China and Kenya signed an agreement on Thursday in Nairobi that will exempt investors of both countries from paying taxes twice on their earnings.
The Agreement on the Avoidance of Double Taxation, better known as DTA, came after two years of negotiations. It was signed by Sun Ruibiao, the deputy commissioner of the State Department of Taxation of China, and Kamau Thugge, the principal secretary of Kenya's National Treasury.
Henry Rotich, cabinet secretary for the treasury, who was present for the signing of the agreement, said that surging growth of trade and investments between the two countries required the agreement.
"I know entrepreneurs with operations in both countries will be happy," he said, adding that the move is expected to increase foreign direct investment (FDI) as have DTAs that Kenya has signed with other countries. Kenya has signed 20 DTAs since independence.
"Over the recent past, Kenya has been building a firm foundation to improve the country's attractiveness to foreign investors. We have received immense support from China, and the DTA will improve the landscape further," said Rotich.
He said that the government expects FDI from China will be directed toward growing the textile, leather and agricultural industries.
"China plans to relocate some of its light industries due to increase in wages. We are positioning ourselves to be the preferred destinations of these investments. This will generate jobs and the ripple effect to the economy will far outweigh the income repatriated back to China for taxation," Rotich said.
Sun said the agreement provides certainty and eliminates double taxation and evasion. "I know that it will boost Chinese investments to Kenya and will solidify China-Kenya bilateral relationship," he said.
Also present at the signing was China's ambassador to Kenya, Liu Xianfa, who noted that local entrepreneurs exporting tea and flowers to China will benefit immensely from the agreement as they will be exempted from paying taxes twice.