Update 1: The Industrial Training Act, CAP 237 of the Laws of Kenya
With effect from 23 December 2019, the Industrial Training (Training Levy) (Amendment) Order, 2020 has amended the Industrial Training (Training Levy) Order, 2007 to:
In addition, an employer is required to file an annual return (Form 2) when paying the training levy which is payable at the end of each financial year.
This will effectively reduce the administrative requirement for accounting for the training levy given the materiality of the amounts in question.
Update 2: Companies (Beneficial Ownership Information) Regulations, 2020
Beneficial ownership is an issue that has attracted a great deal of attention the world over.
The Financial Action Task Force (FATF) defines a beneficial owner as a natural person(s) who ultimately owns or controls a corporate body and/or the natural person on whose behalf a transaction is conducted.
The FATF under Recommendation 24 of the International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation urges its members to maintain adequate, accurate and timely information on the beneficial ownership and control of legal persons.
According to a 2018 Tax Justice Network report on the state of play of beneficial ownership legislation, only about 34 jurisdictions had beneficial ownership registration laws, with another 11 expected to enact the legislation by 2020.
It is against this background that in July 2019 Kenya introduced the requirement for companies to maintain beneficial ownership information through an amendment to the Companies Act, 2015 (Companies Act) by introducing Section 93A of the Companies Act. The Companies (Beneficial Ownership Information) Regulations, 2020 (the Regulations) were gazetted on 18 February 2020 to give effect to the Companies Act requirement.
The following are critical definitions in the Regulations:
1) Arrangement which refers to an artificial entity, without legal personality, associating one or more natural or legal persons together in an ownership or control relationship, but without implying that the parties to this arrangement have any other form of collective legal identity;
2) Beneficial owner is a natural person who ultimately owns or controls a legal person or arrangements or the natural person on whose behalf a transaction is conducted, and includes those persons who exercise ultimate effective control over a legal person or arrangement. This has been aligned to the definition provided by the FATF;
3) Competent authority includes the Attorney-General of the Republic of Kenya, any criminal investigation agency established by law, law enforcement agencies, authorities that supervise and monitor the financial sector, including the Financial Reporting Centre and the Kenya Revenue Authority;
4) Relevant interest are shares held, voting rights exercised or the right to appoint or remove a member of the board of directors of the company;
5) Significant influence or control has been defined as participation in the finances and financial policies of a company without necessarily having full control over them; and
6) Ultimate ownership or control has been defined as a situation in which the ownership is exercised through a chain of ownership or by means of control other than direct control.
b) Beneficial owner particulars
According to the Regulations, every company shall have a beneficial owner as provided for under Section 93A of the Companies Act. A beneficial owner is a natural person who directly or indirectly:
Companies are required to take reasonable steps to identify their beneficial owners and must include the following information regarding their beneficial owners in their register of members:
The company has a duty to investigate and obtain the above information through a notice to a person it knows, or has reasonable cause to believe is a beneficial owner. Such a person has 21 days from the date of the notice to comply with the requirements of the notice unless otherwise directed by the Court.
c) Company's duty to investigate and obtain beneficial owner particulars
1) Warning notice
Where a person issued with a notice to provide their particulars fails to comply with the request, the company shall issue them with a warning notice. The warning notice, accompanied by the notice for request for information, shall:
A copy of the warning notice shall be kept in the register of beneficial owners.
2) Restriction notice
Where a person does not comply with the warning notice, the company shall restrict their relevant interest within 14 days from the date of the warning notice. This restriction is noted in the company’s register and a copy filed with the Registrar within 14 days from the date of issuance.
The restriction has the following effect on the relevant interest:
A company shall withdraw any restriction where a warning notice has been complied with out of time within 14 days from the date of compliance. Such a withdrawal has to be filed with the Registrar within 14 days from the date of withdrawal. In addition, a note on the withdrawal shall be included in the register of beneficial owners.
d) Disclosure of protected information
The information on beneficial ownership cannot be made public but can be made available to a competent authority upon a written request by the competent authority to the Registrar.
A person who discloses the information in a manner not provided for in the Regulations is liable upon conviction to a fine not exceeding KES 20,000 or imprisonment not exceeding six months, or both.
The draft Regulations had required that all Companies prepare and lodge with the Registrar a register of their beneficial owners within six months from the date of publication of the Regulations. This provision was deleted from the final Regulations.
Section 93A of the Companies Act however provides that companies must lodge a copy of their register of beneficial owners with the Registrar within 30 days after the preparation of the same. Further, any amendments to the register shall be lodged with the Registrar within fourteen (14) days and completion of the amendment.
If a company fails to comply with this requirement, the company and each officer of the company that is in default, commits an offence and on conviction is liable to a fine not exceeding KES 500,000. If following conviction the company continues to default, the company and each of its officers shall be liable to a fine not exceeding KES 50,000 for each day that the offence continues.
From our review of the detailed Regulations, we note that they have been limited to the beneficial ownership of Companies. Following this, it is possible that there may be subsequent regulations issued for other body corporates such as trusts or limited liability partnerships as this too have been previously utilised to channel IFFs.
We also note that, while on one hand it may be onerous to obtain the information on the beneficial owner of a company, especially where the company ownership structure is complex, the information may be useful in determining the underlying ownership of an entity especially for tax purposes where such information is useful for identification of persons who are subject to tax in Kenya.
There are however certain implementation challenges that may also arise. For instance, we note that Companies are required to take reasonable steps to identify their beneficial owners. The challenge with such a requirement is that it leaves a lot of leeway for interpretation as to what constitutes “reasonable steps.” This requirement may therefore not effectively impact on the objective of the Regulations.
In addition, the sanction of a fine not exceeding KES 20,000 or to imprisonment not exceeding six months, or to both for illegal disclosure of information does not seem to be a sufficient deterrent for the infringement. It may therefore be highly ineffective. It is our considered view that the consequences of unlawful disclosure of protected information should have been aligned to the provisions of the Data Protection Act, 2019 (DPA).
We expect that in due course, the Government will come up with regulations to require that other body corporates such as trusts and limited liability partnerships to provide information on their beneficial ownership.
If you have any specific queries or require a comprehensive analysis of the Regulations, please contact the undersigned.
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