Grace Ashiru
On March 30, 2023, Kenya’s President William Ruto said that as of July 1, 2023, startups based in Kenya would not have to pay taxes on unrealized gains.
The president said this at the American Chamber of Commerce Regional Business Summit held at the Ole Sereni Hotel in Nairobi. He said his government wanted to make Kenya the best place for innovation by getting investments from startup. However, some things could still be improved that are keeping these businesses from reaching their full potential.
President Ruto said that starting July 1 of this year, the Kenyan government would stop new companies from having to pay taxes on unrealized gains on employee-allocated shares. He also said that his government is dedicated to creating the best environment for businesses by implementing policies that make Kenya the most attractive place to invest in the whole continent.
The president also said that Kenya has one of the African continent’s most developed financial services sectors and is ready for an International Financial Centre to be set up in Nairobi to draw financial players worldwide.
Additionally,he said that Kenya, the U.S. government, and the American Chamber of Commerce had started a trilateral business conversation to discuss and solve the problems U.S. investors and businesses were having in Kenya. This was done to increase trade between Kenya and the U.S.
The fact that startup companies don’t have to pay taxes on unrealized gains on employee-allocated shares is good news for Kenya’s startup environment.
This move will give new businesses that need help getting investors a much-needed cash boost. By eliminating this tax, more startups can get funding, which will help them grow and scale up.
But it’s important to remember that this relief only applies to unrealized gains. Startups will still have to pay taxes on any profits already made.
An unrealized gain or loss is a change in the value of an asset that has not yet been sold.
It means it is only a paper gain or loss and has not resulted in any cash or taxable event. For example, if you buy a stock for $10 and its value increases to $15, you have an unrealized gain of $5. However, if you sell the stock for $15, you will have a realized gain of $5, which will be taxable.
Gains or losses that haven’t been realized aren’t taxed until the object is sold, and the gain or loss is realized. So, if you keep the thing and its value keeps increasing, you will only have to pay taxes once you sell it.
To figure out hidden gains or losses, you must find the asset’s current market value and compare it to what you paid. The unrecognized profit or loss is the difference between the two prices.
Gains or losses that haven’t happened yet can be important at any stage of a business. For example, if a business owns stocks or other investments that have grown in value, the unrealized gains will increase the business’s net worth.
On the other hand, a business will have an unrecognized loss if its assets have lost value. The business’s financial records may be affected by these unrealized gains or losses, but the company will only have to pay taxes once the assets are sold.
