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Small Company Investment in Ltd Co registered in Kenya

I have recently taken on a new client who is a management consultant with a turnover of under £100k. The income is generated in the UK and the accounts are very straight foward apart from the fact that the client has made six seperate payments for the purchase of shares in a private company registered in Kenya with a view to a possible joint venture in the future. The total investment at the year end is is just under £50k.

I intend to show this as a fixed asset investment (unlisted) with an appropriate accounting policy for permanent diminution in value.

My questions are:-

1)  I have seen a certificate of incorporation for the company in Kenya and letters from that company confirming the 'increase in holding'. The directors will confirm the transactions in a letter or rep. Do I need to verify these transactions further in anyway and if so how? I assume that share certificates would cover it. Does anyone know how to go about a companies search in Kenya?

2)  Are there any other accounting, disclosure or corporation tax points that should be considered.

Thanks in advance.

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Tax wise...... 

Tax wise...... 

What % holding do they have? If >50% you have an associated co for CT purposes (will reduce your CT limits).

Possibility to fall under controlled foreign company regime depended on what the tax rate is in Kenya, but given the number you are talking about above likely to fall under the de minimis exemption.

Are they going to receive interest/dividends? Possible withholding tax implications.

Is it purely an investment or is the UK entity going to trade in anyway in Kenya - if looking to trade likely to have PE issues.

What's the purpose of holding shares in a Kenyan entity? Have they thought about an exit strategy - you'd want to ensure that any disposal of shares in the future is neutral for tax purposes where possible - SSE exemption.

Appreciate you may just be preparing the accounts so in that case the above doesn't have as much impact for you at the moment, but would be worth flagging these issues as things to consider.

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Hi,

Many thanks for your comments.

At the balance sheet date the company owns 50% of the shares issued in Kenya.

To be honest I have been caught out a little on this one. The client was signed up (and fee agreed) on the basis that he was a starightforward consultant and, had I been aware of the foreign investment, I would not have taken him on.

My involvement is purely accounts prep and I want to make sure that I get the disclosures correct.

My client is a director in both companies so I intend to disclose this as a related party transaction. As the interest is 50% of the share capital I intend to treat this as fixed assets investment with a significant holding (not a subsidiary) and include a note of the company name, country of incorp, shares held and capital and reserves (if accounts are availble) in accordance with FRSSE (significant holding ie >20% but not a subsidiary).

Am I correct to assume that the investment should be included in the accounts at the spot rate of exchange rather than the rate of exchange at the balance sheet date (non monetary asset).

I have asked the client if he is aware of Controlled Foreign Company implications and I am hoping that he will provide accounts showing figures below the de minimis.

It does not look as though the client has taken any advice in relation to this set up and I am more than happy to point him in the right direction if this is something that anyone can deal with.

The client seems unware of the more technical nature of this transaction or the implications and is wondering why | am asking so many questions!!

 

 

 

 

 

 

 

 

 

 

 

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