Corporate Tax Accounting – What you need to know.
Corporation tax is is is a form of Income Tax that is levied on corporate bodies such as Limited companies, Trusts, and Co-operatives, on their annual income. It is important to know the tax obligations associated with the business that is:
- the due dates of filing tax returns
- payment of taxes and the records to be maintained.
The tax payable to corporate residents is at the rate of 30% and non-resident companies at the rate of 37.5%. A company is considered resident in Kenya if it is incorporated under Kenyan Law or if the management and control of its affairs are exercised in Kenya for any given year of income. It is also considered resident if the Cabinet Secretary, National Treasury & Planning declares the company to be tax resident, for a particular year of income in a notice published in the Kenya Gazette.
Companies are required to pay tax in four equal installments during their accounting period in what is known as installment tax. The installment tax is tax paid in advance and is due and payable by 20th of the 4th, 6th, 9th and 12th month of a company’s accounting period.
This is how to determine total tax payable after the end of the accounting period. The installment taxes paid during the year shall be deducted from the established total tax payable and balance of tax (if any) is due. It is then payable by the last day of the 4th month after the accounting year.
For example, if the accounting period runs from January to December every year. The balance of tax is due and should be paid by the last day of April the following year.
Accounting for corporate
At the end of the accounting period, companies’ books of accounts are required to be audited and their annual return filed on time. This is within six months after the end of their accounting period. The Company tax return, popularly known as IT2C, is available on iTax under the returns menu, the ‘file return option.’
The taxable income as declared in the corporation tax return is arrived at by declaring the gross income earned during the year and deducting expenses that have been wholly and exclusively incurred in the production of the income.
It is important to note that Corporation tax may not be the only obligation that a company is required to fulfill. It is therefore important for a company to consider all the tax obligations as part of its statutory responsibilities.
