can remain afloat while at the same time meeting their financial obligations towards their creditors.
Insolvency: When does it happen?
Insolvency is a financial position where a company is unable to meet its financial obligations as and when they become due. More likely than not, an insolvent company’s liabilities are more than its assets. Under the Insolvency Act, 2015, a business is insolvent if a demand to pay its debts has been issued and the notice period has lapsed without the company honouring the same. At this point, a creditor has the statutory right to lodge an insolvency petition in court for the assets of the company to be liquidated as a way of recovering its money.
It is important to note that Kenyan courts have ruled that insolvency is not a measure of last resort in debt recovery. On the same note, Kenyan courts have also ruled that where the debtor has made proposals to liquidate the debt, such proposals should not be taken as inability to pay the debt and therefore an insolvency petition presented where such proposals exist will be declined. Similarly, courts frown upon creditors who present insolvency petitions for the sole purpose of coercing debtors to pay debts. Consequently, it is important for both creditors and debtors to consider arrangements that provide for adequate capital to run the business while at the same time servicing the debts. That notwithstanding, many companies may find themselves dealing with insolvency petitions during this pandemic. However, as discussed below, there are various options in law which both the debtor and the creditor may explore to achieve a win-win situation in the long term instead of liquidation. A snippet of each of these options is outlined below.
Legal options for both creditors and borrowers to raise capital during insolvency.
There are several options that ought to be considered where businesses are in dire need of capital and deteriorating performance. Each case is unique and we present some of the options available in law that companies in financial distress and their creditors should consider during prevalence of the Covid-19 pandemic, alongside the various Covid-19 reliefs the Government of Kenya has implemented.
- Company voluntary arrangements
- Schemes of arrangement and compromise
- Balance sheet reorganization
Unclaimed assets are those assets which have been presumed abandoned or in respect of which there are conditions raising a presumption of abandonment.
The Ministry of Transport, Infrastructure, Housing, Urban Development and Public Works on 20th April 2020 published the National Construction Authority (Defects Liability) Regulations, 2020. The Regulations, which have received opposition from contractors and lobby groups in the construction industry, aim at conferring protection to developers of commercial properties by regulating the industry limitations on period within which a contractor may be liable for flaws during construction. Prior to the Regulations, model construction contracts used in the construction industry provided for a patent defect liability period in six months from the practical completion date while providing none for latent defects. The Regulations have introduced a latent defect liability period which is geared towards protecting commercial building owners from concealed structural flaws that may not be detectable during the ordinary patent defects liability period, which has itself been extended.
Patent Defects Liability Period
The interpretation section of the Regulations defines a patent defect to mean a defect which is detectable upon reasonable inspection during the construction period and can be notified to the contractor either before practical completion or during the defect liability period. Notably, unlike the current industry practice where practical completion is defined to mean the date when the architect issues their certificate of completion, the Regulations define practical completion date to mean the date when the certificate of occupation is issued by the County Government.
The regulations provide that every contract for the construction of a commercial building shall prescribe a patent defects liability period and this period shall be a minimum of twelve months after practical completion. During this period, a contractor, a relevant professional and a sub-contractor shall be liable for the rectification of the patent defects. During this patent defect liability period, the owner and the contractor, relevant professional or sub-contractor, shall jointly prepare a schedule specifying the patent defects identified. Then the contractor, relevant professional or sub-contractor, shall rectify the respective defects specified in the schedule. Upon doing this, the owner shall certify that the defects identified have been rectified.
Latent Defects Liability Period
A latent defect has been defined in the interpretation section to mean a concealed structural flaw in a commercial building or fixed installation that exists but is not apparent or readily detectable during the latent defects liability period. The Regulations provide that every contract for the construction of a commercial building shall prescribe a latent defects liability period and the period shall be a minimum of six years from completion of the patent defects liability period. The Regulations impose liability on a contractor for the rectification of patent defects that become apparent during the latent defects liability period. The relevant professional shall also be liable for the rectification of such patent defects. This has received a lot of criticism from professionals in the construction sector as well as the contractors’ lobby group who argue that the period is unreasonable as it extends this liability beyond the globally agreed timeframes. The regulations prescribe that a sub-contractor shall be liable for the rectification of patent defects that become apparent during the latent defects liability period.
Insurance Cover for Latent Defects
The Regulations obligate a contractor to obtain insurance cover for latent defects that may become apparent during the latent defects liability period. A relevant professional is also obligated to obtain a professional indemnity cover for latent defects that may become apparent during the latent defects liability period. A sub-contractor shall obtain insurance cover for latent defects that may become apparent during the latent defects liability period.
