The Kenya Revenue Authority (KRA) has implemented new tax exemption rules for charitable organizations, significantly impacting their operations. The Income Tax (Charitable Organisations and Donations Exemption) Rules, 2024, outlined in Legal Notice No. 105, came into effect on June 18, 2024. These regulations provide a structured framework for income tax exemptions and donation deductions, ensuring transparency and accountability in the sector.
KRA’s New Compliance Standards
Under the new regulations, charitable organizations must meet strict organizational and operational tests to qualify for tax exemptions. Organizations eligible for consideration must be exclusively charitable, focusing on poverty relief, education advancement, religion, or public distress relief. Additionally, its governing documents must prohibit private benefits and ensure assets are used solely for charitable activities.
Organizations previously tax-exempted should comply with the updated regulations to prevent losing their exempt status by June 18, 2025. Failure to meet these standards could lead to revocation of exemptions by the KRA.
KRA Enforces Public Benefit and Donation Rules
The new guidelines emphasize that charitable activities must provide a clear public benefit. Beneficiaries should be identifiable, and restrictions on access must be justifiable. Any exclusions must not disproportionately affect impoverished communities.
Only contributions from taxable income that do not lead to a taxable loss qualify for deductions. Donors can allocate up to 50% of their donations to unrelated entities. To validate deductions, donors must present a receipt from the exempt organization, an approved project proposal, and an exemption certificate.
Transition Period and KRA’s Role in Enforcement
The KRA has granted a one-year transition period for previously exempt organizations to align with these new rules. Organizations failing to comply will receive a 30-day notice before revocation. KRA has also invalidated previous publications that are inconsistent with the updated regulations.
For further clarification, taxpayers can access the full guidelines on the KRA website or visit their nearest Tax Service Office. The new regulations mark a pivotal shift in Kenya’s tax framework for charitable organizations, ensuring greater transparency and regulatory oversight.