M-KOPA Holding, a startup specializing in asset financing, has been mandated to fulfill tax obligations in Kenya following an unsuccessful appeal at a tax tribunal. The company had contested a tax bill amounting to $6.8 million for the years 2017 to 2019, leveraging its incorporation in the UK as the basis of its argument.
The crux of M-KOPA’s defense rested on the Double Taxation Treaty (DTT) between Kenya and the United Kingdom, asserting that its operational management and control from the UK rendered it exempt from Kenyan tax liabilities. Nevertheless, the tribunal found this argument insufficient and rejected it.
While the tribunal acknowledged M-KOPA’s obligation to settle a portion of the $6.8 million tax demand, it stopped short of specifying the precise figure owed to the Kenya Revenue Authority (KRA).
M-KOPA’s stance highlighted its UK-registered office and the predominantly non-Kenyan residency of its directors as reasons for its claimed tax exemption. However, the tribunal determined that the company’s tax residency falls within Kenyan jurisdiction, thereby subjecting it to the country’s income and capital gains taxes.
The tribunal’s decision was influenced by M-KOPA’s inability to substantiate its claim that pivotal company decisions were made during board meetings held outside Kenya. This lack of evidence led to the conclusion that M-KOPA did not meet the criteria to be considered a non-resident under Section 30 of the TAT Act.
This ruling represents a significant victory for the KRA and sets a precedent that could impact other Kenyan startups that have established their tax residency abroad. The tribunal’s findings were partly based on the observation that key managerial decisions were made within Kenya, as evidenced by the residency of M-KOPA’s CEO, CFO, and CCO in the country.
Kenya stands as M-KOPA’s primary market, with Nigeria, Ghana, and South Africa also playing significant roles in its operations. The company offers a range of products, including solar power systems, smartphones, and electric bikes, which customers can purchase through incremental payments. In 2023, M-KOPA embarked on a pan-African expansion, securing $250 million in debt and equity funding.
