The Kenya Revenue Authority (KRA) has announced the commencement of the Income Tax (Charitable Organisations and Donations Exemption) Rules, 2024, following the enactment of Legal Notice No. 105 of 2024.
These new regulations, which took effect on 18th June 2024, outline the guidelines and requirements for charitable organisations seeking income tax exemption and the conditions for deductible expenditure on donations.
New guidelines for income tax exemption
The newly introduced Rules provide a framework for organisations seeking Income Tax exemption under Paragraph 10 of the First Schedule to the Income Tax Act.
They also define the conditions under which donations can be considered tax-deductible under Section 15(2)(w) of the Act.
According to KRA, the Rules are designed to ensure compliance, transparency, and accountability among charitable organisations.
These Rules guide on the requirements for Income Tax exemption under Paragraph 10 of the First Schedule to the Income Tax Act, as well as the conditions for deductibility of expenditure on donations.
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New applications must comply with the rules
Any organisation seeking an Income Tax exemption after the effective date of the Rules must meet the prescribed requirements.
This means that entities applying for tax exemption for the first time will need to align with the newly established framework before being considered for approval.
KRA has emphasised the importance of following the stipulated guidelines, warning that failure to comply could lead to rejection.
Applications for Income Tax exemption received after the effective date of the Rules should comply with the requirements prescribed in the rules.
Transition period for organisations with existing exemptions
For charitable organisations that had already been granted tax exemptions before the new Rules came into force, a transition period has been provided.
These organisations must ensure full compliance with the updated guidelines by 18th June 2025. This transition period of one year is set under Rule 27 of the new framework.
Failure to demonstrate compliance within the stipulated period could result in the revocation of the tax exemption status.
"Organisations that had been granted exemptions prior to the coming into force of the Rules should comply with the requirements prescribed in the Rules by 18th June 2025," KRA explained.
Additionally, the tax authority warned: "Failure to demonstrate compliance with the Rules by the prescribed date may result in revocation of the exemption in line with Rule 20."
Invalidation of previous tax guidelines
In an effort to streamline tax compliance, KRA has declared that any previous publications or communications that contradict the new Rules are now invalid.
This applies to past regulations governing Income Tax exemption for charitable organisations and the deductibility of expenditure on donations.
KRA made it clear that moving forward, only the newly established Rules will be recognised.
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Any previous publications and communication on Income Tax exemption under Paragraph 10 of the First Schedule to the Income Tax Act and deductibility of expenditure relating to donations that are inconsistent with the Rules are invalid to the extent of the inconsistency.
To facilitate understanding and compliance, KRA has made the new Rules accessible on its website.