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The Income Tax (Leasing) Rules

Legal Notice 52 of 2002

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The Income Tax (Leasing) Rules
Citation
Legal Notice 52 of 2002
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Income Tax Act
Date
Language
English
Type
Legal Notice
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LAWS OF KENYA

INCOME TAX ACT

THE INCOME TAX (LEASING) RULES

LEGAL NOTICE 52 OF 2002

  • Published in Kenya Gazette Vol. CIV—No. 24 on 19 April 2002
  • Commenced on 19 April 2002
  1. [Amended by Income Tax (Leasing) (Amendment) Rules, 2006 (Legal Notice 69 of 2006) on 1 July 2006]
  2. [Amended by Income Tax (Leasing) (Amendment) Rules, 2006 (Legal Notice 83 of 2007) on 1 July 2007]
  3. [Amended by Income Tax (Leasing) (Amendment) Rules, 2008 (Legal Notice 81 of 2008) on 20 June 2008]
  4. [Amended by Income Tax (Leasing) (Amendment) Rules, 2009 (Legal Notice 91 of 2009) on 12 June 2009]
  5. [Amended by Income Tax (Leasing) (Amendment) Rules, 2015 (Legal Notice 108 of 2015) on 19 June 2015]
  6. [Revised by 24th Annual Supplement (Legal Notice 221 of 2023) on 31 December 2022]

1. Citation

These Rules may be referred to as the Income Tax (Leasing) Rules.

2. Interpretation

In these Rules, unless the context otherwise requires­—"asset" includes equipment, but excludes land and buildings;"Commissioner" includes an officer authorized in writing by the Commissioner to exercise the powers or to perform functions conferred upon the Commissioner under these Rules;"cross-border lease" means a leasing contract entered into between a person resident in Kenya and another person resident in a different tax jurisdiction;"finance lease" means a contract which the lessor agrees to lease assets to the lessee for a specified period of time where the risks and rewards associated with ownership of the assets are substantially transferred from the lessor to the lessee, but with the title to the assets always remaining with the lessor;"hire purchase" means a contract under which the lessor agrees to lease the assets to the lessee for a specified period of time, with the intention of transferring ownership on the expiry of the lease;"lease" means a contract by which a person owning assets grants to a lessee the right to possess, use and enjoy such assets for a specified period of time in exchange for periodic payments:Provided that any contract whose term is less than six months or a hire purshase shall not be deemed to be a lease."lessee" means a person who leases from the owner or lessor of the assets and in return for use of such assets pays periodic payments to the lessor;"lessor" means a person who leases an asset to a lessee;"operating lease" means a contract under which the lessor agrees to lease the assets to the lessee for specified periodical payments where the title to the assets and the risks and rewards associated with ownership substantially remain with the lessor.[L.N. 83 of 2007, s. 2., L.N.81 of 2008, s. 2., LN 105 of 2015, s. 2.]

3. Income chargeable to tax

(1)All income accruing to a lessor from payments made in respect of an operating or finance lease shall be chargeable to tax in accordance with the provisions of the Act.
(2)All income accruing under paragraph (1) shall be subject to withholding tax at the rates applicable to resident or non-resident persons under the Act.[L.N. 62 of 2006, s. 2.]

4. Deduction

Notwithstanding paragraph 3—
(a)a lessor shall be entitled to claim a deduction-
(i)for the wear and tear of the leased assets in accordance with paragraph 9 of the Second Schedule to the Act; and
(ii)in respect of all other expenditure incurred wholly exclusively in the production of the incom accordance with section 15 of the Act.
(b)a lessee shall take as a deduction the full amount of the payments made to the lessor:
Provided that a deduction under these Rules shall be granted where the Commissioner is satisfied—
(i)in the case of a lessor, that the expenditure in respect of which the deduction is sought is incurred by the lessor wholly and exclusively in the production of income chargeable to tax; and
(ii)in the case of a lessee, that the sole consideration for the payment in respect of which the deduction is sought is the use of, or the right to use, an asset.

5. Capitalization of assets

(1)For the purposes of these Rules assets to which these Rules relate shall be capitalized in the books of the lessor, and where the same are sold off upon the expiration of the lease, the difference between the sale price and the book value shall be deemed to be a gain or loss to the lessor, as the case may be, for purposes of assessment.
(2)Assets leased under these Rules shall not be capitalized in the books of the lessee.[L.N. 62 of 2006, s. 3.]

6. Register

The lessor shall maintain a separate register for all leased assets.

7. Deleted by LN 81 of 2008, s. 3.

8. Where lease is terminated

(1)Where, upon termination of a lease in respect of which the lessess is entitled to any tax deduction, and with the express or implied consent or acquiescence of the lessor the lessee is allowed to use, enjoy or deal with the asset as the lessee may deem fit—
(a)without the payment of any consideration; or
(b)subject to the payment of any consideration which is nominal in relation to the fair market value of the asset; or
(c)if the asset is transferred to the lessee passes for an amount less than the market value,
the lessee shall be deemed to have acquired the asset and the Commissioner shall recover the deductions previously enjoyed by the lessee in respect of such assets with effect from the date of the commencement of the lease and appropriate adjustments made for each year of income when the lease payments were claimed.
(2)Where an acquisition is deemed under paragraph (1) the lessee shall be allowed to depreciate the amount recovered based on he wear and tear deduction applicable to the class of asset which shall be computed on the total lease payments recovered under paragraph (1), with effect from the year of income in which the lease commenced.
(3)Where a lessee is allowed wear and tear as computed under paragraph (2), similar adjustments shall be made in the tax computation of the lessor to bring to charge the wear and tear previously claimed by the lessor.[LN 81 of 2008](/akn/ke/act/ln/2008/81), s. 3.]

9. Deleted by LN 81 of 2008, s. 4.

10. Cross border lease

(1)Where a lessor in Kenya enters a cross-border lease, the gross lease payments made to the lessor shall be deemed to be income chargeable to tax.
(2)Where a lessee in Kenya enters into a cross-border lease, the gross lease payments made by such lessee shall be deemed to be ncome derived from Kenya and shall be subject to withholding tax in accordance with the Act.
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History of this document

31 December 2022 this version
19 June 2015
Read this version
12 June 2009
20 June 2008
01 July 2007
01 July 2006
19 April 2002
Commenced