Financial Crime World

Title: New Common Reporting Standards Regulations Boost Tax Compliance in Kenya

Introduction

The Kenyan government has taken a significant step towards enhancing financial compliance with the introduction of the Common Reporting Standards Regulations, 2023. These regulations establish due diligence procedures and record-keeping requirements for both financial and non-financial entities.

Executive Summary

The Common Reporting Standards Regulations, enacted under the Tax Procedures Act, aim to make Kenya compliant with international requirements for automatic exchange of financial information with other jurisdictions. These regulations came into effect on January 1, 2023.

  • Definitions
    • [Account holder]
    • [Non-financial entity (NFE)]
    • [Passive NFE]
    • [Investment entity]
    • [High-value account]
    • [Reportable Person]
    • [Reportable Jurisdiction]
    • [Reportable Account]

Reporting and Compliance Obligations for Financial Institutions (RFIs)

  • Reporting Duties
    • Submit an annual return to the Kenya Revenue Authority (KRA) with account details.
    • Keep records for at least five years.
  • Identifying Reportable Accounts
    • Pre-existing individual accounts.
    • New individual accounts.
    • Pre-existing and new entity accounts.
  • Reporting and Due Diligence Rules
    • RFIs not residing in a participating jurisdiction are still subject to reporting obligations.

Reportable Account Identification

Pre-existing Individual Accounts

  • Based on documentary evidence.
  • High-value accounts require further reviews.

New Individual Accounts

  • Account holders must self-certify their tax residency.

Pre-existing Entity Accounts

  • Obtain tax residency information from existing records.
  • Depending on the holder’s status as Reportable Person or Passive NFE with Reportable Persons, the account can be Reportable.

Looking Ahead

These Common Reporting Standards Regulations are poised to impact various sectors, including banking, custodial, depository, investment, and insurance, by strengthening financial compliance and information exchange with the international community. Kenya is now among over 30 countries implementing CRS documentation reports for individuals and entities.