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Kenya: Status of the Kenya Netherlands Double Tax Treaty

25 May 2022
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In a letter, dated 19 May 2021, published by the Government of the Kingdom of the Netherlands (the Dutch Government) to the Kenyan Parliament, the Dutch State Secretary of Finance withdrew the Bill for the ratification of the Kenya-Netherlands Income Tax Treaty (2015) (the Double Tax Treaty). The Double Tax Treaty had been signed between the Government of Kenya and the Government of the Kingdom of the Netherlands on 22 July 2015.

The reason for the withdrawal would appear to be because of Kenya’s announcement that the ratification process had stalled, suggesting that the Kenya Government may not have been happy with certain provisions of the Double Tax Treaty. The specific provisions of the Double Tax Treaty that the Kenya Government was unhappy with are not clear.

Accordingly, the Double Tax Treaty is now suspended indefinitely. Both Governments have expressed their willingness to renegotiate the double tax treaty and the Kenya Government has indicated that the new treaty will better reflect the interests of Kenya as a developing country.

Some key aspects of the Double Tax Treaty that taxpayers in Kenya and the Netherlands would have benefited from include:

  1. dividends paid by a company that is resident in one country to a company that is a resident of the other country holding at least 10% of the share capital of the company paying the dividends and which is the beneficial owner of such dividends would have been exempt from withholding tax;
  2. dividends paid by a company that is resident in Kenya to a recipient that is resident in the Netherlands would have been subject to withholding tax at the rate of 10%, as opposed to the standard rate of 15% applicable on dividends paid by a Kenyan resident company to a non-resident recipient;
  3. dividends paid by a company that is resident in the Netherlands to a recipient that is resident in Kenya would have been subject to withholding tax at the rate of 15%;
  4. interest paid by a person that is resident in one of the countries to a recipient that is resident in the other country would have been subject to withholding tax at the rate of 10%. Currently, interest paid by a Kenyan resident to a resident of another country where there is no double tax treaty in place is subject to withholding tax at the rate of 15%;
  5. royalties paid by a person that is resident in one of the countries to a recipient that is resident in the other country would have been subject to withholding tax at the rate of 10%, as opposed to the standard rate of 20% applicable on royalties paid by a Kenyan resident person to a non-resident recipient; and
  6. management fees paid by a resident of any of the countries to a recipient of the other country would have been exempt from withholding tax. Currently, management fees paid by a Kenyan resident to a resident of another country where there is no double tax treaty in place is subject to withholding tax at the rate of 20%.