is common to find a business whose assets,
customers and suppliers are situated in a
different continent from where it is resident.
the business world becomes globalized,
companies and individuals plying their trade
in the international arena are exposed to
different tax jurisdictions.
pay their taxes according to “international
tax law”. International tax law is however a
misnomer since a person is required to comply
with a multiplicity of domestic laws in the
countries where they operate.
business will also be required to comply with
bilateral tax agreements (between any two
states) and multilateral agreements (among
more than any two states) as well as
international norms and practices in
man is an island. Consequently, most countries
in the world have adopted principles of
international tax law in their domestic
legislation on their own volition
(unilaterally) to ease international trade.
countries impose tax on income on the basis of
residency of the taxpayer or the source of the
country may tax its citizens on income derived
or accrued from its jurisdiction and from the
rest of the world.
is common among devel-oped countries which are
mostly exporters of capital.
country may also tax its citizens as well as
foreigners on income sourced from within its
is common among developing countries which are
mostly importers of capital.
countries often forego taxing their residents
on foreign sourced income, to encourage them
to invest abroad.
practice, most jurisdictions use a combination
of the residency and source basis.
that impose tax on a source basis face a
challenge in imposing and collecting taxes
overcome this challenge by requiring residents
or non-residents with a trading presence
(permanent establishment) in their
jurisdiction to withhold taxes when making
taxable payments to non-residents.
sources of income are taxed under special
include incomes from international freight,
income from passive sources and incomes
arising from professional and personal
of income from ships in international
operations is complex due to the various
jurisdictions the vessels operate in.
are practical challenges in apportioning
income and expenses incurred in the various
owners might also end up paying taxes abroad
whereas they are making losses in their home
under international tax laws and practice,
ship owners pay income tax in their own
Jurisdictions that do not have their own
shipping companies reserve the right to charge
tax on income earned by foreign shipping lines
in their jurisdictions, at reduced rates.
Kenya, the rate of tax is 2.5 per cent of
gross freight charged on goods, passengers and
mail embarked in Kenya.
10 of the Kenya Income Tax Act (ITA) imposes
tax on passive sources of income including
rental income, dividends, royalties and
interest as well as income from personal
services, including management or professional
fees, performance and sporting fees.
tax is collected by withholding under Section
35 of the ITA. Section 10 of the ITA imposes
tax where there is a payment by a resident
person or a non-resident person with a
perm-anent establishment in Kenya.
the payment should be incurred in the
production of income by the payer.
interpretation of Section 10 is that tax is
not imposed on professional or management fees
income if the payer is not resident in Kenya
and does not have a trading presence in Kenya.
tax is also not imposed on these sources if
the payment does not form part of the expenses
of the payer.
these circumstances, tax should not be
collected under section 35 of the ITA.