– The Foreign Account Tax Compliance Act (FATCA) was enacted in 2010 but it was not effected until the 2014 tax filing season.
– The provisions of the law also require that foreign banks report to the Internal Revenue Service (IRS) any financial assets held by a US citizen or permanent resident.
– This law was aimed at preventing fat cats from cheating and transferring money overseas to avoid paying tax.
– Double taxation is normal between the countries, but it s made so that the tax payer do not pay double tax. Such an agreement is is made between Kenya and several other countries, including, the USA, Denmark, etc.
Kenyans in the US will be protected from double taxation, the Kenyan ambassador to the US, Mr Robinson Githae, has said.
Mr Githae said he understood the concerns of Kenyans in the US after a provision of a federal law requiring US citizens and permanent residents (green card holders) to report foreign-held financial assets went into effect.
The envoy was speaking in Dallas, Texas, on Saturday during the Kenya Diaspora Homes Expo, which brought together various companies representing Kenya’s real estate industry.
The Foreign Account Tax Compliance Act (FATCA) was enacted in 2010 but it was not effected until the 2014 tax filing season.
The provisions of the law also require that foreign banks report to the Internal Revenue Service (IRS) any financial assets held by a US citizen or permanent resident.
This law was aimed at preventing fat cats from cheating and transferring money overseas to avoid paying tax.
In line with this requirement, Kenyan natives who are naturalised US citizens or are permanent residents will need to report investments in Kenya if their specified foreign financial assets are more than $50,000 (Sh4.8 million) on the last day of the tax year or more than $75,000 (Sh7.2 million) at any time during the tax year.
Those who do not meet these requirements do not need to file. However, those who do must file IRS Form 8938.
Many Kenyans expressed concerns that this requirement would mean their income is taxed twice and this would hinder development projects back home.
Addressing the concerns, Mr Githae said the Kenyan Government was pursuing a framework with the US, where one would be taxed in the country where they spent most of the time during a tax year or where one earned most of their income.
“This treaty will be in place by the beginning of the next tax filing season,” he told the Daily Nation.
Backing the envoy’s assurances, the director of diaspora affairs at the Ministry of Foreign Affairs and Trade, Mr Washington Oloo, said he could not say at what stage the discussions with their US counterpart were, but that they were working on a long-term solution.
In December 2013, Kenyan banks started steps to comply with this new requirement.
Failure by any Kenyan bank to disclose the necessary information may result in a US bank that has remittances to be sent to that Kenyan bank being mandated by FATCA to withhold 30 per cent of the cash and submit to the IRS as a penalty.
The system usually works in a way so that the tax payer do not pay full tax in both countries, but maybe pay a smaller tax in both countries so that the full normal tax is paid all together.
As an example with Denmark for a 2 year period you pay a smaller tax in Denmark and a smaller tax in Kenya if the Danish person lives in Kenya, so that the tax level in total does not surpass the biggest tax paid in either country. There is a limit of 2 years, where the Danish person pays tax in Denmark, hereafter the tax-payer will only pay tax in Kenya if the tax-payer live in Kenya. However if the taxpayer owns property, Company, etc. in either country they still have to pay the property tax, company tax, or similar according to the profit in the country of income.
So for this the Kenyans should accept that they can pay a tax in both countries, but a shared tax so that the Tax level does not surpass the maximum tax-level to be paid, and if they live and have income abroad that is where they should pay the tax, and if they earn money in Kenya from investments in real-estate, or otherwise they should accept paying the normal tax for this income as any other normal taxpayer with an income in Kenya.