DTAA Between India And Kenya: Tax Relief, TDS Rules, Benefits and Key Provisions

Kenya and India share deep-rooted economic ties, making the double taxation avoidance agreement essential for fostering trade and stability. The DTAA between India and Kenya was significantly revised in 2016 to modernise its provisions, align them with global tax practices, and strengthen anti-abuse measures. This treaty ensures that tax is paid only once on income earned across the two nations, which is critical for the many Indian companies investing in Kenya. This formal guide provides a detailed analysis of the reduced tax rates, the anti-treaty shopping rules, and the process for claiming tax relief.

Objective of the DTAA Between India and Kenya 

The primary goals of the India Kenya tax treaty are focused on promoting economic growth, preventing fiscal fraud, and enhancing the legal framework for bilateral investment.

• Avoidance of Double Taxation: The fundamental purpose is to prevent an income from being taxed entirely in both the country where it is sourced and the country where the recipient resides, mitigating the financial burden on cross-border businesses.
• Reduction of Withholding Tax Rates: The revised treaty significantly reduced the withholding tax (WHT) rates on passive incomes (like interest and dividends) to make cross-border investment more financially attractive.
• Enhanced Transparency: The agreement updates the rules for the Exchange of Information to the latest international standards, which includes banking information, helping both countries curb tax evasion.
• Alignment with International Norms: The revision brings the DTAA into line with evolving international tax practices, including measures developed to combat Base Erosion and Profit Shifting (BEPS).

Significance of DTAA for India and Kenya 

The DTAA provides crucial clarity that supports investment and minimizes the administrative burden for cross-border entities.

• Promotes Investment Flow: The reduction in WHT rates serves as a direct incentive for Indian companies to invest in Kenya and for Kenyan investors to engage with the Indian market.
• Secures Legal Certainty: By clearly allocating taxing rights for every income category, the treaty provides legal predictability to investors, which is crucial for large, long-term capital investments.
• Combats Treaty Abuse (LOB Clause): The revised agreement includes a "Limitation of Benefits (LOB)" clause, which is specifically designed to prevent shell companies from misusing the treaty solely to avoid tax, thereby protecting the integrity of both countries' tax bases.
• Facilitates Assistance in Collection: A new Article on Assistance in Collection of Taxes enables both countries to help one another collect tax revenue claims, improving the overall administrative effectiveness of the tax system.

India-Kenya DTAA Tax Rates 

The revised DTAA provides for significant reductions in the withholding tax (WHT) rates applicable to passive income earned in the source country, standardizing most rates at 10%. [1] [2]

Taxation on Capital Gains under DTAA Between India and Kenya 

The DTAA contains specific rules governing the taxation of capital gains, designed to prevent double taxation on the alienation (sale) of assets.

• Income from Immovable Property: Capital gains arising from the sale of immovable property (such as land or buildings) are primarily taxed in the country where the property is physically situated (the situs country). This rule is standard in DTAAs and ensures that India can tax gains arising from the sale of property located within India, as regulated by TDS on sale of property by NRI.
• Gains from Movable Property: For movable property forming part of the business assets of a Permanent Establishment (PE), the profits derived from the sale of such property may be taxed in the country where the PE is located.
• Gains from Ships and Aircraft: Gains arising from the sale of ships or aircraft used in international traffic are taxable only in the country where the effective management of the enterprise is situated.

Taxation on Employment Income Under DTAA 

The provisions dealing with employment income are critical for individuals who are temporarily working in the other country, ensuring clarity on where their salary is liable for taxation.

• General Rule (Taxed Where Work is Performed): The general rule states that income derived from employment is taxable in the country where the services are physically rendered.
• The '183-Day Rule' Exception: The DTAA allows employment income to remain taxable only in the employee's country of residence if three specific conditions are met, including the employee's presence in the host country not exceeding 183 days during a fiscal year.
• Expanded PE Test for Services: A crucial addition in the revised DTA is the expansion of the PE definition to include the furnishing of services (including consultancy) if the activities continue for a period or periods aggregating more than 90 days within a 12-month period. This is a stricter rule than the standard 183-day test and directly impacts service providers.

What are the Documents required to claim DTAA TDS 

To legally claim the reduced tax rates or tax credit under the India Kenya tax treaty, specific documents must be maintained and submitted to the tax authorities.

• Tax Residency Certificate (TRC): A certificate issued by the tax authority of the country of residence (Kenya or India) confirming the taxpayer’s residency status for the relevant financial year.
• Form 10F: A self-declaration form providing mandatory details about the taxpayer, which must be submitted to the Indian payer for reduced TDS deduction.
• PAN Card: The Permanent Account Number (PAN) is necessary for all financial transactions in India.
• No PE Declaration Letter: A formal declaration stating that the foreign company does not have a permanent establishment (PE) in the host country.
• Proof of LOB Compliance: Documentation showing that the company meets the "Limitation of Benefits" test, proving it is not merely a shell company set up to avoid tax.
• Form 15CA and 15CB: Mandatory forms required before remitting funds out of India.

How to Claim DTAA Benefits 

The primary method for claiming relief under the DTAA is by paying the tax at the reduced treaty rate or claiming a credit for the tax already paid in the host country.

• In India (for Indian residents earning in Kenya): Indian residents must declare their global income, including earnings from Kenya. They can then claim a credit for the tax already paid in Kenya against the tax liability in India. This is the Tax Credit Method.
• In Kenya (for Kenyan residents earning in India): Kenyan residents can provide a Tax Residency Certificate (TRC) to the Indian payer. The Indian payer can then deduct TDS at the lower, mutually agreed rate (e.g., 10% on interest), ensuring the tax is immediately reduced at the source.
• Compliance for NRIs: NRIs receiving rental income or selling property in India must ensure they use the correct forms and declare their status to benefit from the treaty provisions under income tax for NRI.

DTAA Impact on NRIs, Investors, and Businesses 

The DTAA provides crucial clarity that supports investment and minimizes the administrative burden for cross-border entities.

• Reduced Financial Barrier: The reduction in WHT rates ensures that investors do not see their dividends or interest eroded by high taxation in the source country.
• Legal Safety for Corporate Services: The clear definition of the PE threshold (90 days for services) informs service providers exactly when they become liable for local tax in the host country.
• Protection Against Treaty Shopping: The specific LOB clause ensures that the tax benefits are directed only to bonafide residents and investors, protecting the integrity of the tax framework.
• Facilitates Revenue Collection: The provision for Assistance in Collection of Taxes helps both countries recover legitimate tax claims, enhancing trust and bilateral cooperation.

How NoBroker Helps With Tax Documentation for DTAA Claims 

Managing international tax compliance and securing the treaty benefits requires expert guidance and meticulous documentation. NoBroker assists individuals and businesses by simplifying the complexity of the dtaa between india and kenya claim process. We provide support with obtaining the necessary Tax Residency Certificate (TRC), assist with preparing and filing mandatory forms like Form 15CA/15CB, and conduct meticulous documentation review, ensuring your claims for tax relief are accurate, compliant, and processed swiftly.