Kenya Publishes Regulations for Financial Institutions to Implement Common Reporting Standards
Tax Procedures (Common Reporting Standards) Regulations Published by Kenya’s Cabinet Secretary, National Treasury and Planning
NAIROBI, KENYA - The Cabinet Secretary, National Treasury and Planning has published the draft Tax Procedures (Common Reporting Standards) Regulations, requiring financial institutions in Kenya to implement due diligence procedures to identify reportable accounts and submit annual reports on these accounts.
Background
The regulations are aimed at implementing Kenya’s multilateral agreement with the Organisation for Economic Co-operation and Development (OECD) and the provisions introduced in the Finance Act, 2021. The Common Reporting Standards (CRS) were developed by the OECD in July 2014 to protect the integrity of tax systems and reduce instances of tax evasion through the sharing of information among jurisdictions on an annual basis.
Key Terms and Definitions
- Financial institution: A person or entity that provides financial services, such as banks, insurance companies, and investment firms.
- Reportable account: An account held by a reportable person, including individuals, entities, and trusts.
- Reportable jurisdiction: A country or territory that has implemented the CRS regulations.
- Reportable person: An individual or entity that is subject to tax in one or more reportable jurisdictions.
Due Diligence Requirements
Financial institutions will be required to:
- Review all existing accounts to identify reportable accounts
- Determine reportable low and high-value accounts
- Obtain self-certifications for new and existing accounts
- Conduct residence tests for low-value accounts
- Identify instances of inconsistencies in self-certifications where contrary information exists
Financial institutions are also allowed to use a service provider to conduct due diligence and reporting obligations, but the ultimate responsibility will still lie with the reporting financial institution.
Reporting Obligations
Reporting financial institutions will be required to file with the Commissioner each year a declaration with information on reportable accounts by May 31 of the year following the year in respect of which the declaration is filed. The return must be submitted electronically via technology and in a format approved by the Commissioner.
Where a reporting financial institution has not identified a reportable account, it must file a nil return.
Data Maintenance
The regulations also require reporting financial institutions to maintain electronic searchable data with fields as set out in the CRS Regulations for a statutory period of five years.
Benefits and Importance
The implementation of the CRS regulations is expected to enhance tax transparency and reduce cross-border tax evasion. Reportable persons are advised to ensure accuracy of their tax returns in their tax jurisdictions and disclose their residence status to financial institutions.
By implementing these regulations, Kenya aims to promote a culture of compliance and cooperation among its citizens and financial institutions, ultimately strengthening the country’s tax system and reducing tax evasion.