In addition, every owner of a commercial building is required to insure the commercial building at all times against structural damage attributable to him/her.
The Regulations have come into place to regulate defect liability in commercial buildings and to ensure that these buildings meet the required standard quality. On the other hand, developers have raised their concerns about the new law saying that prolonging the defect liability period would increase the cost of construction as contractors’ payments valued at five percent on a project’s cost would be withheld further thus hurting cash flows. It is also not clear the regulations are limited to commercial buildings only, without extending to residential buildings that have received most public scrutiny due to occasional building collapses especially in the middle and informal settlements in Nairobi.
It is important to note that the Regulations seem to have been passed without a comprehensive stakeholder participation. They are also silent on whether they apply to existing contracts. There is need for a review of the agreements to take into account the concerns raised by the stakeholders in the construction industry as is required under the law. While that happens, practitioners preparing and reviewing construction contracts relating to commercial buildings will need to consider these regulations when reviewing or drafting the standard building contracts to ensure compliance.
For a long time, Kenya Power and Lighting Company (“KPLC”), has monopolized the distribution and retailing of electricity in Kenya.
The Finance Act 2019 introduced VAT at the rate of fourteen percent of the taxable value of the taxable supply. Subsequently, the Cabinet Secretary for National Treasury and Planning has proposed the Draft Value Added Tax (Digital Marketplace Supply) Regulations, 2020 (“Draft Regulations”). The Draft Regulations are intended to provide for the mechanisms for implementing VAT on supplies made through a digital marketplace (which is defined as any supply of a service made over a platform that enables the direct interaction between buyers and sellers of services through electronic means).
While the Draft Regulations are yet to be passed, we note that Kenya Revenue Authority (“KRA”), through a press release dated 23rd April 2020, directed business owners trading on digital platforms to charge VAT on their transactions and remit the taxes to KRA. The Commissioner for Domestic Taxes further stated that all non-compliant traders will be penalized for failure to charge VAT as required by law.
Overview of the Draft Regulations
Scope of Taxable Supplies
The digital supplies that are to be subject to VAT include among others, electronic services, downloadable digital content such as mobile applications, e-books and movies, Subscription-based media such as news, magazines, podcasts, TV shows and music streaming, online gaming, Software programs such as downloading software, drivers, website fillers and firewalls, Electronic data management such as website hosting, file sharing, cloud storage, Supply of music, films and games, Supply of search-engine and automated helpdesk services, Supply of digital content for listening, viewing or playing on any audio, visual or digital media, Supply of services on online marketplaces that links the supplier to the recipient such as Uber, Jumia and tickets purchased through the internet for live events.
Registration of Suppliers of Digital Services
Suppliers of digital services are required to register for VAT in Kenya if the supplier is from a foreign country but supplies services to a customer in Kenya. The registration requirement also applies to a supplier whose place of business is not in Kenya but the recipient of the supply in Kenya, the payment for the supply emanated from a bank registered in Kenya, or the recipient has a business, residential or postal address in Kenya.
Simplified VAT Registration Framework
The Draft Regulations provide for an online simplified VAT Registration framework to be used by digital marketplace suppliers from foreign countries (“foreign suppliers”). Registration is mandatory and should be done within thirty days from the publication of the Regulations. Any such supplier who experiences difficulties with the system is required to appoint a tax representative to account for the VAT on their supplies. In case a foreign supplier makes an over declaration or an under declaration through this system, amendments to the return can be made. If it is an over declaration, the amount overpaid will be retained as a credit to be offset against VAT payable in subsequent tax periods.
Time of Supply for purposes of Payment of Tax
The Draft Regulation specify the time of supply as being the earlier of the date of payment, in whole or in part or the date on which the invoice or receipt for the supply is issued. The supplier is required to submit a return and remit the tax due on or before the 20th day of the month succeeding that in which the tax became due
The liability of remitting the VAT lies on the supplier including foreign suppliers. However, if the latter has a tax representative, the tax representative will be liable. A supplier may also work with an intermediary who facilitates the supply of services through the digital marketplace and who is responsible for issuing invoices and collecting payments for the supply on whom the liability of remitting tax and returns will lie.
Suppliers are required to generate an ETR Receipt. However, foreign suppliers are exempt from this requirement provided they issue an invoice or receipt showing the value of the supply and tax deducted.
Further, a foreign supplier is required to submit a record of all the supplies made in Kenya indicating the value of the supplies and VAT deducted, for every tax period.
Claim for Input Tax
Deduction of input tax will not be allowed under the simplified VAT registration framework.
