Kenya's Parliament has published the Finance Bill 2021, which was submitted by the National Treasury on 29 April and formally received on 11 May 2021. Some of the key proposed measures in the bill include the following with effect from 1 July 2021:

• The introduction of a new expanded definition of "control" including that a person will be considered to have control in relation to another person where:
  • a person, directly or indirectly, holds at least 20% of the voting rights in a company;
  • a person, other than a financial institution not related to that person, has advanced loans to the other person which constitute at least 70% of the book value of the total assets of the other person;
  • a person, other than a financial institution not related to that person, has guaranteed at least 70% of the total indebtedness of the other person with respect to any form of indebtedness of the other person;
  • a person has the authority and mandate to appoint more than half of the board of directors of the other person or at least one director or executive member of the governing board of the other person;
  • a person is the owner or has the exclusive rights over the know-how, patent, copyright, trademark, license, franchise or any other business or commercial right of a similar nature that the other person is wholly dependent on for the manufacture or processing of goods or articles or business carried on by the other person;
  • a person, or a person designated by that person, supplies at least 90% of the supply of the purchases of the other person or, per the discretion of the Commissioner, influences the prices or other conditions relating to the supply of purchases of the other person;
  • a person purchases or designates a person to purchase at least 90% of the sales of the other person, or per the discretion of the Commissioner, influences the price or any other condition of the sales of the other person;
  • a person has any other relationship, dealing or practice with the other person which the Commissioner may deem to constitute control;
• The introduction of a new definition of "permanent establishment", which includes:
  • a fixed place of business through which business is wholly or partly carried on and includes a place of management, a branch, an office, a factory, a workshop, a mine, an oil or gas well, a quarry or any other place of extraction or exploitation of natural resources, a warehouse in relation to a person whose business is providing storage facilities to others, a farm, plantation or other place where agricultural, forestry plantation or related activities are carried on and a sales outlet;
  • a building site, construction, assembly or installation project or any supervisory activity connected to the site or project, but only if it continues for a period of more than 183 days, with the further provision that connected activities carried on by closely related enterprises for more than 30 days at the same site, construction, or project will be taken into account in determining if the 183-day threshold is met;
  • the provision of services, including consultancy services, by a person through employees or other personnel engaged for that purpose, but only where the services or connected business in Kenya, continue for a period of, or periods exceeding in the aggregate, 91 days in any 12- month period commencing or ending in the year of income concerned;
  • an installation or structure used in the exploration for natural resources, provided that the exploration activities continue for periods not less than 91 days;
  • a dependent agent of a person who acts on their behalf in respect of any activities which that person undertakes in Kenya including habitually concluding contracts or playing the principal role leading to the conclusion of contracts that are routinely concluded without material modification by the person;
• The expansion of the scope for the Digital Services Tax (DST) to cover any income accruing from a business carried out over the internet or an electronic network, including through a digital marketplace, which is more in line with the DST regulations, as well as other related amendments, including for VAT on supplies within that scope;
• The replacement of the current 10-year loss carry-forward limit with a new provision providing that where the ascertainment of total income of a person results in a loss (deficit) for a year of income, the amount of that loss (deficit) is an allowable deduction is ascertaining the total income of such person for that year and the succeeding years of income (i.e., carried forward indefinitely);
• The revision of the limitation on benefits provision for the application of tax treaty benefits, providing that if a person resident in a Contracting State to a treaty is 50% or more owned by a person or persons resident in a third State, then the treaty benefits may be denied (changed from referring to "an individual or individuals" in a third State); and
• An increase in the withholding tax rate on service fee payments to non-resident subcontractors operating in extractive industries from 5.625% to 10%, along with a reduction in the withholding tax rate on payments for management, training, and professional fees to non-resident subcontractors from 12.5% to 10%.

The bill also includes several proposed measures that are to apply from 1 January 2022, including:

• The introduction of a new 30% of EBITDA interest deduction restriction from 1 January 2022 for interest paid or payable to related persons and third parties, replacing the standard 3:1 thin cap restriction, along with the removal of the 2:1 thin cap restriction for extractive industries, which will also be subject to the 30% of EBITDA restriction;
• The introduction of Country-by-Country reporting requirements from 1 January 2022 for ultimate parent entities in Kenya of MNE groups exceeding a prescribed gross turnover threshold, with reports due within 12 months after the end of the reporting year;
• A change in the basis of calculating investment allowances from reducing balance to straight-line from 1 January 2022; and
• The alignment of allowance rates on machinery used to undertake mining prospecting and petroleum exploration operations with the rates provided in the Second Schedule for other sectors from 1 January 2022, including a 50% allowance rate in the first year of use and 25% in the two subsequent years instead of 100% in the first year.

It is expected that the draft Finance Bill 2021 will be finalized and approved towards the end of June 2021.