Features & Sacco Leadership

Are SACCO dividends taxed in Kenya?

Are SACCO Dividends Taxed in Kenya?

In Kenya, many people invest their savings through Savings and Credit Cooperative Societies (SACCOs). These societies are registered under the Cooperatives Act and operate as member-owned organizations where individuals can deposit savings and purchase shares. The returns on these shares are known as dividends, and they represent a portion of the SACCO’s profits distributed to its members.

What Are SACCO Dividends?

Dividends are payments made to SACCO members based on the share capital they hold. They are typically a percentage of the total amount invested in the SACCO. While some SACCOs might refer to these returns as “bonuses,” the Income Tax Act in Kenya treats dividends and bonuses the same for tax purposes. Members who hold shares in a SACCO receive these dividends as a reward for their investment and as a share of the SACCO’s financial success.

When Are Dividends Paid?

The process for paying dividends in a SACCO begins with the management making a recommendation based on the society’s financial performance for the year. This recommendation includes a proposed percentage for the dividends. The financial statements, along with the dividend proposal, are then submitted to the SACCO’s regulator, which could be the Ministry of Cooperatives or the SACCO Society Regulatory Authority (SASRA), for approval. After receiving regulatory approval, the proposal is presented to SACCO members at the Annual General Meeting (AGM) or Annual Delegate Meeting (ADM). If the members approve the dividend payout, the SACCO is then authorized to distribute the dividends.

Tax Implications for SACCO Dividends

There are important tax implications associated with SACCO dividends. According to Section 35 (3) (d) of the Income Tax Act, SACCOs are responsible for withholding tax on the dividends they pay out. For resident members, the withholding tax rate is set at 5%. For non-resident members, the rate is higher at 15%.

If a SACCO fails to withhold and remit the required tax, it faces penalties and interest as stipulated in Section 84 (2) (b) of the Tax Procedures Act. Specifically, the SACCO will incur penalties and interest at a rate of 1% compounded monthly from the due date of the tax payment. SACCOs are required to ensure that the withholding tax is deducted and paid to the Kenya Revenue Authority (KRA) by the 20th day of the month following the dividend payment.

 

Andrew Walyaula
Author: Andrew Walyaula

Andrew Walyaula is a seasoned multimedia journalist. waliaulaandrew0@gmail.com

Andrew Walyaula

About Author

Andrew Walyaula is a seasoned multimedia journalist. waliaulaandrew0@gmail.com

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