Offences and Penalties
A supplier who fails to comply with these regulations will be restricted from accessing the digital marketplace until such obligations are fulfilled in addition to the penalties prescribed under the Act.
While the obligation to charge VAT for supplies made through a digital marketplace has existed since 2019, the appropriate mechanisms are yet to be put in place to facilitate the charging and collection of the tax. The Draft Regulations are therefore geared towards providing the mechanisms for implementing said taxation particularly for foreign suppliers. It is likely that foreign suppliers will be discouraged from providing digital services to the Kenyan market because of the restrictive mechanisms intended to be imposed on them, for example, their inability to claim input tax or get VAT refunds. However, the Draft Regulations are necessary to enable the government facilitate the collection of VAT from business owners trading through a digital marketplace.
Ivyn Makena and Pauline Njau
It is not in doubt that technology has changed the way we live, the way we purchase products, the way we communicate, the way we travel, the way we learn and the way we do business in general.
The world is going digital. The advances in technology have revolutionized how things are done around the world. Nowadays, most communications between parties, such as exchange of documents, are done electronically. This is especially very convenient in cross-border transactions.
Recently, the President of the Republic of Kenya assented to the Business Laws (Amendment) Act, 2020 (the “Act”). The Act amended several statutes with the aim of facilitating the ease of doing business in Kenya. A number of amendments introduced by the Act have now reinforced the use of digital and electronic signatures in legal transactions. The amendments are timely in the wake of the surging COVID-19 pandemic. We comprehensively discussed the key amendments introduced by the Act in our previous article.
This article delves deeper into the law on electronic and digital signatures in Kenya.
- Electronic vs. Advanced Electronic (digital) signatures
It is worth noting that while electronic and digital signatures are often used to mean the same thing, the two are different. The Kenya Information and Communications Act (KICA) defines an electronic signature as data in electronic form affixed to or logically associated with other electronic data which may be used to identify a signatory in relation to the data message and to indicate the signatory’s approval of the information contained in the data message.
Advance electronic signature (digital signature) on the other hand is defined by KICA as a type of electronic signature which meets the following requirements:
- must be uniquely linked to the signatory;
- is capable of identifying the signatory;
- is created using means that the signatory can maintain under his sole control; and
- is linked to the data to which it relates in such a manner that any subsequent change to the data is detectable.
Therefore, electronic signatures can range from a simple electronic signature represented in a form of a scanned signature of a person as an indication of a name of a sender (not encrypted) to a digital signature that is based on cryptographic authentication of a sender by technological means in a form of a coded message or an encrypted data. This means that while digital signatures are a form of electronic signature, not all electronic signatures are digital signatures.
Legal recognition of electronic signatures
In Kenya, the law recognizes the use and validity of advance electronic signatures. Section 83P of KICA provides that where any law provides that information or any other matter shall be authenticated by affixing a signature or that any document shall be signed or bear the signature of any person, then such requirement shall be deemed to have been satisfied if such information is authenticated by means of advanced electronic signature affixed.
The Act further provides that Understanding the Use of Electronic Signatures in Kenyafor an advance electronic signature to be reliable, the following conditions must be met in addition to the ones discussed above:
- it must be generated through a signature creation device;
- the signature creation data must be linked to the signatory and to no other person;
- the signature creation data were under the control of the signatory at the time of signing;
- any alteration to the electronic signature made after the time of signing is detectable; and
- where the purpose of the legal requirement for a signature is to provide assurance as to the integrity of the information to which it relates, any alteration made to that information after the time of signing, is detectable.
Further, in order to reinforce the validity of an electronic signature, parties to a contract may agree to its use by including a provision on the same in the contract.
In Kenya, advanced electronic signatures/certificates are issued by certification service providers licensed by the Communications Authority of Kenya
Proving validity of electronic signatures
The Evidence Act provides that except in the case of a secure signature, if the electronic signature of any subscriber is alleged to have been affixed, then the fact that such an electronic signature is the electronic signature of the subscriber must be proved.
Further, in order to ascertain whether an electronic signature is that of a person by whom it purports to have been affixed, the court may direct that the person or a certification provider to produce the electronic signature or any other person to apply the procedure listed on the electronic signature certificate and verify the electronic signature purported to have been affixed by that person.
Parties should embrace the use of electronic signatures as it enhances speed and efficacy of legal and commercial transactions. However, to avoid risks associated with electronic signatures such as forgery, it is important for parties to create measures to properly secure their electronic signatures to avoid misuse.
