EAC Adopts Fixed Rates For Withholding Tax

by Lorys Charalambous, Tax-News.com, Cyprus

11 November 2009

Following the recent confirmation by the East African Community (EAC) that a fully-fledged East African Customs Union would take effect from January 1, 2010, it has now also agreed to adopt fixed rates of withholding tax on interest and dividends.

The EAC is the regional intergovernmental organisation of Kenya, Uganda, Tanzania, Rwanda and Burundi. The decision on withholding tax rates was taken at a meeting of the Ministers of Finance from those countries.

It was announced that, with regard to the EAC’s draft agreement on the avoidance of double taxation (DTA), the Ministers for Finance have adopted fixed rates for withholding tax at 5% on dividends, and 10% on interest, royalties, and management and professional fees. It was further agreed that EAC states should not negotiate with third parties rates lower than those in the EAC DTA.

It was confirmed that the withholding tax rates in existing DTAs that EAC states have with other countries could be maintained until they expire, but that any renewal of existing DTAs with third parties should be in accordance with the new agreed position. A database is to be created of all such existing DTAs and the development of a model DTA be expedited.

The Ministers of Finance also held a joint consultative meeting with their counterparts in charge of infrastructure, and directed its secretariat to fast track the establishment of the EAC Development Fund through the East African Development Bank.

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