On 18 June 2024, the Cabinet Secretary for the National Treasury and Economic Planning (CS) gazetted vide Legal Notice No. 105 of 2024, The Income Tax (Charitable Organisations and Donations Exemption) Rules, 2024, which repealed the Income Tax (Charitable Donations) Regulations, 2007.
Under the new rules Charitable Organisations will be required to apply for a tax exemption certificate by submitting, among others, the following documents:
•Certified copies of their governing documents, including rules, constitution, trust deed, memorandum and articles of association
•Registration documents of the applicant.
•Audited financial statements for the preceding three years (or one year for new organisations).
•An introduction letter detailing the name, nature and principal activities of the applicant from the County Commissioner where the headquarters of the organisation are and
•Other documents required that include original bank statements for three years, a schedule of assets and values, an impact report of present and future activities in Kenya, beneficiary selection criteria, an itemised summary of payments showing the payee, amount and purpose, identification documents of the officials, physical address proof, valid tax compliance certificate, and letter of authority, power of attorney or appointment letter of the charitable organisation’s representative.
Key Highlights of the Charitable Organisations Rules
The objective of the new rules is to foster transparency relating to the operations of a Charitable Organisation.The key highlights include:
•The income tax exemption certificate issued following a successful application will be valid for five years.
•A separate tax Personal Identification Number must be obtained for any business activities not related to their charitable purposes. Such income will not be exempted.
•Charities can accumulate donations/grants but are limited to keeping no more than 15% of their funds over a three-year period unless these funds are used for charitable purposes
•Tax deductions will be disallowed if a donation results in a taxable loss for the taxpayer.
•Donations made to a related exempt charitable organisation that exceed 50% of the total donations made by the taxpayer in a year of income are not eligible for tax deductions and
•Charities that were previously exempt from tax will have twelve months to comply with the new rules.
This alert serves the purpose of general guidance and is not intended to constitute specific legal advice. For legal advice concerning this alert, please contact our Partner Nishit.Maru@CMS-DI.com.
*Contributors
•Radhika Bhullar, Associate
•Laura Lwigado, Associate
•Sarah Mueni, Trainee Lawyer
