what would happen if a limited company sells lands and distribute the cash from the land . do they pay dividend tax and ati sijui compensating tax ama what. please tax experts nisaidieni juu watu washalipwa pesa na hawawesi rudisha

When a company sells a building, like Williamson did, the gains made are recognised as income, but for CORPORATE TAX purposes are deducted from other 'normal' income and the remainder is taxed.

When PAT (profit after tax) is distributed to shareholders, the distributing company is obliged to with hold 5% (10% for non-residents) at source.

The shareholder is not subject to any other tax as this withholding tax is considered final.

To cut the long story short, any distributed profits from whatever source is subject to w/h taxx.

But if it has done improvements to the land, then I don't think it is capital gains any more, thus corporation taxe would have to apply at 30%

Compensating Tax is paid when the company doesn't distribute a dividend, or distributes less than it ought to.

Because of not distributing a dividend, the taxman doesn't get the withholding tax due from it, therefore he charges a Compensating Tax on the company.

However, a company can appeal against a Compensating Tax charge if they have no liquid cash, are involved in a major capital project, have loans to pay etc.

sparky,

we bought land as a group for 3 million and sold it for 9 million. we want to break the group and share the 6 million amongs 10 people. each person gets 6oo k. we can pay withholding tax at 5% consindering the 600k ad dividend, but are we liable to pay 30% of the 6 million profit before we divide the money?

First of all determine the scenario company.
If its not in the business of selling land then..
*How long have they owned the land. If less than 5 years then its taken that it was for speculative purposes hence a Capital gain taxable at 30%.( Ascertain the book value)
*5% Withholding tax if they choose to distribute dividends, however there is more information on how to do this.
*As per the dividend policy you cannot distribute dividends on sale of assets. Liable for prosecution.
*If land owned more than 5 years then shall not be subject to taxation as its a form of asset disposal.
*If they paid dividends to the members without the 30% the the company shall take the burden.

Scenario two is when the company is in the business of selling land. Is this the case.??

By the way Tax Law on Capital Gains is some how silent. As per the new measures contained in Finance minister Uhuru Kenyatta’s Budget proposals require real estate developers and land dealers to pay taxes on gains made from the appreciation in the value of properties sold. Kenya Revenue Authority (KRA) has since issued a directive asking dealers in immovable property to pay taxes on capital gains made in their transactions. Read More http://ht.ly/aOJNK

think it was reduced to 5% from 10% last budget