The Tax Appeals Tribunal has ruled that UK-incorporated fintech firm M-Kopa Holdings is liable to pay Ksh 885 million in taxes to the Kenyan government.
The ruling was delivered after the fintech company failed to prove that it was managed and controlled from the United Kingdom, which would have exempted it from paying certain taxes in Kenya under international tax agreements.
M-Kopa had argued that since it is incorporated in the UK and its board members are based in various countries, its place of management was outside Kenya, and thus it should not be subject to the country’s tax laws.
However, the tribunal found that M-Kopa could not provide sufficient evidence to demonstrate that key operational decisions were made outside Kenya.
This led the tribunal to conclude that M-Kopa’s tax residency is indeed in Kenya, making the company liable for taxes on income earned within the country.
One of the main points of contention was the withholding tax assessments for the years 2017 to 2019.
M-Kopa disputed these assessments, arguing that it had no tax obligation in Kenya for that period.
However, the tribunal ruled in favor of the Kenya Revenue Authority (KRA), noting that M-Kopa had failed to provide clear evidence of where its board’s decision-making process occurred.
As a result, the tribunal upheld the KRA’s claim that M-Kopa’s tax residency was in Kenya during the years in question.
Additionally, the tribunal dismissed M-Kopa’s argument regarding the assessment of deemed interest on redeemable preference shares.
M-Kopa had contended that these shares should not be taxed as loans under Kenya’s Income Tax Act, but the tribunal disagreed, determining that they could indeed be taxed under Kenyan law.
Founded in 2011, M-Kopa is one of Kenya’s most well-funded fintech companies, having raised over $245 million in equity funding.
Initially, M-Kopa focused on providing solar-powered electrical equipment through a pay-as-you-go model, allowing customers to gradually pay for products over time.
Over the years, the company expanded its offerings to include health insurance and credit services for purchasing smartphones and electric motorcycles.
M-Kopa currently boasts a customer base of over 3 million people spread across Kenya, Uganda, Nigeria, and Ghana.
To date, the fintech has provided over $1 billion in credit to its customers, significantly contributing to financial inclusion in these markets.
This ruling highlights the importance of multinational companies adhering to local tax laws, even when they are incorporated in foreign jurisdictions.
It also underscores the need for clear documentation regarding where key operational decisions are made in order to avoid disputes over tax residency.
The Ksh 885 million tax bill serves as a reminder to international firms operating in Kenya to ensure that their tax arrangements comply with local regulations, especially in light of Kenya’s growing focus on increasing tax compliance among multinational corporations.
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