Banks are starting to adapt to foreign clients’ reporting requirements

Local banks are expected to fully comply this month with the requirement to share foreigners’ account details with the Kenya Revenue Authority (KRA), for onward transmission to the relevant jurisdictions after the August 31, 2024 deadline.

Commercial banks in February began identifying foreign customers who have accounts in Kenya ahead of the original May 31 deadline. However, the document submission requirement was extended to Aug. 31, making September the first reporting month for these institutions.

The reporting criteria were introduced by the Organisation for Economic Co-operation and Development as a measure to combat tax avoidance and promote financial transparency.

The data to be shared includes account balances, address, place and date of birth, country or countries of tax residence and identification numbers. KRA is also expected to receive similar data for a resident taxpayer with an offshore account.

Common Reporting Standards (CRS) were enacted in Kenya through the CRS regulations published in February last year. Banks notify customers about the application of the standards, including issuing self-certification forms.

“To confirm your status under CRS, you may be asked to complete a self-certification form and return it to your branch or relationship manager,” DTB Kenya said in a message to customers.

The CRS reports distinguish two types of accounts based on their balance as at December 31, 2023, including low-value accounts, which had a balance of less than 129.1 million shillings (US$1 million), and higher-value accounts, which had a balance in excess of this amount.

CRS records are to be kept for at least five years after the reporting period. Several countries on the continent have begun sharing the framework, including South Africa, which was the first to do so in 2017.

Others include Mauritius (2018), Ghana (2019) and Nigeria (2020). Uganda and Rwanda are set to start exchanging information in 2025. More than 5,400 bilateral exchange relationships covering 120 jurisdictions have been activated worldwide under this framework.

The signatories to the agreement include tax havens such as Panama, the Cayman Islands, Mauritius and Jersey.

Deloitte has identified a number of challenges in implementing CRS in Kenya, even though most banks have now made disclosure mandatory, especially when opening new accounts.

“A few banks in Kenya have proactively implemented self-certification forms as part of their account opening procedures. While this is a step in the right direction, banks need to go a step further and implement robust procedures, policies and effective internal controls to ensure full compliance with CRS requirements,” notes Joseph Kariuki, Partner- Head of Banking Sector at Deloitte.

“This will enable banks to accurately identify and document the tax residency of account holders, conduct thorough due diligence, maintain the integrity and confidentiality of information exchanged, and ensure accurate reporting of financial data to the tax authority.”

The CRS framework applies to reporting financial institutions, including depository institutions, custodial institutions, investment entities and certain insurance companies.