By Audrey Seur
The Tax Laws (Amendment) Act, 2020 was assented to on 25th April 2020. The Act was enacted to shield Kenyans from the economic and financial effects arising from the Covid-19 pandemic and makes changes to various tax laws in Kenya. In this write-up we set out specific amendments made to the Income Tax Act (“ITA”).
Reduced Corporate Income Tax Rate: Corporate income tax rate for resident companies was reduced from 30% to 25%. This will apply from the 2020 year of income. Instructive to note, the reduced rate does not apply to Non-resident companies which rate remains at 37.5%.
Preferential Tax Rates for Newly Listed Companies: The preferential tax rates which applied to newly listed companies on the Nairobi Securities Exchange (NSE) for a defined period of time have been repealed. The rates ranged from 20% to 27%. This could be as a result of the reduced corporate income tax rate as discussed above.
Companies Operating as Plastics Recycling Plant: These companies were subject to a lower corporation tax rate of 15% for the first five years from the date of operation. The rate has now been increased to 25%.
Turnover tax: Turn over tax as initially introduced was simply a tax payable by small businesses whose gross sales does not exceed or is not expected to exceed Kshs. 5 million per year. The changes introduced in respect to turnover tax include:
- Alteration of the annual income threshold for turnover tax to between Kshs.1 million and Kshs.50 million;
- Application of turnover tax to incorporated companies (previously, it was only payable by unincorporated persons); and
- Reduction of turnover tax rate from 3% to 1% with an attendant reduction of the penalties for late payment.
The amendments are aimed at addressing cash flow challenges experienced by small and medium enterprises during the period of the pandemic. The inclusion of incorporated entities is a positive development as most small and medium enterprises are now trading in various registered entities for their legal and financial purposes.
Presumptive Tax: Presumptive tax is a simplified tax regime for small and micro enterprises based on the value of single business permit or a trade license issued/renewed by County Government. The tax which was previously payable at the rate of 15% has been repealed.
Withholding Tax. Among other changes, the Act has extended the application of WHT to payments made to a non-resident person on account of sales, promotion, advertising and marketing services (at 20%); transportation of goods excluding air and shipping transportation services (at 20%) and reinsurance premiums except for reinsurance premiums in respect of aircraft (at 5%). In addition, the WHT for dividends paid to a non-resident person has been increased from 10% to 15%. These changes seek to tax income that was previously untaxed hence increasing government revenue. Notably, this is a short-term measure which can help the government raise revenues especially in this period. However, the government may need to review it in future as it may discourage non-resident investors which could result in reduced revenue for the government.
Deductibility of Expenses: The 30% electricity rebate that was introduced by Finance Act, 2018 effective January 2019 has been repealed. This was an incentive to manufacturing companies which have had to contend with high cost of power over the years. It is a blow that this has been repealed at a time when the government is seeking to improve the contribution of the manufacturing sector to the overall Gross Domestic Product.
Exemptions from Payment of Income Taxes: The Act has removed a number of exemptions previously granted under the ITA for incomes of several Government parastatals, certain diplomats, as well as on other sources. The exemptions include on compensating tax accruing to a power producer under a power purchase agreement, interest earned on contributions paid into the deposit protection fund established under the Banking Act, dividends paid by a Special Economic Zone (SEZ) enterprise, developer or operator to a nonresident person, gains arising from trade in shares of a venture company earned by a registered venture capital company among others.
Pay as You Earn (PAYE)
Individual tax rates- The individual tax rates bands have been expanded with a 100% relief for persons earning gross monthly income of up to Ksh. 28,000 and the amendment of the individual income tax rates with the highest rate of tax rate being reduced from 30% to 25%. In addition, the Act increased the individual tax relief from Kshs 16,896 pa. (Kshs 1,408 pm.) to Kshs 28,800 pa (Kshs 2,400 pm.). The amendments are aimed at translating into increased disposable income at this period of the pandemic.
Pension withdrawal tax rates: The Act has reduced the highest tax band on pension withdrawals from registered retirement funds to 25%, for amounts exceeding Kshs.1, 200,000 per annum. The Act has also widened the tax bands on income withdrawals from retirement funds before the expiration of 15 years in line with the individual tax rates for PAYE as discussed above. These amendments will help in increasing the disposable income available to retirees in an effort to alleviate financial hardships occasioned by the pandemic.
Although the National Assembly approved the reduction of income tax, it rejected some revenue-raising proposals earlier included in the bill. The reduced tax rates like PAYE and the corporation tax means reduced revenue to the government and the government may be forced to find other ways to recover the lost revenue and the Finance Bill, 2020 seems to contain some of these ways. A separate write up on the Bill will follow.
