In a landmark ruling with far-reaching consequences for businesses in Kenya, the Tax Appeals Tribunal (TAT) has delivered a significant victory by ruling that withholding tax does not apply to fees paid to foreign marketing agents under the Kenya-France and Kenya-South Africa Double Tax Treaties (DTTs).
The decision, handed down on August 30, 2024, came after a Kenyan company challenged the Kenya Revenue Authority’s (KRA) demand for withholding tax on payments made to marketing agents based in France and South Africa. The KRA had argued that these payments fell under the “other income” clauses of the respective DTTs, granting Kenya the right to tax them.
However, the Tribunal ruled that Kenya had no taxing rights, as the marketing agents did not have a Permanent Establishment (PE) within the country. This ruling reinforces a crucial principle—payments to non-residents are only taxable in Kenya if a PE exists. The Tribunal’s stance mirrors earlier decisions, including in cases involving Total Kenya Limited and McKinsey & Company, where similar rulings on the non-applicability of withholding tax were made.
This decision brings welcome clarity to businesses that rely on foreign service providers, especially in sectors requiring international marketing support. Consulting firm PwC Kenya noted that the ruling offers a clear interpretation of DTTs and highlights the pivotal role of PE in determining tax obligations.
While the KRA may appeal the decision, this ruling sends a strong message to businesses in Kenya about the importance of understanding DTT provisions and asserting their rights when tax assessments seem misalaigned.
