Kenyan banks start sharing customer data, balances with taxman

Kenyan banks start sharing customer data, balances with taxman
Times Tower in Nairobi, the headquarters of Kenya Revenue Authority (KRA).

Nairobi, Kenya | By Michael Wandati | In a significant move, Kenyan banks have started sharing information of foreign account holders with the Kenya Revenue Authority (KRA), aligning with the tax authority’s intensified efforts to combat tax evasion and track beneficiaries of illicit wealth.

Several banks officially informed their customers on Thursday 8, February 2024 about the initiation of the Common Reporting Standards (CRS), a global framework facilitating the seamless exchange of information on taxpayers among participating countries.

Under this framework, the KRA is anticipated to receive corresponding details regarding resident taxpayers holding offshore accounts.

For individual account holders, banks will disclose specific information to the tax authority, including account balance, address, place of birth, date of birth, country or countries of tax residence, and identification numbers.

Corporate entities are also required to provide additional details, such as the place of registration, entity type, and information about the controlling person, which banks will collect and forward to the KRA.

This development follows the signing of the Tax Procedures (Common Reporting Standards) Regulations in January 2023 by the Treasury Cabinet Secretary. These regulations mandate all Kenyan banks, trusts, and other financial institutions to report details of foreigners to the KRA, marking a crucial step in enhancing transparency and compliance within the financial sector.

The Kenya Revenue Authority (KRA) is set to extend the sharing of account holder information to 106 signatory countries, encompassing well-known tax havens such as Switzerland, Panama, the Cayman Islands, Bermuda, the British Virgin Islands, Mauritius, Jersey, and Monaco.

In reciprocation, tax authorities in these signatory nations are obligated to share comparable information with the KRA, significantly bolstering the taxman’s efforts to uncover funds concealed in offshore accounts.

In alignment with anti-money laundering regulations mandating financial institutions to report cash transactions exceeding Sh1 million to the Financial Reporting Centre, banks are now tasked with reviewing all existing accounts with balances surpassing $250,000 (UGX 965 million, KSh 40 million) owned by foreign account holders.

Nevertheless, tax experts emphasize the delicate balance that banks and the KRA must maintain to protect customer confidentiality, emphasizing adherence to the Data Protection Act. This cautious approach acknowledges the importance of upholding privacy while navigating the complex terrain of international financial transparency.

“Further, the CRS requires participating authorities to have data safeguards in place and I think this is what the Data Protection Act resolves,” said Robert Waruiru, a partner at Ichiban Tax & Business Advisory LLP, adding that the EU tax residents will be subject to the much more stringent EU data regulations.

As a signatory to the Common Reporting Standards (CRS), Kenya aims to unveil the assets held by its citizens abroad, particularly entities and individuals operating in low-tax jurisdictions.

In 2017, the Treasury introduced a tax amnesty offer, encouraging Kenyan investors who had stashed their wealth overseas to repatriate it without facing penalties.

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During the same year, Kenya entered into an agreement with the Jersey government for the repatriation of over Sh380 million seized from a company linked to former Kenya Power managing director, Samuel Gichuru.

The CRS, established by the Organisation for Economic Co-operation and Development (OECD) in July 2014, serves as a mechanism among predominantly affluent nations to combat tax evasion by facilitating the annual exchange of information between jurisdictions.

In a significant legislative move, Kenya adopted the common reporting standards through the Finance Act of 2021, empowering the Kenya Revenue Authority (KRA) to request information on a taxpayer from authorities in other jurisdictions.

On July 22, 2020, Kenya further solidified its commitment by signing the CRS Multilateral Competent Authority Agreement on the Automatic Exchange of Financial Account Information and incorporating the OECD Regulations as outlined in their draft.

This strategic alignment positions Kenya to enhance global cooperation in tackling tax evasion and promoting financial transparency.