Article by Hillary Kariuki
In our previous article Ten Notable Changes to the Income Tax Act, we highlighted the salient amendments introduced by the Tax Laws (Amendment) Act, 2020 to the Income Tax Act, Cap 470. In this article, we have put together a comprehensive overview of some key amendments to the Value Added Tax Act, No. 35 of 2013, the Excise Duty Act, 2015, the Tax Procedures Act, 2015, the Miscellaneous Fees and Levies Act, 2016, and the Retirement Benefits Act, 1997.Value Added
Tax Act, No. 35 of 2013. The following changes are notable.
- Rate of VAT - The VAT rate was reduced from 16% to 14% with effect from 1st April 2020 through Legal Notice No. 35 of 26 March 2020 and was subsequently approved by Parliament on 14th April 2020.
- VAT on petroleum products under Section B, Part I of the 1st Schedule. Previously, the taxable value of the said petroleum products did not include excise duty fees and other charges. With the amendment, these charges shall be included in determining the taxable value of these products. It is expected that the increase in the taxable value of petroleum products will result in an increase to the final price charged to consumers.
- Issuance of credit notes - Prior to the amendment, the law required credit notes to be issued within 6 months after the issue of the relevant tax invoice. With the amendment, credit notes may now be issued either within 6 months after the issue of the tax invoice or within 30 days after the determination of the matter where there is a commercial dispute in court with regard to the price payable.
- Application for refund of tax on bad debts. The period for application of refund of tax for bad debts has been reduced to 4 years from the date of the supply.
- Keeping of records. Prior to the passage of the Act, the law required every registered person to keep a full and true written record of every transaction for a period of 5 years from the date of the last entry made. This requirement now applies to every person whether registered or not.
- Changes in VAT treatment. Several amendments have been to the Value Added Tax Act including standard rating a number of goods and services that were previously either zero-rated or exempt and also exempting a number of items that were previously zero - rated. Some of the goods that are now exempt from VAT include personal protective equipment used by medical personnel or the members of the public in case of a pandemic or a notifiable infection disease and vaccines for human and veterinary medicine and medicaments. The exemption of medicaments and vaccines may lead to increase in prices of these products as the pharmaceutical manufacturers will be unable claim input VAT incurred on their operations. Services such as insurance agency, insurance brokerage, securities brokerage services and asset transfers and other transactions related to the transfer of assets into real estate investment trusts and asset backed securities that were previously exempt from VAT are now subject VAT at the standard rate.
- Excise Duty Act, 2015
The Excise Duty Act has been amended by applying excise duty on some excisable supplies. These include goods imported or purchased locally for direct and exclusive use in the implementation of projects under special operating framework arrangements with the government, one personal motor vehicle (excluding buses and minibuses of seating capacity of more than eight seats) imported by a public officer returning from a posting in a Kenyan mission abroad and another motor vehicle by his or her spouse and which is not otherwise exempted from excise duty under item 6 of Part A of the Second Schedule. These were previously exempt from excise duty.
The Miscellaneous Fees and Levies Act, 2016. Two amendments to this Act are noteworthy. First, the Act introduces a processing fee of Kshs. 10,000/= on all motor vehicles excluding motorcycles imported or purchased duty free prior to clearance through customs under the relevant provisions of the East African Community Customs Management Act, 2004. It also imposes an Import Declaration Fee on gifts or donations (excluding motor vehicles) sent by foreign residents to their relatives in Kenya for their personal use, raw materials for direct and exclusive use in construction by developers or investors in industrial parks of 100 acres or more located outside Nairobi and Mombasa and goods imported for the construction of LP gas storage facilities.
Retirement Benefits Act, 1997
The Act generally prohibited the use of scheme funds to make loans to any person but allowed the use of a proportion of the benefits accruing to a member for securing a mortgage loan. In the new amendment, members of retirement schemes have now been allowed to access a portion of their benefits for purchase of residential houses. The draft Retirement Benefits (Mortgage Loans) (Amendment) Regulations, 2020 have now been formulated to specify the requirements and procedures that one would need to follow in order to access the benefits for house purchase. The amendment seeks to provide an avenue for financing the purchase of homes by using savings in retirement benefit schemes.
It is anticipated that the amendments will have a significant impact on doing business in the country. For instance, amendments to the Value Added Tax Act such as removal of exemptions may affect ongoing projects (such as power generation plants and oil exploration companies) that had already been granted VAT exemption. As explained above, other amendments may lead to an increase in cost to consumers. Further, the imposition of VAT on transfer of business as going concern may discourage commercial transactions and internal reorganizations due to the anticipated increased cost of acquisition and restructuring.
By Audrey Seur